MP and Maha headwinds may trip Wind energy capacity additions in FY2017: ICRA
Reduction in preferential tariff on wind power by state regulator may bring down rate of returns by about 3.6% in Madhya Pradesh and hike returns on investment by 2.7% in Tamil Nadu where tariffs has been increased.
Wind energy tariff has been reduced from Rs. 5.96 per unit to Rs 4.78 per unit by the regulator in MP while in TN it has been hiked from Rs 3.51 per unit to Rs 4.16 unit.
Sabyasachi Majumdar, senior vice president at ICRA said, “Tariff cut in MP, coupled with slowdown in signing of fresh power purchase agreements over last 6-8 month and reported delays in payments by state distribution utility in the Maharashtra is likely to impact fresh wind energy capacity addition programmes in near to medium term”.
This could be a major setback for Maharashtra and MP where wind energy together accounts for about 35-40% of incremental capacity addition nationally over the next two years. These two states offered fairly attractive tariffs.
Nevertheless, upward tariff revision by the power regulator in Tamil Nadu is a positive for new wind energy projects, although tariff determination has been significantly delayed.
ICRA, however, feels realization of this potential is critically dependent on the extent of improvement in transmission bottleneck in the state as well as payment discipline by state utilities. Tamil Nadu is yet to participate in Ujwal Discom Assurance Yojana scheme.
Further in ICRA’s view from a regulatory perspective, preferential tariff norms by SERCs across the key states are not consistent with the guiding principles and norms as stipulated by Central Electricity Regulatory Commission (CERC). Preferential tariff regulations in madhya Pradesh and Tmail Nadu have stipulated tariffs which remain fixed over the tariff period and thus do not take into account of the impact of inflation and changes in cost structure during the control period. Also, wind zone based tariff principles have not been followed by SERCs across these key states, except Maharashtra and Rajasthan.