Competitive bidding a blow for wind power sector

CRISIL Research believes the advent of competitive bidding in wind power would change the market landscape and lead to a sharp reduction in tariffs, put pressure on returns across the value chain, and lead to consolidation of the market towards independent power producers.

While deployment of latest technology and lower financing charges would reduce generation cost, aggressive bids by developers to scale up their portfolios will mean suboptimal equity internal rate of return. However, the market for wind power would expand with more active participation by the central government, which reduces the risk for developers.

Higher off-take from power distribution companies with lower tariffs will also support capacity additions. Thus, overall compliance with the renewable purchase obligation is expected to increase, particularly by non-windy states such as Uttar Pradesh, Haryana, Delhi, Odisha and Chhattisgarh.

Says Prasad Koparkar, Senior Director, CRISIL Research, “To compete in bids, developers are likely to put pressure on wind power OEMs, denting their profitability.”

Also, gradually, developers would go for the self-development model, piling more pressure on OEM margins as the premium charged for value-added services like clearances, wind resource assessment and grid connectivity would come down. “But OEMs having land banks with high wind potential and proximity to the central transmission utility will be less impacted because these would fetch a premium,” he adds.