In ICRA’s view, wind energy sector is facing headwinds in the near term arising out of the substantial reduction in preferential tariff (from Rs. 5.92 per unit to Rs. 4.78 per unit) for new wind energy projects to be commissioned in Madhya Pradesh (MP); and slowdown in signing of fresh PPAs and reported delays in payments by state-owned utility in Maharashtra.
“These headwinds could lead to a decline in fresh capacity addition to about 2500 MW in the wind energy sector during FY2017. Further, the expiry of generation based incentive from March 31, 2017 and reduction in accelerated depreciation benefit from 80% to 40% could also impact the wind power capacity addition from FY2018 onwards Notwithstanding these short-term challenges, we believe that the long-term outlook for wind energy remains strong given the favorable government support, large untapped wind power potential, fairly attractive feed-in tariffs and relatively lower execution risks” says Mr. Sabyasachi Majumdar, Senior Vice President, ICRA Ratings.
In FY2016, the wind power sector witnessed a record capacity addition of 3415 MW, an increase of 48% over the capacity addition of 2308 MW achieved during FY2015. A major portion of this capacity addition was accounted for by new projects in MP, given the attractive tariff (i.e. at Rs. 5.92 per unit) being offered in the state in the period leading up to March 31, 2016.
ICRA notes that the incremental wind-based energy capacity requirement by FY2022 is estimated at about 35 GW as against the current installed capacity of 26.8 GW. This is assuming annual energy demand growth of 6%, renewable purchase obligation (RPO) at 12% by FY2022 and wind as a renewable energy resource contributing to a dominant share (75%) in meeting the non-solar RPO requirement on an all India basis.
ICRA however notes that the sector is facing challenges due to the continuous variation in RPO norms across the states as well as the limited RPO compliance. The RPO norms continue to vary across the states in terms of both, quantum of RPO varying from 2.00% to 12.50% in FY2017 across the states and also the period of RPO trajectory with only six states stipulating RPO norms till FY2022. Moreover, compliance in RPO norms on an annual basis by obligated entities continues to remain weak, as state electricity regulatory commissions (SERCs) tend to carry forward the shortfall in RPO compliance to the subsequent period, instead of directing any penalty or regulatory charges for non-compliance in most of the states.
ICRA also notes that the SERCs in key wind states like Rajasthan, Tamil Nadu and Karnataka have proposed implementation of forecasting and scheduling framework for wind and solar power projects connected to the intra-state grid, following the notification of similar regulations by Central Electricity Regulatory Commission for wind and solar power projects connected to the inter-state grid. ICRA is of the view that once approved by SERCs, these regulations will have a negative impact on cash flows and project IRR for the wind power projects, if the actual overall deviation (mix of over-generation and under-injection) exceeds 30% of the scheduled generation. Further, wind by nature is variable and intermittent, which may translate into a risk of wide fluctuations in actual resource availability, which in turn makes it challenging for the sector for forecasting, though the same is possible to some extent through robust technical/statistical modeling with the use of past generation/weather conditions data.
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