First Wind Energy Auction in India

The Indian government has promoted wind and solar energy in the country through radically different business models. Wind energy growth in India has mainly taken place through well-defined feed in tariffs given in different states, along with central fiscal incentives such as accelerated depreciation and generation based incentives. Wind energy capacity in the country is around 27 GW making it the 4^th largest capacity in the world.

After a lull between 2012 and 2014, wind energy growth has made a comeback with more than 3 GW of wind energy capacity installed. However, solar energy growth is eclipsing wind energy now. Solar energy development in India has mainly taken place through reverse auctions, which has led to strong competition and a rapid development in capacity. This method has proved to be far more successful and there has been a clamor from policy makers to use this route, for the further growth of wind energy in the country. Most wind developers have resisted this move as it will lead to lower profit margins for them, besides leading to greater competitive intensity, especially if the government also provides land parcels along with a PPA to the winners.

Read why Wind Energy ahs suffered in India.

Most of the wind energy capacity in the country has only come up in the states which have good wind energy resource potential namely Tamil Nadu, Gujarat, MP and others. There are a number of states such as WB, Bihar and others, which do not have any meaningful wind capacity at all. Not only do these states not have any good resource, but the demand for power is also poor. To ensure that all states bear their renewable energy obligations in a meaningful manner, the Indian central government is coming out with a first reverse auction for wind energy. This will be done to provide wind power to states with poor resource potential, so that they can meet their non-solar RPO.

Read about Wind Energy Companies in India.

MNRE and SECI will both collaborate to ensure that the bidding and tendering happen in a successful manner. The bidding will be done through an online transparent route. The winner will get a 25 year PPA from SECI, which is a central government owned agency and will sell the power to discoms of states. The main risk is the bankability of SECI and the discoms. This may create issues for bidders who may find that they are facing payment issues from SECI over the lifetime of 25 years. If the tariffs dive down in the future years, SECI or the discoms may not honour the agreement.

Key Points

(i) 1000 MW capacity is envisaged for bidding in 2016-17. However, this may be revised by MNRE based on demand.

(ii) The selection of wind power projects under the Scheme will be through a transparent e-bidding process followed by e-reverse auction for eligible bidders for procurement of wind power at tariff discovered through open competitive bidding process. SECI will develop guidelines for e-bidding process.

(iii) Eligible project capacity for bidding will be minimum 25 MW and maximum 500 MW by a bidder. (v)

(iv)SECI may call expression of interest/bids for selection of a Trading Company to sign Power Purchase Agreement (PPA) with selected developers at bidded tariff and back-to-back Power Sale Agreement (PSA) with Discoms of nonwindy States at a pooled price of the total bids selected

(v) The process of selection of Trading Company will be completed prior to issue of Request for Selection (RfS) document, so that bidders have clarity on position of Trading Company with which they are going to sign PPA. The selected Trading Company will be entitled to charge a trading margin as mutually agreed between the parties or as decided by the CERC for long-term purchases. Trading company to share at least 25% of trading margin with SECI without any liability to SECI. The duration of PPA and PSA will be 25 years from the date of Commercial operation of the project.

(vi) SECI shall invite bidders to participate in the open bidding process against the Request for Selection (RfS) for development of Wind Power Projects under this scheme.

(vii)The bidders will be free to avail fiscal incentives like Accelerated Depreciation (AD), Generation based Incentive (GBI), concessional customs and excise duties, tax holidays, etc. available for such projects as per prevailing conditions and rules. Equal opportunity is being provided to all bidders at the time of tendering itself.