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