Get over the sunshine. Wind is now the cheapest source of renewable energy in India.
Auctions conducted in Gujarat on December 21 discovered a record low tariff of Rs 2.43 a unit. That is nearly 8% cheaper than the previous low of Rs 2.64 that the industry saw in October. This tariff is also less than the lowest solar power tariff of Rs 2.44 that the country recorded in May this year.
This new rate was quoted by Sprng Energy, a Pune-based renewables firm, which bid to set up a 197 megawatt wind farm in an auction held by the Gujarat Urja Vikas Nigam.
The crash in tariffs comes on the heels of a recent announcement by the Narendra Modi government that resurrected the Indian wind power market after nearly a year of stagnation. The power ministry announced a slew of guidelines for state electricity utilities that want to procure wind power from independent producers. The norms cleared the way for different state governments to hold wind farm auctions. This is besides those conducted by the central government-run Solar Energy Corporation of India.
With the market having suddenly revived, wind power producers and equipment manufacturers who were left without orders to execute are scrambling to participate in the auctions and win projects, driving down tariffs. “The problem is that if auctions are not enough in number, people desperately bid low to keep their facilities going,” Anish De, a partner at KPMG’s infrastructure and government services, said. “The moment the auctions are sufficient and they have to look at further investments, the prices start stabilising.”
Analysts, however, do not see prices falling further. The current situation, they say, has been caused by windmill equipment manufacturers who have driven down prices. “My sense is that the wind power project development industry is still taking a little bit of haircut but not that much, but the main pressure is coming from the equipment supply industry,” De said.
Which way the tariffs will go from here depends on how much capacity the central government or various states bid out in the coming months. After the new guidelines were announced, states such asTamil Nadu, Andhra Pradesh and Rajasthan may announce auctions to allow power producers to set up wind farms. Analysts caution that for the industry to stabilise, prices should not fall further. Otherwise, it will hit profitability.
“In the long run projects definitely need to be viable,” Gautam Bafna, an analyst at CARE Ratings who tracks the renewables sector, said.
“These projects are bid out at lower IRR,” he added, referring to the internal rate of return. “Future projects may not continue on these rates. Ultimately there should be some parity.”
This article first appeared on Quartz.