The Indian wind energy sector is currently undergoing a transition. The established modes of capacity deployment are challenged to give way to the new ones. India wind sector and installations have been traditionally erratic in nature and highly sensitive to the policy changes. As a consequence of the transformation – the introduction of auctions to procure wind capacity, the market went in the state of limbo. While the infrastructure was not ready to facilitate the capacity auctioned in the new mechanism (central auctions), the windy states took an extremely reclusive approach to create new demand. This resulted in declining installations between 2018-2020.
“India wind outlook 2022: Looking beyond headwinds” explores the factors that led to the current position of the market, where 12 GW of capacity is awarded to date, yet only 2 GW is being deployed annually. The report takes a 360-degree of the market to understand the drivers and inhibitors for the installation and produces scenarios around how the factors can possibly play out. The report talks in detail about the market background, wind cost competitiveness, the current status of activity, and possible pathways of development. The report expects the new capacity installation to range between 11 GW to 17 GW in a pre-COVID scenario; although in the current scenario, the low case of the outlook seems to be more relevant.
Several analyses have been conducted by MEC Intelligence (MEC+) to drive the insights outlined in the report, utilizing a bottom-up understanding of the market dynamics, costs, pipeline as well as grid and land infrastructure availability. The key conclusions from the report are:
India wind market has conventionally demonstrated fluctuating capacity addition, being highly sensitive to policy changes. India wind market is expected to install nearly 13 GW (pre-COVID) of capacity in the next three years, however, the deployment will be unevenly spread across years, geographies, and the market mechanism. The new capacity will be majorly concentrated in 2022, in two states and in central tenders.
India has aggressive targets for wind capacity installation; 60 GW in FY2022 and 140 GW in FY 2030. The demand for wind originates from non-RPO compliance by state DISCOMs. Nearly ~20 GW of demand exists in the market in terms of unfulfilled non-solar RPOs towards 2022. Economically, as well, wind auction bid prices are 30% to 40% lower than the average pooled power procurement cost (APPC) for most majority of the states in India. Hence, the fundamental drivers of demand and price support wind in India.
The government has successfully awarded nearly 12 GW of wind capacity through competitive auctions; however, the level of activity has been declining in the past year. While the tenders in 2017 and 2018 were booked fully and even over-subscribed, the tenders in 2019 have faced a lack of interest from the supply side. Several factors have led to the decline in activity including issues in grid & land availability, payment delays for RE projects, and a slow-down in the signing of power supply agreements. Furthermore, all this while, the pricing expectation has remained aggressive. The half-hearted attempts of state markets to revive demand and conduct auctions have largely been unsuccessful leading to wiping out of the segment.
Despite low uptake in the latest auctions, nearly 8.6 GW of active orders can be seen in India. The majority of the orders are from the 8-9 central auctions conducted between 2017-19, while states contribute less than 11% of the active orders, given the low auctioning activity. Out of 8.6 GW, 3 GW is scheduled for commissioning in 2020, 5.2 GW in 2021, and 0.4 GW in 2022.
Delay in the availability of land, grid evacuation, and issues in timely payments continue to drag on the existing wind pipeline, impacting scheduled dates of commissioning. The inhibitors combined with weak balance sheets of the developers will expose cracks in the deployment capabilities. While some capacity is already canceled, more capacity is severely delayed and at risk of cancellation. The bottlenecks primarily shape up the capacity additions between 2020-2022
The government has taken a mix of reactive and proactive steps to resolve the issues in land, grid, and payment delays. Understanding the impact of infrastructure bottlenecks in the market, the government has removed the pricing caps in the latest wind tender to provide developers with the flexibility of bidding and reboot interest. Payment guarantees are being created for short, medium, and long-term defaults to promote investor confidence. The government is also planning a 25 GW plug-and-play wind park for wind capacity to resolve issues of land and grid and provide long-term volume visibility.
The government resolution comes in a little late, where the outcome of projects to be commissioned in 2020 and 2021 has been largely decided. The projects will be impacted by the fault-lines that started emerging in 2017 – around grid, land, aggressive pricing, financing, and sales agreements. The capacity addition in the next three years will be uneven with market scaling towards 2022 and capacity deployment happening whenever and wherever these bottlenecks are eased or resolved.
India is scheduled to remove incentives on Inter-State Transmission System (ISTS) charges which are supporting the uptake of central auctions. Central auctions are the major driver for capacity deployment in the next three years and expected to contribute 80% to 90% of the deployment. It remains uncertain how the increase in pricing in the range of 0.25-0.3 INR/kWh will impact demand and DISCOMs uptake in central auctions.
MEC+ and GWEC are holding a roundtable discussion and virtual report launch on 20th May, to join see Roundtable and Report launch: India Wind Outlook towards 2022
MEC Intelligence, also known as MEC+, is a specialist research and consulting firm for the marine, energy, and cleantech industries. It has expertise in guiding senior management on new technology and market opportunities and facilitating complex decisions through facts and logic. It is based out of India and Denmark. Clients have included the largest global energy players, shipping companies, private equity funds, and supply chain players. MEC+ has delivered insights on some of the largest M&A deals in India, hi-tech innovation and technology roadmaps for global supply chain players, and strategic planning for profitable growth across multiple businesses.
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