‘Increasing preference for third-party open access, group captive projects by IPPs’

Wind energy capacity addition will be subdued in FY2020 amid challenges of payment delays by discoms and tight financing environment. Rating agency ICRA in its outlook for the wind energy sector has revised it from stable to negative.

ICRA observed that there is increasing preference for third-party open access and group captive projects by a few IPPs (Independent Power Producers).

Challenges

ICRA stated that the wind power sector is facing significant challenges because of delayed payments by State distribution utilities and execution delays in projects bid out by the Central nodal agencies and State utilities.

This apart, tariff uncertainty for wind power projects in Andhra Pradesh has affected investor sentiments. This is also reflected in the 67 per cent slowdown in tendering activity of wind power projects to 2.3 GW in CY2019 from 6.9 GW in CY2018. Moreover, many of the bids called by Central nodal agencies remained under-subscribed.

While capacity addition is likely to improve on a fiscal year basis, to about 2.5 GW in FY2020 from 1.6 GW in FY2019 on the back of large project backlog, achieving the 60 GW target set by the Centre by December 2022 remains a challenge.

Execution delays

Girishkumar Kadam, Sector Head & Vice President – Corporate Ratings, ICRA, said, “Against the 5 GW to be commissioned as of December 2019, as per the time lines provided under the bids awarded by the SECI, NTPC and State utilities, only about 2 GW is estimated to have been commissioned. Thus, the actual execution on the ground has been hampered by delays in land acquisition, securing transmission connectivity for inter-state projects, financing challenges due to concerns over bid tariff viability and delays in approval for tariff adoption from the regulators.”

Further, the bid tariff discovered in the recent wind power auctions continue to remain at less than Rs. 3 per unit and highly competitive against the conventional energy sources. The viability of these projects remains dependent upon the ability of the developers to identify locations and using wind turbine generator (WTG) machines having the potential to generate power at annual PLF of 35 per cent or higher. On the PLF (plant load factor) trend of the new turbines of MW-class with hub height greater than 100 metres, Vikram V, Associate Head & Assistant Vice President - Corporate Ratings, ICRA, said, “Our study of a sample set of projects commissioned over the past one to two years indicates that there are projects, which have been able to achieve annual PLF in the range of 33-38 per cent; thus providing a comfort on PLF assumption, which is critical for the viability of projects bid at tariffs lower than Rs. 3 per unit. Such projects typically have higher hub height and rotor diameter of more than 100 metres and are concentrated at windy locations in Gujarat and Tamil Nadu. However, the long-term sustainability of such performance also remains critical.”

With significant decline in bid tariffs for wind power projects and ongoing challenges in turn affecting the return expectations, few developers are exploring the open access market to sell power to industrial consumers either through group captive route or third party PPA route, given the relatively better project economics.

Tariff concerns

This has been prevalent in Karnataka and Tamil Nadu in the past, supported by a favourable regulatory regime. However, the projects in the open access market face challenges in the form of delays in approvals from the State utilities, risk of revision in open access regulations and imposition of cross-subsidy surcharge and additional surcharge.

Also, in the recent past, some of the States have put restrictions on availability of banking facility for wind power projects, which leads to mismatch between supply and demand, given the seasonal nature of wind power generation.