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May 30, 2017

Competitive bidding a blow for wind power sector

CRISIL Research believes the advent of competitive bidding in wind power would change the market landscape and lead to a sharp reduction in tariffs, put pressure on returns across the value chain, and lead to consolidation of the market towards independent power producers.

While deployment of latest technology and lower financing charges would reduce generation cost, aggressive bids by developers to scale up their portfolios will mean suboptimal equity internal rate of return. However, the market for wind power would expand with more active participation by the central government, which reduces the risk for developers. Higher offtake from power distribution companies with lower tariffs will also support capacity additions. Thus, overall compliance with the renewable purchase obligation is expected to increase, particularly by non-windy states such as Uttar Pradesh, Haryana, Delhi, Odisha and Chhattisgarh.