Indian wind sector installations can be segmented into three market segments:

  • State market: Procurement by 8 states’ DISCOM with wind resource accessibility, through the installation of capacity in respective states
  • Central market: Procurement by remaining states’ & UTs’ DISCOMs via central government agencies, through installations in seven windy states and transmission by the inter-state network
  • C&I market: Procurement directly by large commercial and industrial consumers for power needs and renewable purchase obligations

State market contributes, nearly 70% of the wind installed capacity in India, however only 10% of the current pipeline. The wipe-out of the segment in the market has led to a major impact on volumes in the last two years.

The government of India conducted the first central auction in Feb 2017. The auction saw a steep decline in the prices for wind procurement; while the seven states were procuring wind at INR 4-5 per kWh before 2017, the auction resulted in INR 3.46 per kWh pricing for wind capacity. The new price discovered in the central auction had disrupted the market and led to a ripple effect.

The state markets reacted to this disruption in three phases:

  • Reconsideration Phase: The newfound pricing led the windy states to reconsider the procurement prices for wind. The seven states halted all procurement for nearly half a year to consider the next steps and no wind procurement happened in any of the seven states until August when the state of Tamil Nadu conducted its first tender.
  • Recalibration Phase: Despite holding the auctions, states were not very successful in awarding capacity, post first round of auctions in Tamil Nadu, Gujarat, and Maharashtra. Subsequent tenders were challenged by the state DISCOM’s need to match central auction prices. This was not possible due to lack of payment security mechanisms in the state as opposed to central government guarantees in central tenders.
  • Redistribution Phase: The lack of demand from states prolonged for too long, as auctions kept delaying and getting cancelled due to pricing issues. Meanwhile, payment delays were mounting up towards RE plants, which resulted in the supply-side not being comfortable in signing PPAs directly with state DISCOMs (except Gujarat). Even though states now opened auctions, auctions in the state of Tamil Nadu and Maharashtra were severely under-subscribed and received little to no interest. These states considered moving to central auctions to meet their non-solar renewable purchase obligations.

Hence, the state market volume today pivots majorly on Gujarat which has conducted two auctions, not without hiccups though. Among other windy states, Tamil Nadu has stated its plan to move to central auctions for future procurement and Maharashtra has indicated that it will procure wind through a mix of state and central auctions. In the remaining states, sizable unmet RPO demand can be seen in Rajasthan, Madhya Pradesh, and to some extent in Andhra Pradesh and Karnataka. The state of Rajasthan is likely to open in FY 21 due to pent up RPO greater than 1 GW, supportive government, and newly announced wind targets for 2024. In an unlikely case, some demand may also open from Karnataka, as both the states of Rajasthan and Karnataka have been mulling their auctions for quite some time now. However, demand remains locked up in Madhya Pradesh, Andhra Pradesh, as the states are largely unclear on plans to meet their non-solar RPOs.

Comparison of APPC with bid prices in state auctions shows that majority of the states are comfortable with bids in the range of INR 3.5 per kWh, as their APPC lies in the same range. System-level thinking for power pricing will help states set realistic benchmarks for wind prices in auctions.

The revival of the state market is critical for revival of the wind market in India, to create multiple channels of wind procurement in the country, which is completely reliant on central auctions currently. The states need to create payment security mechanisms and provide medium-term demand trajectory as well as comfort with higher tariffs to reboot investor confidence.

MEC+ with GWEC is launching a report on India Wind Energy Outlook on 13th May and will be conducting a webcast to discuss the market in depth. Share your queries on state markets and other topics around the India wind market and attend the webcast for a panel discussion on these queries. Please submit your queries at info@mecintelligence.com. The registration link for Webcast will be online soon.