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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the tariff discovered in the first wind power auction in February 2017 — till then the “feed-in tariff” (FiT) regime, no longer applicable to new projects, prevailed — it was nominally higher than the tariff of Rs 2.43 a unit found by the Gujarat government in the auction executed in December last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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Tata Power Company, which is grappling with serious business challenges in the power sector, saw its consolidated operating margins drop by 350 basis points to 17.39% for the quarter ended December 31, 2017 as expenses rose.
Total expenses, including fuel cost, power purchase cost and transmission charges, was up 9% to `7,183.84 crore, while the earnings before interest, tax, depreciation and amortisation was lower by 12% year-on-year to Rs 1,208 crore.
Fuel cost for the period was higher at Rs 2,491.24 crore, against Rs 2,284.6 crore a year ago, as was the cost of power purchased at Rs 2,070.91 crore, compared with Rs 1,696.74 crore. Transmission charges rose to Rs 70.25 crore from Rs 55.82 crore a year ago.
Despite taking credit of a tax reversal of `319.86 crore in the quarter, the net profit dipped 7.17% to `649 crore. The profit before tax was at `9 crore, compared with `246.28 crore a year ago, as the company bore an impact of `142 crore on rate-regulated activities.
The segment revenue, that includes the power business – generation, transmission, distribution and trading of power and related activities – and other businesses was up around 9% to `7,531 crore. The segment profit, however, fell 21% to Rs 885 crore.
With regards to recovery of losses from 4,000 MW Mundra UMPP in Gujarat, the company said, the lenders and the management of Coastal Gujarat Power are in discussions with the buyers of power to arrive at alternative solutions to minimise operating losses including the offer for sale of 51% shareholding in CGPL at a nominal value to procurers subject to grant of compensatory tariff. Anil Sardana, CEO and MD, said, “Tata Power has been focusing on building a healthy energy mix within portfolio that is in line with our commitment towards ensuring a sustainable future. We have been working towards achieving this goal by growing our renewable energy business through the addition of organic and inorganic projects…”
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Fall in wind power tariffs seem to be have bottomed out as the price inched up to Rs 2.44 per unit in the latest auction for 2000 MW capacities. The auction was conducted by Solar Energy Corporation (SECI) yesterday. Sources said as many as six firms, including Torrent Power, Inox Wind Infrastructure Services, Green Infra Wind Energy, and ReNew Power emerged as the lowest bidders for 2000MW wind capacities. They said these four firms quoted a tariff of Rs 2.44 per unit while Adani Green Energy and Alfanar Company quoted Rs 2.45 per unit. Earlier in December, the wind power tariff had dropped to an all time low of Rs 2.43 per unit in an auction conducted by Gujarat Urja Vikas Nigam Ltd (GUVNL). The tariff last year started its descend to touch a low of Rs 3.46 in the first round of auction for 1GW capacity by the SECI. The price fell further to Rs 2.64 in the second round of auction for 1 GW by the SECI in October 2017.
The firming up of wind tariff will boost clean energy in view of India’s target of having 60 GW wind energy capacities by 2022. At present, India has an installed wind capacity of 32.7 GW. The government has planned to auction 10 GW each in 2018- 19 and 2019-20.
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