Wind Developers at Risk as India Copes With Dual Payment SystemBy
Running both auctions and feed-in tariffs is harming industry
Some utilities are refusing to buy power under feed-in tariff
India’s wind-energy industry is seeing the viability of projects called into question as it adjusts to Prime Minister Narendra Modi’s transition away from two separate systems to pay for clean power.
The government is shifting toward auctions to buy electricity from wind, phasing out feed-in tariffs that guarantee a fixed price to producers for their power. Utilities that pay for the power are pushing developers who qualify for the fixed payments to match the lower costs auctions are achieving.
The result is threatening the economic viability of work by developers including ReGen Powertech Pvt. and turbine manufacturers led by Inox Wind Ltd., Gamesa Corp., Tecnologica SA and Suzlon Energy Ltd. They say that more projects will fall into disarray without a uniform policy setting out how the industry gets paid.
“Half fixed tariffs, half bidding doesn’t work and we’re telling the government to come up with a policy fast, don’t delay it anymore," Ramesh Kymal, the chief executive officer in India for Zamudio, Spain-based Gamesa, said in an interview.
The secretary at the Ministry of New and Renewable Energy, Rajeev Kapoor, didn’t respond to phone calls and text messages seeking comment.
India is among a growing list of countries stretching from Asia to Europe that have used auctions to make clean energy more affordable. Those contests, in which developers seek to offer the lowest price possible to deliver clean electricity, have helped Modi’s government advance on its ambition to install 175 gigawatts of renewables by 2022 and spurred debate about whether wind and solar can replace coal as India’s dominant source of energy.
Until recently, states in India have bought wind energy through feed-in tariffs offering long-term contracts to power producers. The country’s first wind auction last month, which saw prices fall below the fixed rates, have left those states eager to match the lower costs achieved in the auctions and reluctant to stick with deals done under the old system.
Gujarat, a windy state in India’s west and also Modi’s home state, has refused to sign power purchase agreements for 230 megawatts of capacity and is now asking project developers to match auction rates, according to D.V. Giri, secretary general of the Indian Wind Turbine Manufacturers Association.
As a result, turbine manufacturer ReGen Powertech Pvt.’s almost 50 megawatts being built in Gujarat with feed-in tariffs is left without a power purchase agreement.
The state utility in Andhra Pradesh, which is set to add the most capacity out of India’s windiest states this year, has asked the power regulator to terminate continuing higher feed-in tariffs into April, the next financial year, instead of its end date of fiscal 2022.
During the policy transition phase, developers locked into higher feed-in tariffs may run into difficulty because their equipment and finance costs are predicated on the tariff, said Santosh Kamath, partner and head of renewables at KPMG in India. As a result, projects may need to be renegotiated and who ends up taking the hit remains a question, Kamath said.
The dueling systems have further implications for projects that would add hundreds of megawatts in wind capacity. India is currently racing to double its wind capacity to 60 gigawatts by 2022 from about 29 gigawatts at present. The following is based on the planned capacity and may be affected by the policy uncertainty:
- Inox, which had 1.3 gigawatts of turbine orders on its books as of December, with 700 megawatts set to be filled after March, according to remarks by Chief Financial Officer Jitendra Mohananey on an investor call in February.
- Gamesa, whose plans call for it to supply 99 of its G114 turbines and 40 of its G97 model totaling 278 megawatts for projects in India that are due to be commissioned between March and October.
- Suzlon, which hasn’t disclosed how much of its orderbook of 1.2 gigawatts in December will be fulfilled after the end of March.
The two systems are a problem because all of the wind projects currently under construction depend on the feed-in tariff, and any question about the system being upended early would prompt developers to halt work, said Shantanu Jaiswal, a Delhi-based analyst with Bloomberg New Energy Finance.
“It is very unfair on the part of anybody to abruptly stop signing power purchase agreements without issuing any new guidelines,” said Madhusudan Khemka, managing director at ReGen Powertech.
The utilities are seeking to contain their own costs. They want to both keep a lid on prices and limit the amount of higher-cost renewable power they’re buying, which has ballooned as Modi pushes more of the nation to adopt green energy.
In its petition to regulators, Andhra Pradesh said that it has decided not to buy any wind power from new generators during the next fiscal year beginning April 1. It estimates developers in the state will add almost 2,512 gigawatts of wind capacity by the end of March, more than triple the 800 megawatts originally planned. And for that reason, it’s seeking to limit new power purchase agreements.
“Those who want to sign PPAs at those tariffs can find alternate buyers because we have stopped signing new PPAs," Santhosha Rao, the chief general manager for PPAs at Southern Power Distribution Company of Andhra Pradesh Ltd., said in a phone interview.
— With assistance by Ganesh Nagarajan