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September 11, 2017

Sector Report: Renewable Energy Sources

This report is available to users in India for ₹40,000 + applicable taxes

 

Wind power market to transform with competitive bidding; ~17 GW capacitiesexpected to be added over next 5 years

 

FiTs to taper off; contracts for under-construction wind projects likely to be renegotiated

Going forward, CRISIL Research believes that the erstwhile FiT regime will cease to exist given the price differentialbetween the prices discovered via market mechanism and existing tariffs. In fact with the discovered prices for windenergy falling as low as Rs 3.46/unit, large states such as Karnataka, Rajasthan, Gujarat and Andhra Pradesh(contributing to 47% of the total wind energy fed to the grid) have declared their reservations on continuing with the FiTregime. The relevant stakeholder from the states’ electricity sector have conveyed almost all wind-based energy wouldbe procured through the competitive bidding route in one to two years.

 

Many states have also advocated competitive bidding for under-construction projects. Rajasthan is expected to conductreverse bidding for the existing 100 MW of projects, which are at various stages of commissioning. Same is the casewith Gujarat and Andhra Pradesh, which are planning to conduct reverse bidding for ~500 MW of under-constructionwind energy projects. As a result, projects which have already signed the equipment’s purchase order at higher tariffs(factoring in returns based on feed-in-tariffs) are likely to renegotiate their contracts with the equipment suppliers.Further, the players may also negotiate with the OEMs for best wind locations (for achieving higher PLFs) or cheaperturbines, to optimise their returns at low tariffs.

 

Shift in operational wind power execution model expected for OEMs

 

Going forward, we believe that there will be a shift in the operational wind power execution model by OEMs who havedominated the execution of wind power projects across the country. OEMs were able to charge a premium for bundledservices such as finding the suitable wind farm site, arranging for licenses, undertaking liasioning work ensuring girdconnectivity, constructing and even maintaining the plant. With rising participation from large IPPs over the last 3-4years the business model has witnessed some shift. Moreover with the advent of competitive bidding, developers wouldgradually over a period undertake more project related activities in-house to cut costs.

 

Another trend that is likely to emerge is the potential forward integration of OEMs, given that they are favourably placedas they possess attractive wind sites (in some cases) and manufacturing capability. This is evident from the recentcompetitive bidding attracting large OEMs such as Inox, Gamesa, and Regen Powetech, which have themselves bidfor the capacities.