Wind power auction success is bittersweet news for Suzlon, Inox Wind
Last week’s successful wind power auction could be a mixed blessing for wind solutions providers Suzlon Energy Ltd and Inox Wind Ltd.
The good news is the auction reinforces wind energy’s business model. Low tariffs would make wind energy more palatable for financially stressed power distribution companies (discoms) and pave the way for more capacity additions. According to Bhargav Buddhadev, an analyst at Ambit Capital Pvt. Ltd, auction-based project awards can trigger renewed interest from foreign companies in India’s wind energy market.
But this auction can set uncomfortable precedents for equipment makers. States till now have been awarding wind energy contracts and signing electricity purchase agreements on a preferential basis. The current feed-in tariffs vary between Rs4-6 per unit. Last week’s auction which discovered tariff at Rs3.46 per unit will alter this. One, the tariff gap between state and national level auctions will shrink. Second, the project awarding at the state level will move towards auctions.
The transition to competitive tariffs should aid discoms and consumers. But as has happened in solar energy, competitive bidding and low tariffs can compress returns of project developers. At a capital cost of Rs6.5 crore per megawatt (MW), utilization of 24%, debt tenure of 18 years and interest rate of 10%, a wind energy project’s internal rate of return will be less than 10% at the latest auction discovered tariff, says rating agency Icra Ltd.