Wind ca­pac­ity ad­di­tion in near term to de­pend upon firm plans for bid­ding and PPA sign­ing by util­i­ties

Power Watch India - - GREEN AHEAD REPORT -

The re­new­able en­ergy (RE) sec­tor re­ported a record ca­pac­ity ad­di­tion of over 11 GW in FY2017, an in­crease of around 60% over 7.1 GW re­ported in FY2016. This was driven by large ca­pac­ity ad­di­tions in the wind and so­lar power seg­ments at 5.4 GW and 5.5 GW (Source: pro­vi­sional fig­ures by Min­istry of New & Re­new­able En­ergy (MNRE), GoI) re­spec­tively, which in turn was sup­ported by fac­tors such as favourable pol­icy and reg­u­la­tory frame­work, shorter ges­ta­tion pe­riod and an im­prov­ing tar­iff com­pet­i­tive­ness of so­lar PV en­ergy. Large ca­pac­ity ad­di­tions in FY2017 in the wind power seg­ment was mainly seen in the states of Andhra Pradesh (2190 MW), Gu­jarat (1275 MW) and Kar­nataka (882 MW), while large ca­pac­ity ad­di­tion in FY2017 in the so­lar power seg­ment was mainly seen in the states of Andhra Pradesh (1294 MW), Kar­nataka (882 MW) and Te­lan­gana (759 MW). The ca­pac­ity ad­di­tion in the RE sec­tor is at par with the ca­pac­ity added by the ther­mal power seg­ment in FY2017 at about 11.5 GW, which has de­clined from the peak ca­pac­ity ad­di­tion of 22.5 GW in FY2016.

ICRA notes that ca­pac­ity ad­di­tion in wind en­ergy was much bet­ter than ex­pected by us in April 2016; the same can largely be at­trib­uted to a bunch­ing up of com­mis­sion­ing in March 2017. This was due to the re­moval of gen­er­a­tion based in­cen­tive (GBI) ben­e­fit and re­duc­tion in ac­cel­er­ated de­pre­ci­a­tion (AD) ben­e­fit with ef­fect from April 1, 2017. These apart, IPPs were try­ing to utilise the cur­rent feed in tar­iff regimes in states while they were still in place - the ap­pre­hen­sion be­ing that in fu­ture, tar­iff based bid­ding, as ex­em­pli­fied by the award of projects by So­lar En­ergy Cor­po­ra­tion Ltd (SECI, a nodal agency) in Fe­bru­ary 2017, could largely re­place the feed-in tar­iff regime. As per in­dus­try sources, the dis­tri­bu­tion util­i­ties in states like Andhra Pradesh, Ra­jasthan, Kar­nataka and Gu­jarat are eval­u­at­ing the com­pet­i­tive bid­ding mech­a­nism for award­ing of wind power projects in the near term. Also the draft guide­lines for com­pet­i­tive bid­ding for wind power projects have been re­cently is­sued by the Central Gov­ern­ment. In this con­text, the fresh ca­pac­ity ad­di­tion in the wind power seg­ment could be af­fected in the near term (1218 month pe­riod) and the same would de­pend upon the plans by the state-owned dis­tri­bu­tion util­i­ties and/or SECI in terms of pro­ject awards through the bid­ding route and sub­se­quent PPA sign­ing. Nonethe­less, the ex­e­cu­tion of the 1000 MW wind power ca­pac­ity awarded un­der the MNRE scheme in Fe­bru­ary 2017 would sup­port the ca­pac­ity ad­di­tion to some ex­tent in FY2019.

In case of so­lar en­ergy, ac­tual ca­pac­ity ad­di­tion in FY2017 has re­mained much lower than the GoI’s tar­get and the same has been due to the de­lays in ten­der­ing and the pro­ject award process seen in the states as well as ex­e­cu­tion de­lays to some ex­tent. Sub­se­quent to the bid­ding re­sults for the Rewa and Kadapa

so­lar park, the plans for ten­der­ing of so­lar power projects are be­ing re-eval­u­ated by a few states un­der the state pol­icy route as well as un­der Na­tional So­lar Mis­sion (NSM). Also the draft guide­lines for com­pet­i­tive bid­ding for so­lar projects have been re­cently is­sued by the Central Gov­ern­ment. While cur­rently there is a tem­po­rary lull in the an­nounce­ment of fresh bids, the mag­ni­tude of so­lar pro­ject awards in the past 12-18 months has been quite sig­nif­i­cant. The back­log against these awards it­self would, in ICRA’s es­ti­mates, sup­port a so­lar ca­pac­ity ad­di­tion of about 7-7.5 GW in grid con­nected util­ity seg­ment in FY2018.

As on March 2017, in­stalled RE based ca­pac­ity stood at more than 57 GW, which ac­counted for over 17% of the over­all in­stalled ca­pac­ity in the coun­try, in­creas­ing from the level of 14% as on March 2017 and fur­ther from 10.5% at the end of March 2010. Within the RE seg­ment, the wind en­ergy seg­ment con­tin­ues to oc­cupy a dominant share at 56.3% as on March 2017, although the share has de­clined from 62.6% as on March 2016, fol­low­ing the in­crease in the share of so­lar power ca­pac­ity. The share of so­lar based ca­pac­ity has in­creased from 15.8% as on March 2016 to 21.5% as on March 2017, aided by size­able ca­pac­ity ad­di­tions from FY2012 on­wards led by favourable pol­icy sup­port both by the Central Gov­ern­ment as well as at the state level and an im­prov­ing reg­u­la­tory frame­work. In ad­di­tion, re­duc­tion in cap­i­tal costs for so­lar power projects re­sult­ing in im­proved cost com­pet­i­tive­ness also played a role in driv­ing the ca­pac­ity ad­di­tions.

The wind power ca­pac­ity ad­di­tion dur­ing FY2017 stood at 5.4 GW, in­creas­ing by 58% over the ca­pac­ity ad­di­tion of 3.4 GW achieved in FY2016. The so­lar power ca­pac­ity ad­di­tion stood at 5.5 GW in FY2017, re­port­ing a sig­nif­i­cant jump of 83% as against the ca­pac­ity ad­di­tion of 3.0 GW in FY2016. De­spite the record ca­pac­ity ad­di­tion in the wind seg­ment, the an­nual ca­pac­ity ad­di­tion in the so­lar power seg­ment ex­ceeded the wind power seg­ment for the first time, sup­ported by the strong pol­icy sup­port and also the im­proved cost com­pet­i­tive­ness of so­lar power against con­ven­tional as well as other re­new­able sources, in­clud­ing wind.

In con­trast to wind and so­lar en­ergy, other seg­ments namely small hy­dro and biomass en­ergy seg­ments have not seen much ca­pac­ity ad­di­tion with an­nual ad­di­tion at a rel­a­tively pal­try level of 400-600 MW. The small hy­dro ca­pac­ity ad­di­tion has stag­nated mainly be­cause of sig­nif­i­cant ex­e­cu­tion chal­lenges, aris­ing out of in­her­ent risk fac­tors such as prone­ness to nat­u­ral calami­ties, dif­fi­cult ter­rain and in­fras­truc­tural con­straints. By con­trast, the biomass sec­tor has stag­nated mainly be­cause of is­sues per­tain­ing to avail­abil­ity and pric­ing of fuel (mainly agri­cul­tural residue and wood) and in some cases in­ad­e­quate re­vi­sion of tar­iffs in re­la­tion to in­crease in fuel costs. As a re­sult, the share of bagasse co-gen­er­a­tion and biomass seg­ment and small hy­dro in the over­all RE mix re­mains low.

The ca­pac­ity ad­di­tion in wind en­ergy was much bet­ter than ex­pected by us in April 2016; the same can largely be at­trib­uted to a bunch­ing up of com­mis­sion­ing in March 2017. This bunch­ing up was due to re­moval of the GBI ben­e­fit and a re­duc­tion in the AD ben­e­fit with ef­fect from April 1, 2017. These apart, IPPs were try­ing to utilise the cur­rent feed-in tar­iff regimes in states while they were still in place - the ap­pre­hen­sion be­ing that in fu­ture, tar­iff based bid­ding, as ex­em­pli­fied by award of projects by SECI in Fe­bru­ary 2017, could largely re­place feed-in tar­iff regime. A ma­jor por­tion of the wind en­ergy ca­pac­ity ad­di­tion dur­ing FY2017 was driven by new projects in Andhra Pradesh (2190 MW), Gu­jarat (1275 MW) and Kar­nataka (882 MW). The ca­pac­ity ad­di­tion in the so­lar power seg­ment were driven by new projects in Andhra Pradesh (1294 MW), Kar­nataka (882 MW) and Te­lan­gana (759 MW), sup­ported by pro­ject awards in these states un­der the state as well as central poli­cies.

The Gov­ern­ment of In­dia in the Union Budget for FY2016 an­nounced an RE ca­pac­ity tar­get of 175 GW by the year FY2022, com­pris­ing 100 GW of so­lar power, 60 GW wind power, 10 GW biomass power and 5 GW small hy­dro power.

On the other hand, the RE sec­tor con­tin­ues to face chal­lenges aris­ing from vi­a­bil­ity of com­pet­i­tive bids, counter-party credit risks af­fect­ing sign­ing of PPAs and timely pay­ments by state dis­tri­bu­tion util­i­ties and trans­mis­sion chal­lenges. The in­creas­ing share of RE sources in the over­all en­ergy mix would lead to chal­lenges in grid man­age­ment, which would re­quire in­vest­ments in strength­en­ing evac­u­a­tion in­fra­struc­ture as well as ef­fec­tive im­ple­men­ta­tion of sched­ul­ing and fore­cast­ing mech­a­nism for wind and so­lar power projects. The SERCs in Andhra Pradesh, Gu­jarat, Ra­jasthan and Tamil Nadu have pro­posed draft reg­u­la­tions for im­ple­men­ta­tion of the sched­ul­ing and fore­cast­ing frame­work, while the SERC in Kar­nataka has ap­proved im­ple­men­ta­tion of this frame­work from

1 June 2017.

Source: ICRA re­search, Central Elec­tric­ity Author­ity (CEA), MNRE; E: Es­ti­mated

Source: ICRA re­search, Central Elec­tric­ity Author­ity (CEA), MNRE; E: Es­ti­mated

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