Favourable winds blowing? Producers of the renewable power beg to differ

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26 Aug, 2025 12:21

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Shishir AsthanaMoneycontrol Research

While the government has been a champion of renewable energy so far, wind energy hasn’t been receiving its share of love — or so it would appear. A combination of lower tariffs, muddled policy, and lowered incentives are threatening to cripple the industry.

At the core of the soul-killing malaise is perhaps the government’s decision to procure power through a reverse auction. Producers will be at a disadvantage as they will be forced to offer competitive tariffs, and undercut their margins.

There has been a steady drop in wind power tariffs which have now crashed to Rs 3.46 per unit. Currently, there is cross-selling of wind power between states, an arrangement blessed by the Centre where the haves agree to sell their wind capacity to the have-nots. But lowered tariffs could mean discoms in these wind-power generating states would want the same rate at which power is supplied to the deficient ones.

The biggest impact of this move was felt on wind power producers like Inox Wind whose order book shrank overnight. With no signing of PPAs, there were no investors willing to buy wind power generators.

Going forward state governments are expected to follow the auction-based mechanism to bag wind power orders, but this is expected to take some time as states learn the ropes and prepare the ground work for issuing tenders.

According to a Maybank Kim Eng report of the eight active states installing wind power in India, three have already started working on their state specific auction programme.

All new projects that would come up in future are expected to be through the auction route. Wind power producers believe that an annual 7,000 MW of wind power projects will be announced every year till 2022. The current installed capacity of wind power in the country is 32.27 GW with government’s target of touching 60 GW by 2022. Out of the annual order of 7 GW (7,000 MW) central government is expected to place 4 GW of orders while the remaining is expected to be placed by state governments and public sector players.

While the industry is adjusting to the new reality, there is uncertainty on the projects that are already under progress. A Crisil report, as reported by Mint, points out that under-construction projects, as part of the FiT or feed-in tariff (which promises a steady revenue stream) regime may be put up for auction by the states.

The problem is that these projects are being built without a PPA and are based on the market rates prevailing before the industry was shaken up. All negotiations of these projects with suppliers (of turbines, etc) have been based on higher rates.

Many states have already announced competitive bidding for under-construction projects. Rajasthan is likely to conduct reverse bidding for the existing 100 MW of projects, which are at various stages of commissioning. This will be followed by Gujarat and Andhra Pradesh for 500 MW.

Companies constructing these projects will have to go back to their supplies and renegotiate the terms for the equipment which have already been ordered to such low levels that they can be successful in the reverse bidding process. This move alone can disturb the industry that has been affected by policy changes.

The Crisil report says that with the onset of reverse auctions, the competitiveness of wind power versus other fuel sources has increased. The bid prices for the recent reverse auction, for one, are 24 percent lower than the weighted average tariffs of coal-based plants, discovered under Case I bidding in the recent past. This gives an idea of the renegotiation that has to be done by the producers.

Reverse bidding will no doubt bring down margins across the industry, but the recent decision to auction under-construction projects will bring down prices further. It’s clearly not a good time to be in the wind power business.

However, after the dust has settled, under-construction projects are auctioned and state governments announce their bidding process, the sector is expected to have better visibility. Though there will be pricing pressure, technology advancement will ensure that there is enough left on the table for producers. Already wind turbine generators prices have fallen by 20 percent over the last five years.