Has the wind power industry reached a tipping point? With wind power cost touching a new low of Rs 2.64 per unit, it does seem so.
Has the wind power industry reached a tipping point? With wind power cost touching a new low of Rs 2.64 per unit, it does seem so.
In an auction conducted by Solar Energy Corp of India, a government enterprise, 1 gigawatt (GW) of power contracts were sold between Rs 2.64 per unit and Rs 2.65 per unit.
What is more encouraging in the auction is that nine companies bid for the project and all of them bid at a price lower than the previous low of Rs 3.46 per unit, which itself was a record low falling from earlier levels of over Rs 4.5 per unit.
The naysayers were advocating that Rs 3.46 per unit is an outlier and it is not sustainable. But with all nine players bidding below this level, it looks like a new normal has been established.
Incidentally, this quote of wind power is now below the average price of which India’s largest thermal power generator NTPC is producing power. The average rate of power generated by NTPC is Rs 3.20 per unit. Also, wind power now comes very close to the record low prices at which solar power was bid in the auctions in May this year. The Gujarat solar auction saw winning bid close at Rs 2.44 per unit.
Both solar and wind power rates have come crashing down from Rs 10-12 per unit in 2010-11. One of the main reasons for the drop in power costs has been the drop in the cost of power equipment. Solar panels have seen its price drop by 80 percent while wind power generators have lost 20 percent over the last five years.
Along with the drop in equipment cost, government’s action has added to the drop in price. One of the biggest problems that renewable energy players were facing was land acquisition which added to the cost of power produced. Further, even after power was produced state electricity boards (SEBs) were reluctant in purchasing power as they found renewable power costly compared to thermal power.
Many SEBs went back on their power purchase agreements, preferring to buy low-cost power rather than adding to their losses by buying costly renewable power.
However, the auction rates of wind power and solar power suggest the tipping point for renewables in India has arrived. In the case of the electric vehicle, the tipping point is considered to be when the vehicles cost is lower than those of diesel and petrol vehicles. Environmental benefits apart, consumer interest is only ignited when it does not pinch his pockets.
The same logic is valid for renewables: an SEB would only be interested if the price of purchasing the power is around traditional sources or lower than that.
Till date, government incentives were targeted at the financier or producer who would be willing to set up wind and solar farms. The SEBs were not incentivized enough to go over the top and buy renewable power. The rates at which present auctions have been closed would give no reason for the SEBs not to buy power from the renewables.
But these developments will be effective for future renewable generations. As recent developments in Tamil Nadu show, the state canceled a 500-MW auction awarded in February 2017, because the lowest bid it received was at Rs 4.40 per unit, much higher than the then lowest solar power auction price of Rs 3.47 per unit.
While the future is bright for both solar and wind power, the government is already having a problem of handling capacities that have been installed earlier. It needs to clear the backlog of issues before they knock at its door as non-performing assets.
Source: moneycontrol
