Saturday, October 24, 2020


Power shift


India’s wind infrastructure needs to be bolstered as the country is likely to fall short of its ambitious targets for 2022. 


India Ratings and Research (Ind-Ra) expects capacity addition in the wind sector to remain healthy but likely to fall short of Government of India’s (GoI) ambitious target of 60GW by 2022 translating into approximately 5GW per year. New capacities are more likely to come up in secondary states. A recent analysis has classified low to moderate wind potential states of Andhra Pradesh, Madhya Pradesh, Gujarat and Karnataka as ‘secondary states’ and moderate to high wind potential states of Tamil Nadu, Maharashtra and Rajasthan as ‘prominent states’, while prominent states are likely to play second fiddle. Repowering options could however, provide incremental generation in these states.


BACKGROUND: Wind capacity in India grew at a CAGR of 18 per cent over the last decade to 24GW in August 2015. In June 2015, India outpaced Spain to become the fourth largest wind generator after China, the US, and Germany. The sector contributes 65 per cent to the overall renewable output (others being biomass and solar at 12 per cent each, and hydro at 11 per cent) but a mere 9 per cent to the nation’s overall power generation and still retains significant untapped growth potential. The Government of India’s revision of its renewable target to an ambitious 175GW by 2022 including 60GW for wind, raises questions about whether the Indian wind sector is ready to take on this challenge and what could be the stumbling blocks on the way.


Capacity addition to fall short of target: Ind-Ra believes that the sector is expected to add 5.4GW of capacity to increase the cumulative wind capacity to 29.5GW by March 2017. In order to achieve the target of 60GW by 2022, the annual capacity addition has to reach approx. 5GW. Capacity addition of 6GW will result in achievement of 60 per cent of the target by March 2017. The top 20 IPPs would account for 85 per cent or 4.6GW of the capacity addition taking their share in the cumulative capacity installation to 37 per cent by 2017 from the existing 23 per cent. With increasing competition and the need for a dedicated professional approach to the wind assets, companies which have wind segment as a non-core business will find it difficult to compete. In the rating agency’s view, the majority of the future capacity addition will therefore emanate from IPPs.


Capital cost to reduce till 2016 and increase thereafter: It is thought capital cost will fall marginally in 2016. The capital cost of wind projects is largely driven by prices of raw material such as steel and heavy machinery. The capital cost is expected to fall marginally in 2016 on account of falling steel prices as global production exceeds demand and as the outlook on the capital goods industry remains subdued. However a weak rupee will put upward pressure on the cheap import of equipment. The steel prices are likely to rise from 2017 onwards due to an improving demand. Increasing raw material prices and a weak rupee will increase capital costs in 2017 and 2018.


Prominent states to take a back seat: As per the Ind-Ra assessment capacity addition in the prominent states which led the growth story over the past decade, will fall largely due to the states reaching saturation levels and/or state specific issues hampering future growth. Tamil Nadu, Maharashtra and Rajasthan contributed close to 65 per cent to the overall installed capacity as on August 2015. However with the state level issues persisting and developers looking for geographic diversification, prominent states are expected to figure lower down in the priority of private players.
The Government of India has estimated wind potential in India at 80 metre height to be over 100GW. States such as Maharashtra and Rajasthan have already achieved the majority of their potential (over 70%). Additionally lower compliance of the Renewable Purchase Obligation coupled with a lack of enforcement has resulted in lower demand and therefore lower additions in Rajasthan. Maharashtra on the other hand is facing subdued capacity addition due to a delay in reframing the renewable policy which expired in 2014 thus raising concerns over already awarded projects. Additionally several projects are awaiting power purchase agreement (PPA) closure in Maharashtra. These factors have resulted in a significant drop in the capacity addition in the state to 9 per cent in 2014-2015 against a CAGR of 20 per cent for the past three years.
The state of Tamil Nadu which is the most preferred site for wind projects in India has registered depressing capacity addition at a mere 2 per cent CAGR since 2013 as against 18 per cent between 2009-2012, despite the state also being a hub for equipment manufacturing. The inability of the state’s evacuation and transmission infrastructure to keep pace with rapid capacity addition resulted in lower power capture despite healthy generation.In 2013, in some months the state lost nearly 40 per cent of the energy generated due to forced backdowns. In 2014, several projects were asked to cut down their production resulting in a PLF drop of more than 50 per cent. This along with the weak financial position of the state distribution company (Discom), has significantly impacted the operating and financial performance of the projects thereby reducing investor confidence. In 2012-13 and 2013-14 the projects witnessed irregularity in payment receipts with delays extending to over a year.
The view obtaining at Ind-Ra is that issues with respect to evacuation infrastructure will persist in the medium term thereby resulting in subdued capacity additions. The inadequate evacuation and grid capacity is an issue that plagues the global wind sector including China, where rising capacity addition left nearly 16 per cent of the capacity unconnected to the power grid in 2013.
It is however noted that Tamil Nadu will witness incremental energy generation from its existing projects on account of repowering of the existing assets. The oldest of the existing projects were set up in the best wind zones and had turbines planted at a height of nearly 50 metres but have lower efficiency as compared with the current turbines at 80-120 metres. Repowering essentially involves increasing the height of the assets, which enables access to more undisturbed winds thereby resulting in higher efficiency. A key advantage of repowering is increase in generation at minimum additional cost including no additional land requirement. Additional costs for repowering include enhancing of transmission capacity and disposal of older turbines. However renegotiation of old PPAs and distributed ownership of older wind turbines may pose resistance and are required to be addressed by regulators.
The Maharashtra Electricity Regulatory Commission’s review of repowering potential in the state has revealed that replacing of 386MW, (commissioned before FY06, with 2.1MW wind turbine generators (WTGs) will increase the capacity to 2,138MW (5.5 times its installed capacity). Separate tariff determination for repowered wind capacity additions may usher interest from the developers and also harvest maximum power from the high potential wind zones of the country. Tamil Nadu has the largest potential in repowering having installed capacity of 2,900MW which was commissioned by FY06.


Future capacity addition driven by secondary states:  The view is that due to the falling capacity addition in the prominent states, the baton for future capacity growth would be handed over to secondary states like Madhya Pradesh, Andhra Pradesh, Karnataka and Gujarat. A huge untapped potential coupled with a diversification policy adopted by the developers will attract larger private investment in the secondary states. However, GoI’s support will play a key role in the development of the sector in the secondary states. A favourable policy conducive for private investment supported by adequate infrastructure extended by the state will help lay the foundation for the sustainable growth of the sector in these states.


MP, AP at forefront: The 4.6GW of IPPs’ share of future capacity addition till 2017 will be dominated by tier-2 projects at 62 per cent against 38 per cent by the prominent states.  Madhya Pradesh, Andhra Pradesh including Telangana will drive future capacity addition with over 1.7GW or 44 per cent by FY17. Not less than nine of the 20 analysed IPPs are already developing wind assets in Madhya Pradesh and Andhra Pradesh with more players entering the states. With the large untapped potential and increasing government efforts to promote wind generation, generation in Madhya Pradesh and Andhra Pradesh will be instrumental in the  future capacity addition in the wind sector.


Installed Capacity as on 31 August 2015


Capacity (MW)

Tamil Nadu








Andhra Pradesh


Madhya Pradesh










Source: MNRE, Ind-Ra



  • Independent Power Producers (IPPs) to lead charge
  • Secondary States face relatively higher PLF sensitivity
  • High Counterparty Risks
  • Grid Parity Unlikely
  • Mature Assets to Attract Innovative Financing

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