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Wind power tariff hits new low, what this means to concerned parties

The price of wind-based electricity touched a new low of Rs 3.42 per unit at the auctions held on Tuesday by Tamil Nadu’s state-owned electricity distribution company, Tangedco. The latest tariff is lower than the Rs 3.46 per unit discovered in the maiden wind auction held by the central government in February, and far below the range of Rs 3.71-6.04 under the feed-in-tariffs (FiT) system that allows cost-based compensation to wind power units. Analysts said the continuous fall in wind power prices will hit the generators’ internal rate of return (IRR), especially since it follows the withdrawal of generation-based incentives by the government. However, the lower tariffs have reduced the market risk, as discoms are unlikely to renege on the purchase obligations.

In the recent past, there have been multiple instances of state discoms, under financial distress, showing reluctance to buy wind power at the contracted prices, citing high cost. Andhra Pradesh’s discoms, for instance, asked the state’s power regulator to change the terms of power purchase agreements, signed in 2015. Also, one of the Karnataka discoms cancelled PPAs of 75.6 MW with wind power projects. Rajasthan discoms too have been delaying late payment surcharge to wind power generators even after the state regulator directed them to clear all the dues. Concerned over the undesirable trend, power minister Piyush Goyal has asked the state power utilities to honour the PPA commitments.

According to sources, Tamil Nadu’s discom had kept the base-price for the latest auction at Rs 3.46/unit. The projects were awarded to ReGen Powertech (200 MW), Leap Green Energy (250 MW) and NLC India (50 MW), as these companies offered the highest discount on the base price. ReGen quoted the lowest price, which others had to match. As directed by the ministry of new and renewable energy (MNRE), several state-owned power discoms are preparing to conduct reverse auctions for procuring wind power instead of the FiT system. The MNRE, in a letter to seven state energy secretaries, recently said that the states must ensure that their respective electricity regulators approve power purchase by discoms from wind energy projects.

A section of the wind industry had earlier moved the Madras High court after the Tamil Nadu discom decided to keep the base-price at a very low Rs 3.46 per unit. However, industry sources had earlier told FE that companies have eventually “accepted these terms due to sheer hunger for business”. It is feared that higher tariffs may drive away buyers. A senior official from Tangedco told FE that since the high court had not issued any stay order against the auction, the authorities went ahead with the process. However, the deals would require approvals of the court and the state power regulator before being finalised.

With the country taking measures to take renewable energy capacity to 175 GW by 2022, the latest volume of the Economic Survey released by the finance ministry earlier this month noted that the transition is likely to leave a part of conventional energy-generation assets idle or running at low utilisation levels, which could have implications to the country’s banking system.