The country’s wind energy sector saw an improvement in capacity addition during the FY 2014 but continued to face a major regulatory challenge with regard to compliance of Renewable Purchase Obligation norms, according to a recent report by credit rating agency ICRA.
In FY 2014, wind energy based capacity addition improved to about 2,100 MW from 1,699 MW the previous year. In FY 2013, the capacity addition had fallen sharply from the previous year’s capacity addition of 3,197 MW due to discontinuation of tax depreciation benefits, lack of clarity on continuation of Generation Based Incentives and issues related to grid connectivity and evacuation of power for wind energy projects in states such as Tamil Nadu.
The report by ICRA said the improvement in wind capacity addition in FY 2014 was aided by reintroduction of GBI, adding that it still remained much lower than the capacity addition achieved in FY 2012.
India’s total installed wind energy capacity is estimated at 21,200 MW as on March 31st, 2014. It constitutes 67 percent of the overall renewable energy capacity and 9 percent of the total installed capacity in the country.
In ICRA’s view, the long term demand outlook for wind energy remained strong aided by cost competitiveness of wind energy against fossil fuels, regulatory support by way of RPO norms for the obligated entities and fiscal policy support in the form of GBI benefit. Taking note of the large sized investment plans in the Independent Power Producer segment, the report said the average capacity addition was expected to remain high between 2,500 MW and 2,700 MW in FY 2015.
It added that the bulk of capacity addition by the industry had been based on preferential tariff regime based Power Purchase Agreements with state utilities. The states which accounted for most of it were Maharashtra, Rajasthan, Gujarat and Andhra Pradesh.
The report further highlighted the support provided by way of upward revision in preferential tariffs by State Electricity Regulatory Commissions in all key states with good wind energy potential over the last 12 – 18 months and also pointed out that GBI was applicable over and above preferential tariffs.
Based on ICRA’s analysis of the RPO trajectory norms and their compliance levels till FY 2013 by the distribution utilities across states, the report said that SERCs in 20 out of 28 states had stipulated the RPO norms for FY 2015. Among the remaining eight states, SERCs in Meghalaya and Uttar Pradesh had made provisions for continuation of the prevailing RPO for subsequent years until new RPO norms were approved.
“The long term trajectory for RPO i.e. till FY 2017 is in place only in 11 out of the 28 states,” the report said.
“Further, the RPO norms continue to vary across the states in terms of both, quantum of RPO and also the period of RPO trajectory approved by the SERCs. The RPO levels vary from 3 percent to 10.25 percent in FY 2014 and similarly, vary from 3.3 percent to 11 percent in FY 2015 for the obligated entities across the states. RPO levels in majority of the states continue to remain lower than the RPO trajectory suggested under National Action Plan for Climate Change,” it added.
The NAPCC specified a minimum RPO target of 5 percent in 2009 – 10, requiring it to be increased by one percent every year for a period of 10 years to reach 15 percent by 2019 – 20.
The report said that SERCs in only Himachal Pradesh, Karnataka and Tamil Nadu had stipulated RPO norms greater than or equal to the target suggested by NAPCC in FY 2014. The RPO levels in 11 states still remained less than or equal to 5 percent for FY 2015 as against the suggested level of 10 percent by NAPCC.
In terms of RPO compliance, the report observed that discoms in Himachal Pradesh, Karnataka and Tamil Nadu had completely met the RPO norms as specified by their respective SERCs for FY 2013 while those in Gujarat, Maharashtra and Rajasthan achieved RPO compliance in the range of 90 to 95 percent of the targeted RPO for the same period. The RPO compliance remained weak though in states such as Andhra Pradesh, Assam, Bihar, Delhi, Haryana, Uttar Pradesh, Uttarakhand and West Bengal owing to weak enforcement of the RPO norms by SERCs and also unwillingness on the part of discoms to meet the RPO norms through procurement of Renewable Energy Certificates. The RPO compliance by captive consumers and open access consumers had also not been satisfactory.
“With weak compliance of RPO levels and wide divergence in RPO trajectory across states, demand for REC continues to remain adversely affected since the last 18 months,” the report said, noting that recent regulatory orders issued by SERCs in Uttarakhand, Punjab, Maharashtra and Union Territories directing the obligated entities to ensure RPO compliance for FY 2014 and also make up the shortfall in the preceding periods by end of March 2014 were positive for the sector.
Focusing on the domestic wind turbine equipment manufacturing segment, the report said there was significant overcapacity at about 12,000 MW as against annual installations of 2,000 to 2,500 MW. The overcapacity coupled with slowdown in investments had intensified competition among the players.
“The domestic market continues to be dominated by 4 – 5 players, especially by those who have a strong land-bank position and project development rights. The top five players contributed to 80 percent of the overall capacity additions in FY2014,” the report said.