FY12 Wind based capacity addition to be 2800 MW…

ICRA has published a Press Release on 10th January 2012, predicting the wind based capacity addition during the FY 2011 – 12 and thereafter. As per the ICRA, the wind based capacity addition during the current FY be around 2800 MW as against the 2350 MW during last FY. The same may grow at an annual rate of 15% going forward.

 

The key drivers of the wind based capacity addition are (i) growing demand from Independent Power Producer (IPP) segments (ii) commencement of trading of Renewable Energy Certificates (REC) on Power Exchanges as well as long-term certainty over the floor/cap pricing mechanism of REC.

 

Further, according to ICRA, the spiraling international cost of conventional energy sources and persistent domestic fuel shortages make wind energy more cost-competitive. 

The new wind-based projects/IPPs may prefer the REC route against the preferential tariff route, and within the REC route, many IPPs would prefer to sign their power purchase agreements (PPAs) with discoms at their average power purchase cost (APPC) instead of selling on merchant/short-term basis. This is due to open-access and banking facility constraints and volatility in merchant tariffs, although the merchant option under the REC route is the most remunerative option available.

According to ICRA, following issues could adversely affect the capacity addition of wind projects.

• Implementation issues in complying with Renewable energy Portfolio Obligation (RPO) norms due to lack of consistency and a wide divergence in RPO norms across states, risk of any amendment in RPO norms by SERC (as observed in few states), no precedence of any enforcement of penalty on obligated entities† for shortfall in RPO & absence of regular monitoring of RPO compliance by state agencies
• The counter-party credit risks of state utilities in most of the states having wind energy potential have increased significantly as evident from persisting defaults to wind mills in the states of Tamil Nadu and Rajasthan.
• Execution risks associated with strengthening of the intra-state transmission network beyond the inter-connection point remains a challenge for the utilities across the states, also given their weak financial position
• With respect to tariff regulations, implementation of wind-zone specific tariffs (as devised by CERC in its generic tariff principles) remains uncertain in Maharashtra, which is the first state to adopt such tariffs. On the other hand, preferential tariffs continue to vary across the states, and remain fixed for a longer control period which could impact the returns of new projects commissioned

 

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