1. Home
  2. Research,
  3. Reports
  4. &
  5. Ratings
  6. Wind energy sector set to surge five times on policy tailwinds: CRISIL – EQ Mag
Wind energy sector set to surge five times on policy tailwinds: CRISIL – EQ Mag

Wind energy sector set to surge five times on policy tailwinds: CRISIL – EQ Mag


Moves by the Ministry of New and Renewable Energy (MNRE) can crank up India’s annual wind capacity implementation to 6-8 gigawatt (GW) per annum starting fiscal 2026, significantly more than the ~1.6 GW annual rate clocked in the past five fiscals, according to CRISIL Ratings estimate.

Aggressive tariff bids in reverse auctions1 since fiscal 2017-18 has been one of the key reasons impacting the sector’s growth. The process led to discovery of irrationally low tariffs that were favoured by the consumer (the state distribution companies, discoms), but compromised returns and left little incentive for developers to complete the projects. To boot, there were also delays in land acquisition and setting up of evacuation infrastructure.

Only 41% of projects awarded by the Solar Energy Corporation of India (SECI) during fiscals 2018-21 got commissioned till December 2022, while ~23% were cancelled and the balance delayed on account of issues in land acquisition, and evacuation and supply-side constraints. Thus, while India added solar capacity at an average of 8.3 GW per annum in the five fiscals through 2022, wind capacities grew a meagre 1.6 GW per annum average. All that could change now with the MNRE introducing four key policy measures in January:

First is setting a goal to award 8 GW of wind tenders per annum. This is significant because wind tendering has been low at just 3.3 GW per annum2 in the past five fiscals. This can propel capacity growth at a faster rate if executed well. Second, the ministry has replaced the reverse auction process with a single stage, two-envelope closed bidding3. This should curb irrational bidding. We expect tariffs to rise 20-30% over the recent Rs 2.89-2.94 per unit4 (to provide more than 10% internal rate of return), on account of change in bidding process, resource variability at newer sites, etc.

Third, to ensure that higher wind power tariffs are conducive for state discoms, MNRE has mandated that all discovered renewable tariffs for each state will be pooled and offered to discoms at an average pooled tariff by an intermediary such as SECI. That would lower the risk for wind power project developers because SECI fares significantly better than state discoms in terms of payment of dues. Fourth, to ensure discipline in terms of timely project completion, the ministry has notified that bank guarantees of developers will be revoked if they delay project completion by more than a year beyond the scheduled commissioning date. Also, developers delaying projects beyond 18 months could be barred for 5 years.

Says Ankit Hakhu, Director, CRISIL Ratings, “Basis our discussions with developers, considering 8 GW of bidding in fiscal 2024 and 20-24 months to commission, around 6-8 GW capacity can be installed every year starting fiscal 2026. This factors in policy push by the government. The annual installations could be on lower side than the tender volume if the historical issues such as project cancellations, delays because of land acquisition and setting up of power evacuation etc. persist, that may be beyond the control of developers.”

The step-up in wind power generation is crucial to India’s energy transition goals despite being costlier than solar. That’s because wind projects can provide electricity even during the night to meet peak power requirements, which balances out day-centric solar generation on the grid. Hence, it forms an important part of round-the-clock electricity supply set-up as desired by discoms — till more economical and scalable storage solutions are available. Our estimates remain sensitive to the ministry coming up with wind energy bids of 8 GW per annum with stringent conditions on delays and the bids being successfully subscribed by developers at viable tariffs.

Source: crisilratings
Anand Gupta Editor - EQ Int'l Media Network