The ground is fertile for a strong growth in the wind power sector with tariff rates falling to levels which makes SEBs consider buying wind power. Further, as central government is involved the market opens up for other non-windy states.
Manmohan Singh’s second innings as the Prime Minister was criticized across the board for lack of activity as the government battled a series of scams. Termed as ‘policy paralysis’ Singh and his team were the primary reason for the bloating of non-performing assets in the banking sector and the slow pace of growth in the economy.
In the run-up to the 2014 elections, Narendra Modi criticized the decision-making inability for the mess in the economy.
Though after coming to power Prime Minister Narendra Modi and his team have taken a number of policy decisions and tried to get the economy on track, there are sectors where they have only added to the problem and dug themselves a deeper hole.
Renewable energy was a sector where the Prime Minister and former Power Minister Piyush Goyal were upbeat about. Their initial initiatives bore fruit and made India one of the fastest growing renewable markets in the world.
Increased competition met falling input prices which resulted in a sharp fall in tariff rates for renewables. Falling rates were a curse rather than a blessing for the sector. Renewable power producers put up a brave face in the tough scenario as the market was getting bigger. However, it was the state electricity boards (SEBs) that spoilt the party for the renewable energy sector.
SEBs acted smartly in the falling tariff scenario by going back on their signed contract of buying power which at the time of signing were the lowest bid. This resulted in a complete turmoil in the sector and prompted the central government to come out with power projects of their own which were backed by it.
However, the damage was already done. The pace at which power producers, especially in the wind power sector set up facilities to meet future demand was severely impacted. Quarterly results for both the wind producers – Inox Winds and Suzlon highlight the gravity of the problem.
Against a revenue of Rs 800 crore in September 2016 quarter Inox Wind posted a revenue of only Rs 79.51 crore, a 90 percent drop in sales. Suzlon posted a revenue of Rs 275 crore in September 2016 which fell to Rs 119 crores in September 2017.
There is more activity in the courtrooms in the wind power sector than in the wind farms. A draft wind power policy has been launched by the central government which took a long time in the making. Even while wind power companies were waiting for the government to announce final policies, state governments (Tamil Nadu and Gujarat) wanted to take advantage of the lower tariffs announced their own auctions. This move, however, was dismissed by the High Courts in both the state.
The industry is going through a transition which is causing pain among the producers. From a feed-in-tariff based system to an auction-based system. However, the pain seems to be temporary at least till the central government announces a final policy. The delay in launching of the wind power policy is adding to the pressure on the sector.
The ground is fertile for a strong growth in the wind power sector with tariff rates falling to levels which makes SEBs consider buying wind power. Further, as central government is involved the market opens up for other non-windy states. The concerns of a higher volume will be addressed. The question, however, is will the power producers make enough profit from the increasing volume or will it only be a topline game?For more research articles, visit our Moneycontrol Research Page.