Wind power has plenty of potential to play a key role in India’s transition to a clean energy economy. But a change to the fundamental market structure, a weak electricity network and the country’s broad economic woes have slowed progress. The wind industry is confident it can bounce back to meet its target of 60 GW by 2022, but the country’s financial problems and its electricity network need sorting before the market is fully back on its feet

India has a huge wind resource, enough to power 300 gigawatts (GW) of installed wind turbines, according to the country’s National Institute of Wind Energy. By the end of 2017, nearly 33 GW of that potential had been developed, with India in fourth place globally for installed wind capacity after China, the US and Germany. That year, the country built another 4 GW, a record annual figure, reports the Global Wind Energy Council (GWEC). Even so, to reach the Indian government’s wind goal of 60 GW by 2022, project developers will have to speed up their build rate to 5.4 GW a year. The government’s target and the industry’s aspirational goal of 10 GW a year for onshore wind is definitely possible, says DV Giri, secretary general of the Indian Wind Turbine Manufacturers Association. He cautions, however, that the sector is going through a transition and that it will take a while before it can realise its full potential. This is partly linked to a change in the procurement model from premium purchase prices at a fixed rate to competitive bidding for contracts, which means the wind industry is now dependent on the Solar Energy Corporation of India (SECI) issuing tenders to get new wind farms built. So far, SECI’s five auctions have resulted in contracts being awarded for 7200 megawatts (MW) in total. The lead time for bidders after each auction announcement is 18 months, resulting in a slow moving market. The market change to competitive bidding has also, as in other countries, had a significant effect on prices. India’s first reverse e-auction for wind power returned a price of INR 3.46 (€0.04) a kilowatt hour (kWh), compared with a mandated INR 4.16-6.02/kWh (€0.05-0.07/kWh) under the previous market structure, says CRISIL Insight, an Indian headquartered research company. Bids in subsequent auctions have gone as low as INR 2.44 (€0.03)/kWh. Such dramatic falls may ultimately be good for the competitiveness of wind power, but are causing difficulties for the industry in the short-term. At the same time, state electricity distribution companies (discoms), struggling in the national economic slow down, have been delaying energy payments to wind plant owners, which has become a factor in slowing the rate of project development. In some cases payments arrive 14 months after they are due.

Discoms disturbance

While the inability of discoms to pay on time or fully is a major concern for all generators, the move to auctions, and the inclusion of the SECI, may well make the process easier in the longer term since the corporation can serve as the intermediary buyer, removing the need for sellers to deal with the discoms. The SECI is backed by the central government. The discoms are in a difficult situation as they are under pressure to provide electricity to all citizens, but have little leeway to charge, in particular poorer consumers, the full cost and so they continue to lose money. The impact on India of economic competition from China, the effect of protectionism and tariffs on India’s export markets, and difficulties in the country’s banking sector, have left the national economy in the doldrums. Greater industrial growth could have brought additional revenue to the discoms, but the rapid drop in prices of solar photovoltaic and storage means many commercial and industrial consumers have started offsetting their grid consumption by installing behind-the-meter generation/storage rather than paying higher retail tariffs, leaving the discoms out of pocket. For many, the overall economic woes of the Indian economy are the real reason behind the slowdown in the wind sector and little is likely to change until after the national elections that will probably take place in the middle of 2019. If the result is a hung parliament, the stability of the coalition will determine how the government responds to major economic issues.

Stop gap solutions

Industry sources cite additional challenges for wind, including the lack of a system to trade and transfer electricity generated in windy states to other parts of the country and insufficient grid connections. Some experts believe the aggressive bids encouraged by auctions will lead, in the short-term at least, to more grid congestion caused by wind production in states such as Gujarat and Tamil Nadu that already have significant amounts of wind capacity, putting the electricity network under severe pressure. To avoid even more congestion, wind energy sector representatives have submitted a proposal requesting the government to launch a tender for wind bids based on where there is available network capacity to take up more electricity, says Giri. The industry is also in dialogue with the Power Grid Corporation of India Ltd (PGCIL), the main body in charge of grid connectivity and interstate transactions, to create a trajectory showing how and where projects will take place in different states to make sure that development happens in the right places for the grid and enables the wind target to be achieved, he adds. State transmission utilities can already join forces to work across states rather than leaving interstate connectivity solely in the hands of the central transmission authority. Giri says the government would be wise to initiate a programme in which transmission utilities receive payment based on a percentage of the power generated from a particular state to encourage them to develop the network. In the longer term, the central electricity regulator is pushing major reforms to wholesale markets to deal with wind’s grid-integration related problems. These are based around the introduction of a new hour-ahead market with a much shorter gate closure for accepting supply bids; a more robust day-ahead and ancillary services market to help keep the grid stable; and separation of the physical and financial aspects of energy contracting. Such an energy market design would help “enable buyers to meet their energy requirements, while allowing sellers to adjust their energy output closer to real time”, stated Sushanta Chatterjee, joint chief of regulatory affairs at India’s Central Electricity Regulatory Commission, earlier this year. “This would not only improve overall efficiency of the energy market, but also facilitate the integration of renewable energy sources into production.” GWEC forecasts that while 2018 is likely to be a “gap year” for the Indian wind industry, rapid market growth can be expected, starting in 2019. The industry points out that the 34 GW projected by the government has already been installed, projects worth 9.5 GW are in the pipeline and auctions for 16 GW will be floated to achieve 60 GW by 2022. A major jump in 2019 is unlikely, but by 2020 and beyond there will be good activity, says Giri. The extent of the financial crisis should, however, not be played down and until that is fully resolved, investments in India are likely to be limited and the wind sector likely to suffer.

Writer: Sapna Gopal