Wind power tariffs have fallen to their lowest, even below the cheapest solar rates, in the one year since the government switched to competitive bidding to award projects. That’s expected to put pressure on turbine makers’ margins as equipment prices are already falling.
Tulsi Tanti, the newly appointed chairman of the Indian Wind Turbine Manufacturers Association, told BloombergQuint in an emailed interview that the industry needs to move towards closed-envelope bidding, as is the practice worldwide, from open bidding. “That will ensure rational pricing.”
And it’s time India started looking at exporting wind power very seriously, said Tanti, who is also the managing director of turbine maker Suzlon Energy Pvt Ltd. “The country has a potential to export anywhere between 3 and 5 gigawatt a year.”
Here are the edited excerpts:
Wind power is now the cheapest energy in India as tariffs have fallen to Rs 2.43 per unit. A decline in auction tariffs will put manufacturers under even more pressure to innovate and meet the price expectations of developers. How are you going to address this challenge?
The current pricing cannot be seen as a benchmark; we would be now thriving to ensure volumes of auctions, which should be more than 10 GW per annum. This is likely to stabilise the entire sector. Also, it is important that at some point, not very far, we should move to “closed enveloped based bidding” format, as this would ensure rational pricing , as is practiced at most places around the world.
What suggestions will you give to Indian Renewable Energy Development Agency to aid in financing wind projects?
All the financing agencies need to relook at their products in the changing scenario. The new emerging market scenario would require remodelling of the working capital requirements of original equipment manufacturers, vendors, developers and generators. Also, with firm power purchase agreements of 25 years, the time is right to get into amortisation schedule of more than 15 years. Requirement of mezzanine capital would also be there.
The Centre wants to auction wind energy projects every month. Considering the sector has lost steam, do you think it is an achievable target?
Wind is a highly mature sector and most of the players present in India have been there for almost two decades. As far as targets are concerned, it is a must to achieve 10-12 GW per annum, and it is certainly possible to achieve these targets. There would be challenges, but these need to be converted into an opportunity, and this is achievable.
The industry is poised to surpass the current target of 60 GW and deliver higher target of 80 GW by 2022.
As the chairman of Indian Wind Turbine Manufacturers Association, tell us five key issues that will be on your agenda for the wind sector.
First, since wind energy is part of ‘Make in India’, it is important that the manufacturing infrastructure that includes more than 4,000 vendors and service providers, with the bulk from the small and medium enterprises sector, gets the right visibility of the volumes that would be added. This will help in continuation of manufacturing on one side, and job security and creation on the other. The volume of 10 GW per annum will definitely address both issues.
Second, across the world, the most common method to procure wind energy is either through feed in tariff or through closed enveloped based bidding process. We would like to adapt to closed enveloped bidding process, as has been followed by Tamil Nadu Generation and Distribution Corporation for wind energy in India, and propagated in the infrastructure sector (viz. roads).
Third, it is high time that India starts looking at exports very seriously. The country has a potential to export anywhere between 3-5 GW per annum. But it is important to develop the right ecosystem and policy framework. This is going to a big priority for the future, which would just push Make in India, but also enhance the acceptance of Make in India products in the overseas geography.
Fourth, renewable energy needs large-scale funding, so banks and financial institutions should earmark a certain percentage of finance for renewable energy projects and finance should be available for a longer period of 20 years. This will ensure lower cost of energy which will benefit the end consumer.
Fifth is policy predictability. It is recommended that states honour the agreements which have been signed earlier and meet their non-solar renewable purchase obligations. In the case of solar, we need states to award bankable PPAs with targeted volumes on a regular basis. In addition, doing away with the minimum alternative tax for renewables till 2022, ensuring strict compliance of renewable purchase obligations at the state level and open access at no cost will also add momentum to this growth.
What is your outlook for the wind sector for 2018? What is the total capacity coming up for bidding? In FY17, order flow was weak. Will these new orders and upcoming bids improve the outlook for FY18?
2017 was a watershed year for the renewable energy industry in India with significant policy reforms such as competitive bidding in wind, record low wind and solar tariffs and GST rollout. In addition to this, technological advancement and increased competition are steering new possibilities for clean energy.
The Ministry of New and Renewable Energy has already declared the trajectory of 30 GW in December 2017, and we have already seen the announcement of Solar Energy Corporation of India III and SECI IV of 2 GW each by April, 2018. The momentum of announcement of central auctions would ensure adequate capacities. Also, with successful completion of bids by TANGEDCO and Gujarat Urja Vikas Nigam Ltd. of 500 MW each, and announcement of 500 MW by Maharashtra, I am quite sure other states would follow the suit.