Can India’s Wind Ipps Achieve 60 Gw Target?

As part of its ongoing thrust on developing the renewable energy projects in India, the government recently raised the country’s RE target five-fold to approx 175 GW (by end 2022), mandating an investment of about US$200 bn. This includes 100 GW – solar, 60 GW – wind with the rest incorporating biomass, geothermal and small hydro projects.

However not everyone is fully convinced about wind IPP India ability to achieve the ambitious 60 GW target by end-2022. A case in point is a recent report by India Rating and Research (Ind-Ra) which expects the country to fall short of its capacity addition target in the wind power sector, from the present level of 24 GW. As per the report, only about 60% of the target (10 GW), is likely to be achieved by 2017.

The report further adds that approx two-thirds of the incremental capacity addition in this sector (till 2017) is expected to be developed in Andhra Pradesh, Madhya Pradesh, Gujarat and Karnataka.  However, these states will attract only serious and well-established independent power producers with a limited margin for error, it cautions.

In a related context the report also states that the cumulative capacity additions in the leading states (in this sector) like Tamil Nadu, Rajasthan and Maharashtra were witnessing a slowdown, a fact made evident from their cumulative annual growth rate of just nine percent in 2012-2015 as against 19% in 2009-2012 – a trend that was likely to continue as per the report.

Despite the significant enthusiasm around wind power, the report adds that the sector has continued to perform below par in comparison to its potential by 25-30%. However, almost all of this was due to captive producers, whose incentives might not necessarily lead to the making of profits.

Ind-Ra’s analysis shows secondary states in this sector were unlikely to achieve the required grid parity on tariffs due to several factors including low average power purchase costs and relatively higher rates. This in turn is expected to necessitate the need for significant regulatory support in addition to multiple incentives targeted at reducing the capital cost of wind assets, which are expected to reduce marginally in 2016, before rising.

The report points that secondary states in this domain also carried higher risks in terms of achieving their break-even debt service coverage ratio (DSCR), given the limited cushion on PLF performance. The analysis suggests a 2% drop in PLF below INR 5/unit would result in a minimum DSCR lower than 1x. Additionally, the internal rate of return being equally sensitive for secondary states, a 2% drop in PLF could result in a 4% drop in the returns.

Ind-Ra believes the policy and regulatory environment would need to be supportive to woo potential investors. Other key concerns including payment risks from state distribution companies of secondary states, though lower than the prominent states, would also need to be addressed in a comprehensive way, to attract capital on a sustained basis.

Welpun Renewables is steadily building mega wind capacities across the country, with its 126 MW Pratapgarh wind project in Rajasthan being its first aggressive step in this direction.

Pro-active policies and rising demand for clean energy is now being leveraged by wind IPP India and solar IPP from the private sector