Bidding guidelines aim to address wind project bankability

Over the last few years, India has made momentous strides in its wind energy capacity addition, positioning itself among the top five nations as it continues to bolster the capacity with each progressing year. However, the number of profitable business ventures arising out of this stellar showing remains few, with the industry stakeholders yearning for reforms to arrive at a bankable implementation model which fosters competition and transparency.

Several wind power producers have witnessed considerable revenue leakages due to grid unavailability, instability and payment defaults by distribution companies (discoms), coupled with insufficient or lack of payment security from the procurer or government, or the lack of funding. Frequent instances of grid backing down (i.e. where conventional and sometimes solar power producers are given preference to export power on the grid over wind power producers) without any compensation being awarded is another major cause of concern. Moreover, and to the horror of the existing lenders, after the low tariff discovered from the auctions conducted thus far, discoms of the primary wind-energy producing states have expressed strong reservations about continuing with the current feed-in tariffs (FiT) and have been pushing developers that qualify for fixed payments to match the lower costs as achieved during auctions.

To add to the investors’ plights, the first two wind auctions, conducted in February and October 2017 (prior to the guidelines coming into effect), resulted in record-low tariffs of ₹3.46 (US$0.054) and ₹2.64 (US$0.041) per megawatt, respectively. The forecasted disruption from aggressive tariff downfalls due to an ultra-competitive atmosphere in India’s power sector has made ensuring ease of obtaining low-cost financing from lenders a paramount need for the industry stakeholders.

Rahul Arora is a partner and Abhinav Mishra is an associate at HSA Advocates. HSA is a full-service firm with offices in New Delhi, Mumbai, Bengaluru and Kolkata.