Procuring wind energy through bids a positive for sector:ICRA

The scheme for procurement of wind energy through auction is a positive for the sector but receivables (payment delays by discoms) remain an area of concern, says ICRA.
"In ICRA's view, continuing delays in the payments by the state-owned distribution utilities (discoms) in key states such as Maharashtra and Rajasthan pose a challenge for the wind energy sector, although some improvement has been seen lately," ICRA said in a statement.
On the positive side, however, ICRA believes that the MNRE scheme for procurement of 1 GW through the auction route would facilitate the offtake for wind energy players, it added.

ICRA Ratings Senior VP Sabyasachi Majumdar, said in the statement, "While there has been some improvement in payment pattern by utilities in Rajasthan, with the implementation of UDAY (Ujwal Discom Assurance Yojana) as well as by the utility in Maharashtra in the last three month, a build-up in receivable position is seen, which varies from 8 to 12 months as on November 2016 and thus remains quite significant.
In addition to payment delays by state utilities, wind energy projects remain vulnerable to the risk of non-signing of power purchase agreements (PPAs) by the utilities as seen in Maharashtra and forced back down by utilities in Rajasthan and Tamil Nadu."

Further, implementation of forecasting and scheduling framework, as approved by State Electricity Regulatory Commission (SERC) in Karnataka and in other states where draft regulations are in place, poses regulatory challenges for the sector, given the variable and intermittent nature of wind power generation and limited experience available with IPPs in forecasting and scheduling as of now, the statement said.

Also, the sector continues to face challenges due to the limited compliance of renewable purchase obligation (RPO) norms by the obligated entities as well as the variance in RPO norms across the states, it added.
Notwithstanding these near-term challenges, the long-term demand potential for wind power remains strong, given the large untapped potential, fairly attractive feed-in tariffs and relatively lower execution risks.

ICRA notes that the incremental wind-based energy capacity requirement by FY2022 is estimated at about 46 GW as against the current installed capacity of 28.1 GW.
This is assuming annual energy demand growth of 6 per cent, non-solar RPO at 12.5 per cent by FY2022 and wind as a renewable energy (RE) resource contributing to a dominant share (75%) in meeting the non-solar RPO requirement on an all India basis, it said.
"ICRA further favourably notes that the scheme for award of 1 GW through the auction route by the Ministry of New and Renewable Energy (MNRE) would facilitate the consumption of wind-based generation by distribution utilities in states with limited wind energy resources.

"This, apart from reducing the offtake risks for wind energy players, would enable the distribution utilities in such states to honour their non-solar RPO requirement to some extent", Majumdar added.