Wind energy firms at risk as tariffs plummet: report
The disruption caused by India’s low clean energy tariffs is playing out, with rating agency Crisil cautioning that the risk profile of wind projects will increase. In a report, Crisil said under-construction projects, as part of the feed-in tariff regime, may be put up for auction by the states to further lower tariffs.
While these projects didn’t have a power purchase agreement, work had started on them on the basis of the licenses awarded by the states. Feed-in tariffs ensure a fixed price for wind power producers.
Also, the firms that have quoted such competitive tariffs may generate only 12% equity internal rate of return (IRR), even after assuming high plant load factor (PLF) of 33-35% and a lower cost of borrowing at 9-9.5%, said the study, exclusively shared with .PLFisa measure of actual power generated by a plant.
Wind power is the major component of India’s renewable sector. Of India’s 57.26GW of installed renewable energy capacity, wind power accounts for over 56% or 32.27GW.
This comes at a time when the wind sector has been hit by inordinate delays in signing of power purchase agreements and untimely payments.
“Many states have also advocated competitive bidding for under-construction projects. Rajasthan is expected to conduct reverse bidding for the existing 100MW of projects, which are at various stages of commissioning. Same is the case with Gujarat and Andhra Pradesh, which are planning to conduct reverse bidding for 500MW of under-construction wind energy projects,” the Crisil report said.
“As a result, projects which have already signed the equipment’s purchase order at higher tariffs (factoring in returns based on feed-in-tariffs) are likely to renegotiate their contracts with the equipment suppliers. Further, the players may also negotiate with the OEMs for best wind locations (for achieving higher PLFs) or cheaper turbines, to optimise their returns at low tariffs and ensure success in competitive biddings,” the report added.