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The state power distribution utilities are expected to adopt the competitive bidding mechanism for awarding wind energy projects going forward and their plans will determine the pace of wind energy capacity addition, according to research and ratings agency ICRA.
This comes in the backdrop of the significant decline in wind energy tariffs as observed in the bidding for the 1,000 MW wind scheme by Ministry of New & Renewable Energy (MNRE) in February 2017.
“While the introduction of competitive bidding remains favourable for the discoms, the fresh capacity addition in the wind power segment in the near term could be affected during the transition period from a feed-in tariff mechanism to a competitive bid based mechanism. The same would also depend upon the bidding plans by discoms and award of projects through bidding route in timely manner,” said Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings in a report.
The introduction of tariff-based competitive bidding in the wind energy sector has significantly improved the cost competitiveness of wind energy tariffs as compared to conventional energy sources, as reflected from the tariff of Rs 3.46 per unit, through a reverse auction process by the Solar Energy Corporation of India Ltd (SECI) for awarding 1,000 MW wind power projects, the report notes.
”Discoms in some of the key states have already stopped signing fresh power purchase agreements (PPAs) under the feed-in tariff mechanism and this would increase the risk profile of the wind independent power producers (IPPs) which are under construction and without PPAs,” Kadam said.
The viability of such tariffs for the winning developers would be critically dependent upon the capital cost, availability of long tenure debt at cost competitive rates and the Plant Load Factory (PLF) at the selected project location. The report states that as a result, the developers’ ability to identify sites with high wind resource potential, along with procuring equipment at a competitive cost, remains crucial to achieve the desired return metrics.
“Moreover, timely finalisation of the draft bidding guidelines issued in April 2017 by the MNRE for award of wind projects through the bidding route remains important, which in turn would provide a uniform approach for state-owned distribution utilities to follow,” Kadam added.
The report states that post implementation of Ujwal Discom Assurance Yojana (UDAY), the credit quality of the state-owned discoms continues to be a major concern area for the sector despite some improvements observed in the payment cycle from discoms in states such as Rajasthan. Challenges related to weak compliance of the renewable purchase obligation (RPO) target by the discoms and transmission constraints in few regions also remain.
The report points towards the importance of a fundamental improvement in the financial position of the distribution utilities in the long run, which is dependent upon the benefits expected from implementation of UDAY, tariff adequacy and their ability to curtail distribution loss levels in line with targets.
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