Growth Expected for Wind Power Sector in India despite Hurdles

The wind power sector in India is one of the key success stories of the renewable energy program. Contrary to solar, where significant capacity addition has been driven by government impetus in recent years, wind energy in India has grown steadily since 2000 and the country is one of the top five markets in the world.

According to Frost & Sullivan’s analysis, wind power has been the dominant source of renewable energy thus far and accounts for 57% of the renewable power generated in India. It further accounts for nearly 60% of the renewable power generated by Andhra Pradesh, Karnataka, Tamil Nadu, and Telangana—the top four states for renewable power generation in India. Among the next five states, it is more than 70%.

In its heyday, the wind power sector in India saw the emergence of domestic manufacturers like Suzlon, which took to the world stage and in a short span became one of the top five wind turbine manufacturers in the world. The allure of the domestic wind market soon faded, and Suzlon not only lost its global position but also its market leadership position in India in 2013. The market’s focus shifted to solar, considering the sharp decline in achievable generation tariffs, which prompted Suzlon to venture into the solar business. In 2019, the sector entered its most turbulent phase, plagued by regulatory and implementation hurdles. With less than 2GW annual capacity additions, the long-term impact of this drastic slowdown could lead to unmitigated disasters for companies operating in this space. Suzlon, which over the years struggled to service its debt, underwent constant changes and lost its sheen as an Indian renewable energy success story.

Hindrance to Growth

If one were to sift through the fault lines, it can be traced to the introduction of fiscal and regulatory incentives such as Accelerated Depreciation benefits for developers in 1990, Feed-in Tariffs (FiT) in 2003, Generation-Based Incentives in 2009, and the recent roll back to competitive bidding. The incentives helped propel the market and further revisions, discontinuations, and reintroductions negatively impacted the sector’s growth. Before 2017, under the FiT regime, a select few players installed projects based on their available land bank. In 2017, competitive bidding was introduced to create a market that is fair to all participants and does not just benefit the incumbents. Since then, according to media reports, the tariffs in the wind power segment have hit an all-time low, ranging between ₹2.44 per kWh (for SECI Tranche III, 2000 MW during February 2018) and ₹2.83 per kWh (for SECI Tranche VIII, 1800 MW during August 2019). Large capacity auctions and the need for low tariffs have impacted the cost economics of the segment. Further, with competitive bidding, there is an increased risk of states backtracking on Power Purchase Agreements (PPAs)— as was the case with Andhra Pradesh government’s decision to revisit the PPA agreements of old RE projects awarded under FiT.

Other challenges faced by the sector include:

• Increasing unavailability of wind-rich sites that can support low tariffs.
• Delays in land acquisition due to challenges in getting Right of the Way and Environmental clearances.
• Delays in regulatory approvals after awarding projects.

These factors further add to the problems for developers who bear the losses due to delays. Perhaps the biggest concern for the sector is the future of approximately 15GW of domestic manufacturing capacity available in the country among local wind turbine manufacturers. In essence, the competitive bidding regime has created unmitigated financial losses and a lack of orders for these companies as the capacity addition has plummeted below 2GW/annum.

Way Forward

Wind power is crucial to India’s target of achieving 175GW of renewable energy capacity by 2022, and 60 GW of planned targets for wind power contribution is vital to achieving the overall goal. The government in the current context has to take bold steps to reinvigorate the sector. Fundamental issues concerning timely acquisition of land for wind projects where the availability of wind-rich sites is scarce having to be resolved. With most of the wind-rich sites being remote, adequate power evacuation infrastructure needs to be provided. The low-ceiling tariffs set for reverse auctions are not always feasible and can be attained only on ideal wind-rich sites with high wind power density. In the long run, the large-scale concentration of wind assets in select states can lead to problems unless inter-state transmission infrastructure and mechanisms for inter-state cooperation are put in place. Instead, repowering old wind power sites with a precise policy- enabled support mechanism, exploring the large-scale deployment of offshore high-density wind power, and creating a market mechanism that promotes the use of medium to low wind power density sites with wind- solar hybrids, are some of the alternate means to ensure the sector continues to sustain capacity additions year after year.

Progress is underway on all these aspects, especially the offshore wind projects, with a target of 5GW set for 2022, which would be further scaled up to 30GW by 2030. However, the pace of progress is concerning since offshore wind projects have significant dependencies on new supply chains that currently do not exist, and the lead time for commissioning offshore projects is much longer. The offshore technology is well-proven globally, given its advantages of high-density power with a flat generation profile. Cost-related impediments are significant roadblocks. Despite the planned Viability Gap Funding, the initial projects are expected to deliver an LCOE—levelized cost of energy—that is more than twice the current cost of wind power in the country. In the past, GE developed a low wind speed turbine specifically for Indian conditions and went on to launch them in other markets. A similar innovation is required in the current context with new market realities to realize India’s future potential for wind power. But the government and policymakers have to step in immediately with reassuring measures.