In Tamil Nadu, power hungry industries needed electricity at a cheaper cost. “Captive consumption, wheeling and banking arrangements gave companies a way to generate their own power and reduce dependence on the grid,” points out D V Giri, a wind energy veteran and former Secretary General of the Indian Wind Turbine Manufacturers Association. Apart from the model’s win, wind energy’s early growth story is often read as the story of opportunism. It was the tax deferral that made capital investment easier and improved cash flow.
The policy detour
2017 policy shifts changed the economics of this sector. Competitive bidding and central procurement introduced to bring transparency and efficiency, pushed smaller Indian investors out. “A project was assessed mainly by how low a tariff could be quoted and not based on the generation value. This shift had consequences for quality, ownership and long-term value,” points out Giri. When companies bid too aggressively, the pressure often shifts to equipment quality, project timelines, financing assumptions, or the resale valuation of the project itself. But despite the changes, the sector’s annual wind additions have now crossed a record 6 GW.
Major Bottlenecks
The gap between signing a Power Purchase Agreement (PPA) and securing a Power Sale Agreement (PSA) was one of the biggest challenges. Even if a developer wins a project and commits investment, the project could not move forward unless a buyer confirms to get power. “Nearly 45 GW capacity is reportedly stuck because PPAs had not been converted into PSAs or fully executed,” highlights Giri.
Central procurement too favoured projects of 50 MW, making it difficult for smaller captive consumers. While project costs were estimated at around Rs 9 crore per MW and industry calculations suggested tariffs needed to be much higher to ensure sustainable returns, auction caps were lowered to commercially unviable levels. This pushed developers to run on thin margins. “In some cases, the generator earned just 3-4 paise per unit of electricity, while intermediary agencies collected commissions of around 7 paise per unit,” points out Giri. The larger point is that, renewable sector cannot be strong if it rewards the cheapest possible asset over the best possible one.
The next crucial step in the sector can be repowering as land is a precious resource. “In a country that wants faster renewable growth without endlessly expanding its footprint, repowering may be one of the smartest levers available,” points out Giri. Adding on to that, offshore has real potential because it avoids many of the land and right-of-way. Demonstration projects can prove its viability as without proper testing, financing, logistics and port infrastructure, offshore will remain a promise rather than a market. If renewable power is going to be the merchant power, it must be storable, dispatchable and compatible with exchange based sales.