Wind sector pick up eighteen months away

28 August 2018 |

India added 1.8 GW of wind capacity in FY 2018 (down 67% over FY 2017). We estimate that capacity addition will further slow down to about 1 GW per annum over the next two years before picking up again. The slowdown is largely a result of the sector moving abruptly from FIT-based allocation to auctions. Tariff fell to INR 3.46/ kWh, as compared to prevalent FITs of INR 4.00-6.00/ kWh, in first reverse auction in February 2017. Rapid reduction in tariffs thereafter – lowest winning bid was INR 2.43/ kWh in the Gujarat auction in December 2017 – has led to disruption in the market but also made wind the cheapest source of power. 

Figure: Wind auction results

There has been a renewed thrust by government for renewable energy with talks about achieving 227 GW of total installed capacity by March 2022. 7 GW of wind projects have already been auctioned since February 2017 and another 6 GW of tenders have been issued. But inadequate transmission infrastructure in key locations is delaying physical progress on the ground. Under-subscription of the recent SECI tranche V 2,000 MW tender is a sign of the short-term problems facing the sector.

Offshore wind is an exciting area but the construction period is considerably longer at 4-5 years and capital cost is also significantly higher. MNRE has announced a target of 5,000 MW capacity by 2022 and already released EOI for the first 1,000 MW offshore wind project. But we believe that it may take some time before complete necessary surveys and environmental impact analysis are completed and the EOI can move to auction stage.

New technologies, offshore potential and falling cost make wind a very attractive source of energy. The government needs to take coordinated action on policy, transmission and financing to realise its potential and achieve the March 2022 target of 60 GW capacity.

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