The introduction of reverse auctions in the wind sector is making the power generation source increasingly competitive with solar and thermal power in India.
In a recently concluded 500 MW wind auction by Gujarat Urja Vikas Nigam Limited (GUVNL), the lowest quoted tariff was ₹2.43 (~$0.038)/kWh. This was even lower than previous low solar tariff of ₹2.44 (~$0.037)/kWh quoted in both the Bhadla Solar Park Auction in May 2017 and a 2 GW wind auction held by the Solar Energy Corporation of India (SECI) in mid-February. The ₹2.43/kWh tariff was also ₹0.21 (~$0.003)/kWh less than the another previous low wind power tariff of ₹2.64 (~$0.0413)/kWh quoted in October 2017.
The price of wind power tariffs in the country has now fallen far enough to compete with mainstream thermal and solar which is grappling with a plethora of uncertainties. Can wind now compete head to head with solar going forward?
To delve deeper into this and other issues, Mercom’s news team interviewed P. Vinay Kumar, the chief operating officer (COO) of Greenko Group, to gain a better understanding of what project developers involved in both wind and solar think.
Here are the excerpts from the interview:
With the current uncertain policy environment in solar, is the wind sector starting to look attractive again?
Well, the policy environment is just as uncertain now for wind as it is for solar – if not more. The change from a Feed in Tariff (FiT) based regime to the one based on competitive bidding has taken an immense toll on the wind industry and it is currently going through a taxing phase. Wind’s Original Equipment Manufacturers (OEMs) are getting leaner and cutting the flab. The Independent Power Producers (IPPs) winning the SECI wind bids have quoted tariffs which are competitive, and this is providing guidance for how wind OEMs should price their equipment. But, I believe the wind tariffs that have been discovered in recent bids have a lot to do with the high yield of the sites that have been chosen for bidding. The bidding paradigm concentrates capacity in high yield sites to the detriment of low yield sites. Therefore, in a way, the wind sector is bouncing back and finding a new equilibrium and a new average.
Wind tariffs are competing directly with solar nowadays. Which is more viable at the current prices, solar or wind, and why?
Wind financial models tend to be extremely sensitive to the Capacity Utilization Factors (CUFs) of the sites, whereas solar financial models tend to be very sensitive to the project costs. Otherwise, comparing these tariffs is akin to comparing apples to oranges for all practical purposes. It is only by coincidence that the tariff levels are the same. Wind CUFs for these tariffs have to be in the high 30s in order for Internal Rate of Return (IRRs) to be in the low teens. So, in essence, even though the tariffs look deceptively similar (₹2.43 to ₹2.44/ kWh), the underlying triggers and drivers of solar and wind tariffs are as different as chalk and cheese.
High CUFs in wind, as opposed to project costs in solar, are the key factors driving the prices. Bidders tend to assess viability not at current prices, but instead base their bids on estimated prices where they intend to procure. Historically, the low solar tariffs in the recent past have been predicated on aggressively low project cost projections for solar modules made by the bidders over a 15-18-month construction time horizon, which the bids allow.
If you won both a wind project and a solar project at the same tariff, which one would be more lucrative?
There is no straight answer to that question. Each bid is unique in its own respect and its viability or lucrativeness is at the bid level.
Do you think competitive bidding has helped wind, or was the previous FiT regime better?
Many would shy away from admitting it, but the wind industry would of course love to go back to the days of certainty and assured project returns which the FiT regime offered. Competitive bidding, however, has a moral underpinning that is difficult to argue against. We have to live and change with the times. Market based mechanisms are here to stay.
What are some of the positive and negative aspects that come up when you directly compare solar and wind?
As a clean energy IPP, we tend to be technologically agnostic in a way. Fund allocations happen on the basis of financial returns expected at the project level. Risk perceptions of projects are also factored in during the process. In this process, it does not matter whether the project is wind or solar. Wind, however, requires long range planning. The long lead time of projects, which includes at least 2-3 years of data gathering, which made sense in an FiT based regime with regulated and certain returns. My worry is that competitive bidding may dis-incentivize that kind of long range wind prospecting and collection of accurate and quality data.
The competitiveness of solar’s price point is bound to maintain its momentum in the future. A Stanford energy futurologist and professor of business disruption has predicted that solar tariffs would reach a point he calls “god–parity” by 2030 – at which time the cost of solar generation would fall below the cost of transmission. When god-parity is reached, it would not make sense to transmit power from point A to point B. It would make sense to consume power at the point of generation. Solar offers the prospect of lower power generation costs than wind does at this point.
How has the wind industry managed to grow over the years without facing trade disputes and anti‑dumping duties?
The wind industry is a 20-year-old industry and that has indigenous manufacturing bases in most countries. This has been partly due to the constraints of the required technology. For example, it is not practical or feasible to transport blades by sea over long distances. This has led to a fairly high degree of technology absorption and localization of manufacturing, with few cross-border flows. The possibility of trade disputes is remote when there are no cross-border flows of significance. This stands in stark contrast to solar, where a majority of the panel manufacturing capacity has been concentrated in China – inviting trade disputes and anti-dumping duties.
Have you faced a similar duty issue at ports for wind components?
No, but our experience is not a viable indicator because as IPPs, we are insulated from these issues. Classification and duty-related issues are faced by wind OEMs and not IPPs.
If given a choice, what project would you choose to develop, solar or wind? And why?
This again is the not the right question. Project choices are governed by expectations of returns and risk-rewards trade-offs and it does not matter whether it is a wind or solar project.
Saumy is a senior staff reporter with MercomIndia.com covering business and energy news since 2016. Prior to Mercom, Saumy was a copy editor at Thomson Reuters. Saumy earned his Bachelors Degree in Journalism & Mass Communication from the Manipal Institute of Communication at Manipal University. More articles from Saumy Prateek.