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September 01, 2018

Sector Report: Wind and other renewables

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

 

Wind power market to transform with competitive bidding; 25-26 GW capacities expected to be added over next 4 years

 

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

 

Going forward, the erstwhile FiT regime will cease to exist given the price differential between the prices discovered via market mechanism and existing tariffs. In fact with the discovered prices for wind energy falling as low as Rs. 2.43/unit (in 500 MWwind energy auctions for GUVNL), all wind energy rich states such as Karnataka, Rajasthan, Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and Madhya Pradesh are unlikely to continue with the FiT regime. Further the relevant stakeholder fromthe states electricity sector have conveyed almost all wind-based energy would be procured through the competitive bidding route henceforth.

 

With the auction route anticipated to gain traction among states from FY 2018, capacity additions are expected to rise from FY 2019 onwards. In fact SECI has already tendered 7.5 GW of ISTS connected wind capacities over past 15 months. FurtherSECI has plans to allocate ~5-6 GW of wind capacities annually. Moreover government has already indicated release of ~9.5 GW of projects in FY 2019 providing a strong pipeline for the coming years.

The Centre also expects to auction 4-5 GW each year, which will also support additions. With the wide scale adoption of the auction route, tariffs are expected to remain low, which will support off-take.

 

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 have dominated the execution of wind power projects across the country. OEMs were able to charge a premium for bundled servicessuch as finding the suitable wind farm site, arranging for licenses, undertaking liasioning work ensuring gird connectivity, constructing and even maintaining the plant. With rising participation from large IPPs over the last 3-4 years the businessmodel has witnessed some shift. Moreover with the advent of competitive bidding, developers would gradually 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 placed as they possess attractive wind sites (in some cases) and manufacturing capability. This is evident from the recent competitive biddingattracting large OEMs such as Inox, Gamesa, and Regen Powetech, which have themselves bid for the capacities.