Concerned by poor progress in the wind power sector, the government has made a series of announcements to stimulate capacity addition. It has notified a specific wind tender issuance sub-target of 10 GW annually until FY 2028 on top of hybrid and RTC tenders. It has also set a separate incremental wind RPO target of 6.94%, within the 43.33% RPO target by March 2030, to be met only by projects commissioned after FY 2022. That equates to new wind capacity addition of 70 GW over eight years. Other measures include replacement of reverse auctions by a single stage bidding process to tone down aggressive bidding behaviour, a move to issue state specific tenders to ease land and evacuation infrastructure availability, and levy of severe penalties on developers failing to complete projects on time.
Wind sector has been slowing down since transition to reverse auction in 2017. While tender issuance and auction activity has been relatively healthy, project execution has been marred by delays in land acquisition, spiralling costs and unviable bids. Capacity addition has averaged a mere 1.8 GW per annum over the last five years. In contrast, CEA has estimated need for 82 GW new wind capacity by FY 2032 as part of the recently announced National Electricity Plan.
Figure: Wind sector progress, GW
Source: BRIDGE TO INDIA research
Meanwhile, the industry has been taking action to correct course. Turbine makers have invested in more efficient technology, cut costs, raised prices and passed on execution risk to developers. After several years of reporting losses, Suzlon, a leading Indian turbine manufacturer, reported a net profit of INR 29 billion in FY 2023 as against a net loss of INR 2.6 billion in FY 2022. Inox Wind and Senvion have restructured operations and are seeing a revival in profitability. Envision has rapidly expanded manufacturing capacity to 3 GW and already built an order pipeline of almost 4 GW. The project developers have also turned more cautious. Tariffs in the latest SECI auction in June 2023 came in the INR 3.18-3.47/ kWh range, up 14% since the previous SECI auction in Dec 2022 and up 37% from the all-time lows of 2017. Bidding interest has also waned significantly.
But the most critical support for wind power is coming from the growing need to balance solar power’s high intermittency. Because of wind power’s complementary output profile, power utilities and corporate consumers are looking mainly to procure hybrid power with a willingness to pay a premium over cost of standalone solar power. In the auctions completed so far, wind’s share of total project capacity under wind-solar hybrid and wind-solar-storage hybrid tenders is about 25% and 70% respectively.
While the rationale for some of the government moves including push for more tenders and move away from reverse auctions is debatable, better technology, more commercial prudence and greater market demand are all strong drivers. We expect sharp jump in market activity with total estimated wind capacity addition of 30 GW over the next five years.
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