State electricity regulatory commissions increasing tariffs without taking into account technology improvements
The wind energy prices have been falling globally but the trend is opposite in India. This has led to increasing conflicts between wind energy producers and buyers.
The Rajasthan government had announced in its wind policy for 2012 that it will determine the wind energy feed-in-tariff through competitive bidding. In line with the policy, Rajasthan Renewable Energy Corporation Limited (RRECL) released “request for proposal” during first week of February to install 300 MW of wind power capacity in Rajasthan by determining tariff through competitive bidding process. But this has met with stiff opposition from wind industry.
Benefits of competitive bidding
Competitive bidding leads to market price discovery and possibility of price reduction leading to uptake of higher renewable energy targets. Countries like Brazil, China and the US have already introduced competitive bidding in wind, which has lead to drastic reduction in wind energy cost. For instance, the competitive bidding in Brazil has lead to decrease in wind energy cost by about 50 per cent from the feed-in-tariff level.
The average power purchase cost (APPC) in Rajasthan is Rs 2.57 per unit of electricity. The feed-in-tariff of wind in Rajasthan is almost double of APPC of Rs 5.18. This has financially burdened the state power utilities, which ultimately pass on the burden to consumers.
The tariff for wind energy in Tamil Nadu is Rs 2.75-3.51 per unit, in Gujarat it is Rs 4.23 and in Rajasthan it is Rs 5.18-5.44. The per unit tariff is Rs 3.50 in Andhra Pradesh and Rs 3.70 in Karnataka. The tariff in Maharashtra is in the range of Rs 3.78 - 5.67 as per different wind zones.
Even though the wind tariff of Maharashtra is one of the highest in the country, Maharashtra Electricity Regulatory Commission (MERC) has proposed to further increase the tariff range from Rs 3.86 per unit to Rs 5.80. This has been challenged by Maharashtra State Electricity Distribution Company Limited (MSEDCL) or Mahavitaran which says it cannot accept the high cost of wind energy and is against passing on that cost to consumers.
Electricity Act of 2003 mandates inclusion of renewable energy in the energy mix, the percentage of which is to be decided by the state. At present, Mahavaitran says, it has been including up to 8 per cent of renewable energy, which is expected to go up to 9 per cent in 2013-14. In a recent public hearing held by MERC, Mahavitaran has submitted a petition, opposing the hike in wind tariff as it says the pricing of wind energy is not justified due to various reasons.
Maharashtra is the only state which has adopted zone-wise wind energy tariff, introduced by Central Electricity Regulatory Commission (CERC) three years ago. Most of the high density wind power sites in Maharashtra are already saturated and the new wind projects are likely to be installed in low wind density sites and hence would have the highest cost for wind energy. The power utility in Maharashtra purchases power at average cost of Rs 3.30 and the tariff of wind energy is about Rs 2.50 higher. This is going to have major impact on the cost of power supply and would impact consumers.
Since 2008, wind turbine prices in the US have fallen by nearly one-third on average, according to a report by Lawrence Berkeley National Laboratory (Berkeley Lab). Bloomberg New Energy Finance (BNEF) has also reported that the cost of running and maintaining wind farms has also fallen 38 per cent in the past four years as competition among contractors increased and turbine performance improved. Similar trend is also seen in China where installation cost of onshore wind power system has been decreasing since 2007. However, the trend in India has been reverse where the price has been increasing every year.
State electricity regulatory commissions use indexing formula to calculate the capital cost of wind turbines each year by accounting for inflation in steel and cement. However, such indexing formula does not take into account technology and wind resource improvements which are significant.
States such as Karnataka and Rajasthan are keen to introduce competitive tariff for wind. Even Mahavitran has called for competitive bidding for wind. On these lines, the Union Ministry of New and Renewable Energy (MNRE) had finalised guidelines for determining tariff for renewable power projects through competitive bidding on December 27, 2012. However, a week later the ministry excluded the wind energy sector from competitive bidding guidelines, following requests from the Indian Wind Turbine Manufacturers Association.
The wind industry has been opposing tariff determination by competitive bidding as they are of the opinion that it is not the right time to introduce competitive bidding for wind energy, though they do not disapprove of the policy. K Kasthoorirangaian, chairperson of Indian Wind Power Association (IWPA), says that the wind energy sector is already plagued with many problems as of now like lack of proper transmission infrastructure, delay in payments from state utilities and REC market being in dismal state. Apart from that the wind industry has been demanding reinstatement of incentives such as accelerated depreciation and generation based incentives, which expired in 2012-13.