Scheme for 1000 MW Central Transmission Utility (CTU) connected wind power projects to benefit the utilities for meeting their non-solar RPO norms: ICRA

June 16, 2016: The Ministry of New & Renewable Energy (MNRE), Government of India (GoI) has notified the scheme for award of 1000 MW wind power projects connected to the transmission network of Central Transmission Utility (CTU) on June 14, 2016.

“The scheme for award of wind based projects is a positive for the wind energy sector as it would encourage capacity addition in the sector & would further enable the distribution utilities in states with limited wind potential to honor their non-solar renewable purchase obligation (RPO) requirement to some extent. This apart introduction of tariff based bidding for awarding wind projects under this scheme is expected to encourage competition and lead to efficient tariff discovery which would be favorable for the distribution utilities”,  says Mr. Sabyasachi Majumdar, Senior Vice President, ICRA.

The key objective of this scheme is to facilitate supply of wind based power from high wind potential states to states with relatively lower wind potential, encourage competitiveness through scaling up project size and introduction of competitive bidding process, thereby allowing the low wind potential states to meet their non-solar RPO.

While RPO norms are in place in all the states, they continue to vary across the states in terms of both the quantum of RPO & its trajectory. Moreover, compliance in RPO norms on an annual basis by obligated entities continues to remain weak, as most SERCs tend to carry forward the shortfall in RPO compliance onto the subsequent period, instead of imposing any penalty or regulatory charges for non-compliance. There are only a few states where SERCs have issued strict orders for compliance, for instance Maharashtra.  Although the option of renewable energy certificate (REC) is already available for such utilities to meet the RPO norm, the same is not exercised by utilities in many cases. Viewed against this backdrop, the scheme is likely to help facilitate supplywind based power from high wind potential states to states with relatively lower wind potential. However, the incremental demand for procuring wind energy from states which have high wind energy potential by distribution utilities in states with lower wind energy potential would also be dependent upon a) alignment of RPO norms by SERCs in  states with low wind energy potential so as to ensure the consistency in RPO norms in line with stipulated trajectory under national tariff policy, b) enforcement of RPO regulations by SERCs; and c) paying capacity / financial position of such utilities.

The scheme also introduces tariff based bidding for awarding wind projects under this scheme. This is likely to encourage competition and lead to more efficient tariff discovery, which in turn is likely to bring down wind energy power procurement cost for distribution utilities. While this is a positive from the discoms’ perspective, from the IPP’s perspective project economics will be critically dependent upon the PLF level & bid tariff and also their ability to bring down project cost, especially cost of equipment purchased from WTG manufacturers. Given the competitive bidding involved for award of projects, IPP’s ability to ensure superior operating performance (by way of deploying efficient & superior wind turbines at a location with high wind speed) would also be critical for generating adequate returns. Further, identification of land bank with high wind power potential will also remain a challenge for IPPs.