Energy Sector Catches Some Wind in its Sail?
Indian wind market is set to witness a CAGR (Compounded Annual Growth Rate) of 50% over the next few years, aided by several policy actions favoring new wind capacity additions.
In response to global warming, the Indian government has set a target of installing 500 GW capacity from renewable sources by 2030. Of this, 140 GW will have to come from wind energy. From FY18 to FY23, wind capacity addition dropped due to the unintended effects of existing policy measures. Recently, the government has announced several measures to boost the wind energy sector. These measures have the potential to significantly reduce costs for wind energy projects and provide a healthy demand for the same.
Join us as we closely examine the measures taken to boost wind energy and companies that could benefit the most from them.
What changes have been made to the wind energy policy?
The increased scale of auctions with an improved auction mechanism
In 2017, the government switched to reverse e-auctions from feed-in-tariff auctions for wind projects. Reverse e-auctions allowed for real-time bidding, which influenced developers to bid lower tariffs. To maintain profitability, developers needed to stay highly productive. This meant that the demand for windy sites increased, and so did the cost of land acquisition. This made wind energy projects less profitable.
In the new closed-envelope bidding mechanism, developers will submit their bids just once, putting an end to irrational price wars. Power purchase agreements will also be signed based on blended costs of wind projects across various states, making previously high-cost projects more economical.
The Indian government has announced that it will be inviting bids for 10 GW of wind projects every year until 2030. In comparison, from FY18 to FY23, the average capacity awarded in wind energy project auctions was 2.9 GW per annum.
Following is the bidding calendar for FY23-24 as per the Government’s plan, and SECI has already invited tender for setting up 2.5 GW wind power projects on June 12, 2023.
Viability gap funding for Offshore Wind Projects
There is a huge potential of about 127 GW from offshore installations along the country’s 7,600 kms long coastline. The central government has announced that it will be inviting bids for offshore wind projects of 4 GW capacity in Tamil Nadu on 1 December 2023. Another 3 GW of offshore wind projects will be bid out in the next financial year. Offshore wind turbines can have capacities in the range of 5 MW to 10 MW in comparison to the 2 MW to 3 MW capacity of onshore wind turbines. Since there are no obstructions to the wind in the sea, the conversion of wind speed to electricity is also better. However, offshore infrastructure projects can be expensive compared to onshore projects.
Under the viability gap funding scheme (VGF), the Indian government will provide financial support for up to 20% of the total project costs for infrastructure projects that are economically justifiable but not financially viable.
July 11, 2023, NTPC Green Energy (NGEL) already Invited expressions of interest from India-based or Global offshore wind power companies to form a consortium to develop offshore wind power projects in India. The last date of the Bid was 14 August 2023.
So, as we can see, the government is following up on its plan with concrete actions in the form of tenders. Following is an image showing the offshore installation of wind turbines.
Drop in transmission charges
Any offshore wind projects that are commissioned before 2033 will be exempt from inter-state transmission system charges for 25 years from the date of commissioning. Additionally, renewable assets that are commissioned before 2025 will be free from transmission charges. This move will incentivize wind energy generation by lowering recurring transmission costs.
Wind-specific renewable purchase obligations
Renewable purchase obligations (RPOs) require that energy distributors meet their demand from renewable sources. The Indian government has introduced wind-specific RPOs. The wind RPO was set at 0.8% in FY23 and will be stepped up to 6.9% by FY30. India would need to add from 75 GW to 80 GW wind energy capacity to meet the wind-specific RPO.
This puts pressure on distribution companies to source certain parts of the energy demand from wind and solar energy.
Diversified capacity additions across states
In the reverse e-auction era, wind energy developers flocked to coastal windy states, and land acquisition costs were driven up. But now, the government has put an annual cap of 2 GW on wind energy capacity additions. This will, in turn, keep a cap on the demand for land acquisition for wind energy projects in each state. This should keep the land acquisition costs in check.
Windfalls from Green Hydrogen Policy
To meet its 5 million tonnes per annum of green hydrogen manufacturing capacity, India needs to produce 125 GW of renewable energy. This 125 GW of renewable energy was not considered when setting the renewable energy production target of 500 GW by 2030. If green hydrogen production requires round-the-clock energy production, India would need to produce an extra 25 GW through wind energy as solar energy cannot be produced round-the-clock, and wind energy addition is cheaper than the addition of storage capacity.
The repowering policy is in the works
The power ministry has floated a draft to incentivize the replacement of old wind turbines with lower capacity. Close to 25 GW out of the total 43 GW wind energy installed capacity is made up of wind turbines with capacities lower than 2 MW. In contrast, the largest wind turbine in India has a capacity of 5.2 MW. If all wind turbines with capacities less than 2 MW are upgraded to 3 MW capacity, 36.45 GW wind energy capacity could be added.
Which companies can we expect to benefit from this?
Of the 43 GW installed wind energy capacity in India, Suzlon Energy, the market leader, contributes 14 GW. The next closest competitor is Gamesa, contributing 8 GW. In the early 2000s, Suzlon Energy focused on inorganic growth funded by debt, which put it in a precarious position before the Global Financial Crisis and the succeeding downturn in the Indian wind energy sector. However, the company has successfully reduced debt, improved its credit ratings , and won orders worth 1237 MW in FY24 alone. Suzlon Energy has cumulative Order book is 1815.1 MW by the end of August 2023.
Suzlon had raised INR 2,000 crore via a qualified institutional placement on 14 August, Of which INR 1,500 crore will be utilized for debt repayment and the remaining for capacity improvement.
Inox Wind is one of the top wind turbine manufacturers in India. At the end of August 2023, the company’s order book was 1327 MW, comprising 2 MW and 3.3 MW wind turbine generators. The company expects this order book to translate into revenue of INR 7,000 CR in FY24 and FY25. In contrast, Inox Wind’s revenue from operations was INR 737 crore in FY23.
Inox Wind has also raised INR 500 Cr on 8 August 2023, via share sale to utilize proceeds for debt reduction.
We see a great future for Wind Energy Projects to fulfill the Government’s ambitious target of 100 GW by 2030. There is a Visibility of orders from Public Sector Undertakings (PSU), Commercial and Industrial (C&I) sectors for Hybrid captive power plants, and the Government push towards green power Energy.
Following is a video where the promoter of Inox Wind (Mr. Devansh Jain) discusses positive developments in wind energy.
