The Return of Reverse Auctions For Wind Energy- Bad News Or Normalcy ?

Highlights :

  • For the wind energy sector, which has barely gone past the green shoots of recovery phase after a dismal time during 2021-23, the return to reverse bidding is an ominous indicator.
  • The higher share of hybrid and storage projects might leave the larger developers with some elbow room to maintain margins though.
The Return of Reverse Auctions For Wind Energy- Bad News Or Normalcy ?

Following reports that the government has instructed leading PSU energy developers to return to the reverse auction mechanism for wind energy tenders, SaurEnergy tried to check the veracity of the claim. Without coming on record, it appears that a communication has been sent to that effect, to NTPC, SJVN, NHPC and of course SECI, which is expected to bid out the largest quantum of wind energy tenders. Together, these four PSUs will account for over 65% of the utility scale wind energy market to 2030, by many estimates.

The decision to go back to the reverse bidding route, which continues to be in place for solar auctions, is a little surprising considering the quantum of tenders that have actually been placed without the reverse bidding conditions. Readers will recall that the exemption for wind energy tenders was announced early in 2023, mainly due to underbidding on many projects, besides failure to close even some projects where winning bidders had been announced.  This was considered a policy failure as unlike solar, India does have a fairly robust domestic wind equipment manufacturing base that was being underutilised due to the low tariffs.

Tariffs After Change

Tariffs duly rose after the removal of reverse bidding, by upto 25% or more, depending on the benchmark one uses. Considering an average pre-exemption tariff range of 2.60-2.70/kWh, tariffs after the reverse bidding conditions were removed rose to well over Rs 3.30 to Rs 4.25 approx.  Order books for domestic manufacturers like Suzlon and Inox Wind duly rose to much healthier levels, and there were high hopes that these firms would have a strong run to 2025 and beyond. While servicing existing orders should help them deliver strong set of numbers for the next few quarters, the future beyond that is again a little hazy, as the market reacts to the return to reverse bidding. Some developers we spoke to expressed the hope that the damage would not be significant. Pointing to the more conservative solar bids seen in recent months despite the drop in module costs to 12-14c/watt, one developer was hopeful that wind energy bidders would learn from the past when many projects were surrendered eventually due to high bids.

The increasing bundling of renewable energy tenders with storage also adds another variable for bidders, which would help ensure that the final ‘blended’ cost of power remained within acceptable limits, said another developer.

Another Key Change 

Another key change indicated in the MNRE letter is a return to all India bods, or the freedom to developers to set up wind energy plants anywhere in India, rather than the state specific bids that were being seen in the past few months. That had also impacted bid values to an extent, and the hope clearly is to drive down prices again through this flexibility.   With a target of 8GW of wind tenders every year, here’s hoping the macro numbers stay the course.

Update: Devansh Jain, Wholetime Director, Inox Wind, in a call with CNBC TV-18, stressed that the change in policy, if any was almost irrelevant. Jain claimed that despite the talk of dropping the reverse bidding norms, almost all tenders in the RTC, Hybrid and  FDRE segment have still been done under the reverse auction mechanism till now. Till date only one plain vanilla wind bid has been done via the closed bid system, it was undersubscribed, and the tariff bid was Rs 4.24. Thus, to him the response was a knee jerk reaction.

With almost 18 GW of tenders that remain to be fulfilled by players, this was the reason for the poor response seen recently, he stressed. There is a shortage of equipment actually, he pointed out.

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