Wind Tariff below Rs. 4/kWh in SECI tender

SECI conducted the reverse auction for Wind for the first time, and the tariffs dropped to Rs.3.46/kWh. This is lower than the lowest tariff(Rs. 4.16 in Tamil Nadu. Conditions apply 🙂 ).
The implications for the Indian wind industry is quite huge. The industry so far(for better part of the last 20 years) has been working on a Feed-in-Tariff model without bidding, with the industry being dominated by a few Turbine manufacturers. The industry was also driven by the Accelerated Depreciation(AD) model, which led to a situation where tariff realization for the government was not the priority. The positive result is that the Indian Wind Turbine manufacturers built a robust ecosystem, and the industry grew without much competitive pressure and also became one of the top Wind Power generators in the world. The downside of it was that for most asset owners, performance of the wind generation assets were not a primary focus, since most of the investors could get their paybacks fairly quickly because of AD benefits.
In order to make the sector more attractive to the Independent Power Producers(IPPs), the government introduced a Generation Based Incentive(GBI) scheme, which naturally meant that performance of the windmills was critical for the owners.
At one point, some of the inventives were removed, and the result was that the growth of the sector nosedived. In 2013, The GBI was restored, and that led to some relief to the wind asset owners.
The success of reverse bidding in solar led the government to consider using the same for allocation of wind projects. Naturally, there was a lot of resistance to move reverse bidding from various stakeholders. One of the major complaints against reverse bidding in solar, which according to us is very valid, has been that reverse bidding has led to price undercutting for strategic reasons, and a resultant compromise on quality. It has also put tremendous price pressure across the entire value chain – be it design, procurement and construction, and very few people money in the sector. Success of the projects is largely dependent on financial engineering and access to low cost finance. Wind sector fears that this will happen in an otherwise relatively healthy wind sector. It can also be argued that folks whose inefficiencies are masked by lack of much competition will find the going forward tough.
In case case, government decided to go ahead with the auction, and the early results are out. The tariff has dropped below Rs. 4/kWh, and how the industry evolves from here will be quite interesting to watch.