Can A Gust Of Regulatory Wind Revive The Wind Energy Sector?

The world is moving towards greener energy. More so than before on each passing day. But things are not so good here in India for players in the sector. Especially the wind power industry. For quite some time, WTG manufacturers ( wind turbine generator) are going through stress. Mainly because of low volumes and high finance costs. While the government seems very focused and determined to develop world class renewable energy infrastructure, there were many hurdles which restrained ground level progress affecting all players operating in the sector, be it IPPs ( independent power producers), WTG manufacturers, investors or other intermediaries.

But things might be changing. A gust of wind may blow and revive the sector once again. The sector may be on an inflection point with the end of feed- in tariffs, development of an ISTS network , expansion of national grid, better enforcement of RPO obligations etc.

Indian government has set an aggressive target of having a renewable power capacity of 175 GW set up by 2022 from current installed capacity of about 80 GW. Out of which 100 GW will be solar, 60 GW will be wind and 15GW of other renewable sources like bio, hydro etc. 2017 marked the end of feed- in tariffs, feed-in tariffs were a fixed rate per unit of power decided by state discoms . State Discoms awarded new projects to players in the sector at these rates. This system presented problems like lack of competition, thus affecting efficiency of projects, made ample room for cronyism since all awardees of projects and rates were at the discretion of state discoms and the overall inefficiency led to bad financial health of many of the state discoms. This system, in 2017 was changed to a competitive auctioning one. Where investors and IPPs bid to get the contract to set up new capacity on L1 basis. So the lowest bidder gets the contract for putting up new capacity. Central Govt, through SECI is now directly active in every domain of renewable energy space so instead of state Discoms, SECI now floats tenders to put up new capacity in various states. This eliminated major uncertainties regarding payments by financially unhealthy state DISCOMs and gave bid winners strong policy and financial footing. But this also led to a drastic fall in rates. The feed-in regime rates averaged around Rs.4-5/ Kwh whereas the auction rates average about Rs 2.45-2.95 / Kwh. This drastic price fall hit the sector initially but will have long term benefits.

One mare major positive is the ISTS network. Earlier in the feed-in tariff regime, only renewable resource rich states were able to utilize the energy produced, hence leading to under-utilization of potential of many states because of low demand by that particular state. But now with an ISTS network ( Inter-state transmission system ) being set up with waiver of ISTS charges for renewable energy, all states will be able to trade in renewable power with each other. For example Madhya Pradesh will be able to buy surplus wind power from Gujarat. This is helping SECI to float more tenders to be connected to the ISTS grid thus utilizing the wind energy potential of Gujarat.

Renewable purchase obligations as well are expected to have a positive impact. Increased from 11.5% in FY17 to 17% in FY19, the govt is expected to push for better enforcement as well.

All the aforementioned factors paint a pretty picture for the wind energy space in India. But, on-ground progress is not catching up, producers facing land acquisition issues, Right of way issues, power evacuation issues, delayed grid work, social issues etc have further put the power players in pressure. Banks too are wary of lending to renewable energy projects putting liquidity constraints. These issues have taken stocks of some WTG manufacturers and solutions providers to lower levels, with improvement in macro scenario regarding national grid and ISTS network, the companies also have given positive guidance. This may prove to be a good time to invest in some WTG manufacturers and related companies as a contrarian bet. Gujarat alone can be a major hotspot with the highest potential of new capacity, healthy discoms and favorable policy as compared to other states.

Source : Industry annual reports (KP energy)

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