Latest auction: At 2.44/unit, wind tariffs at December level

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wind mill, wind tarriff, technology, SECI, Adani Green Energy, Riyadh-based Alfanar With better technology and taller towers, the utilisation levels of wind plants have improved to about 40% from around 30% a year ago. (Reuters)

While aggressive bidding by developers has been blamed for wind power tariffs plunging to levels lower than many believe are viable, analysts were divided if the results of latest round of auction under the central government scheme suggested the prices are bottoming out. Though the rate of Rs 2.44 a unit discovered in the reverse auction conducted by state-run Solar Energy Corporation of India (SECI) on Tuesday was about 30% lower than the tariff discovered in the first wind power auction in February 2017 — till then the “feed-in tariff” (FiT) regime, no longer applicable to new projects, prevailed — it was nominally higher than the tariff of Rs 2.43 a unit found by the Gujarat government in the auction executed in December last year.

According to sources, ReNew Power, Green Infra (a unit of Singapore-based Sembcorp), Inox Wind and Torrent Power, all quoting Rs 2.44 a unit, were awarded projects of 400 MW, 300 MW, 200 MW and 499.8 MW, respectively, by SECI.

Adani Green Energy, Riyadh-based Alfanar and Betam Wind (backed by French electricity major Engie) quoted Rs 2.45 a unit, winning projects of 250 MW, 300 MW and 50.2 MW, respectively. SECI will sign 25-year power purchase agreements with successful bidders.

Green Infra, Inox and Adani have won projects in all three SECI auctions so far, while ReNew has won in two.

According to sources privy to the auction process, and who did not wish to be identified, the discovery of low tariffs even in the latest round of auction was a result of decreasing funding costs, better financial engineering, improving technology, lower equipment cost and the rise in number of auctions conducted by the government, offering benefits of scale. The green transmission corridor connecting projects in Kutch, Gujarat — one of the best wind power conducive areas — is also believed to have a role in lowering rates.

With better technology and taller towers, the utilisation levels of wind plants have improved to about 40% from around 30% a year ago. Cost of funding have also fallen to around 9% from 12% in the same period.

The transition from the FiT regime to competitive bidding system had given some initial shock to the sector with the sudden fall in prices. Analysts had earlier said the continuous fall in wind power prices would hit generators’ internal rate of return (IRR), especially since it follows the withdrawal of generation-based incentives by the government. However, the lower tariffs have reduced the market risks as discoms are unlikely to renege on the purchase obligations.

In the recent past, there have been multiple instances of state discoms, under financial distress, showing reluctance to buy wind power at the contracted price after they saw prices decreasing in the auction system.

According to Sambitosh Mohapatra, partner, PwC, the scepticism in some quarters about the viability of the projects at the discovered tariff levels is genuine given that investors have been irrational and aggressive in setting up power projects, coal auctions, transmission lines, etc. “When the strategic intent and assumptions on the future market scenario goes wrong, some of these investments become dud,” Mohapatra added.

Power and renewable energy minister RK Singh had in November announced the break-up of his action plan for completing 28 GW of wind auctions by FY20, leaving a margin of two years to complete the projects by 2022, taking total wind capacity to 60 GW.

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