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Competitive bidding in the wind power sector would change the market landscape leading to a sharp reduction in tariffs, pressure on returns across the value chain, and consolidation of the market towards independent power producers, according to research and ratings agency CRISIL.
According to its report released today, under-construction capacities without Power Purchase Agreements (PPAs) are the most at risk. “To compete in bids, developers are likely to put pressure on wind power original equipment manufacturers (OEMs), denting their profitability. Also, developers would go for the self-development model, piling more pressure on OEM margins as the premium charged for value-added services like clearances, wind resource assessment and grid connectivity would come down,” said Prasad Koparkar, Senior Director, CRISIL Research.
He also stated OEMs having land banks with high wind potential and proximity to the central transmission utility will be less impacted because these would fetch a premium. The report notes that while deployment of latest technology and lower financing charges would reduce generation cost, aggressive bids by developers to scale up their portfolios will mean suboptimal equity internal rate of return.
”However, the market for wind power would expand with more active participation by the central government, which reduces the risk for developers. Higher offtake from power distribution companies with lower tariffs will also support capacity additions, “the report said.
Crisil also said that eventually, overall compliance with the renewable purchase obligation is expected to increase due to bidding, particularly by non-windy states such as Uttar Pradesh, Haryana, Delhi, Odisha and Chhattisgarh.
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