Wind sector's biggest hurdle? Domestic equipment procuring mandate

Wind is often considered a poor cousin of solar in India, where it hardly constituted a sixth of solar power installations last year because of its unique siting and development challenges, and higher tariff structure. But a new central government initiative, encouraging developers to source locally made wind equipment on grounds of energy security, may end up  costing the cousin more. The sector is already buffeted by challenges, including New Delhi’s inability to follow through on a new auction process to award wind projects and delays by state agencies, industry sources told Business Standard.

 

The move to press the pedal on domestic sourcing of all wind turbine components comes amid heated opposition from developers. This also almost coincides with the Global Wind Day, which falls on June 15. Meanwhile, New Delhi is celebrating India installing 50 gigawatts (Gw) of capacity as of this May, a journey that has taken 40 years, compared to a decade for solar to over twice the capacity, government data show. 

Wind constitutes 11 per cent of the country's total installed electricity capacity, compared to close to 23 per cent for solar, but it is equally critical for India to turn carbon-neutral by 2070. Solar grew 38 times in the past decade but wind grew only 2.4 times, according to data from Ministry of New & Renewable Energy (MNRE). 

The year 2024-25 was a record year for solar power additions at 24 Gw, MNRE said. But wind energy has lagged, with only 4 Gw in place. April saw 1 Gw of wind getting commissioned, according to Wind Independent Power Producers Association (WIPPA), giving rise to hopes that installations may more than double from 2024. 

“Wind power is not just a standalone energy source, but a core pillar in integrated, hybrid systems,” said Amit Jain, country manager, India, ENGIE, a France-based global energy company. “Wind’s natural generation strength during evening hours complements solar’s daytime output, making it a vital part of the energy mix,” Jain added.

 

“We believe that with the robust outlook for the wind industry in India, demand for wind OEMs (original equipment manufacturers) and service providers will continue to be strong going ahead,” said Kailash Tarachandani, group chief executive officer (CEO), renewable business, for the INOXGFL group, a leading wind project developer.

 

But any such optimism to install over 10 Gw of wind power annually is tempered by New Delhi’s drive to indigenise wind component manufacturing and move away from Chinese imports, industry officials said. 

 

Headwinds loom large for wind power developers from the Revised List of Models and Manufacturers (RLMM) policy, a domestic procurement mandate for wind turbine equipment similar to the Approved List of Models & Manufacturers (ALMM) policy, implemented for the solar sector last year, said Parag Sharma, head of WIPPA and CEO of renewables developer O2 Power, which was acquired by JSW Energy in December for $1.47 billion. Sharma said this to Business Standard in an interview. Among the challenges slowing wind capacity, including evacuation delays, location restrictions and approval delays from state agencies, RLMM comes first.

 

A draft note closed for comments last month, and developers who Business Standard spoke to are worried over the rules, with 0-6 months’ time given for implementation, according to WIPPA. Under RLMM, manufacturers must also disclose the source of the turbine’s blade, tower, gearbox, and generator along with details on the tower type, rated power, technical collaboration and type certification, as well as information about manufacturing facilities in India.

 

Wind turbines of individual capacities ranging from 225 kilowatt (kW) to 5.2 megawatt (Mw) are being manufactured in the country and enlisted in the RLMM, including 31 different models manufactured by 14 companies, Pralhad Joshi, minister for new and renewable energy, told the media.

 

RLMM is one of the things “really putting a dent on the growth of the wind industry”, Sharma, a power sector veteran, said. The policy, which advocates 100 per cent sourcing of all wind components with immediate effect, will drive up costs for developers in a business where tariffs are already structurally higher by over 35 per cent than solar at over ₹3.70per kilowatt hour (kWh).

“Wind is considered a very high-tariff industry as compared to solar, so it's not in the interest of the industry to increase tariffs,” Sharma said.

 

The 100 per cent localisation is likely to lead to significant cost escalation in the short-to-medium term, Sharma said.

Tariff wave

Tariffs occupy centre stage for wind projects because dirt cheap bids in the past had led to shelved projects and slowed wind power growth, forcing MNRE to consider changing the auction system to closed bids from reverse auction, where developers push tariff bids lower after seeing rival offers, industry officials said. But it has been over a year and MNRE has not yet  enforced the new tender system.

 

“RLMM will definitely cause disruption, in terms of pricing as well as availability,” said Neerav Nanavaty, CEO, Blue Pine Energy, which started with a $800 million equity commitment from Actis, an international investment company. “And that will again reflect in your tariffs, which will then again precipitate the issue of power purchase agreements (PPAs),” Nanavaty added.

Delays in signing PPAs have derailed nearly 20 Gw of both solar and wind projects, industry officials said.

 

Cost matters more to wind than solar because 1 Mw of wind power costs ₹7.3 crore to develop compared to ₹4 crore for solar, according to WIPPA.

 

“In Gujarat, we had a two-year cycle from PPA to commissioning, but we had to start probably almost 12 to 18 months prior to that to be able to capture the wind data because these sites are large,” Nanavaty said. 

 

Higher development costs send wind tariffs higher by at least 25 per cent compared to solar at over ₹3 per kWh, industry officials said.

 

Sharma cited the example of ALMM’s impact on solar modules where what cost 10 cents/WP (mean wind power) to import from China was sourced for 16-17 cents from a local manufacturer.

 

“Solar could afford it, because solar tariffs are lower, but wind tariffs are so high already, and unnecessarily you are trying to have each component in India, making wind turbines costlier,” Sharma said.

 

Nanavaty cited an impact on supply chains, a view echoed by WIPPA, which, in a presentation to MNRE last month, said: “Retrospective, immediate localisation will cause adverse commercial impacts across the supply chain.”

 

“We have a handful, maybe three or four, of suppliers on the wind side in India and their supply chains are choked. We need to really widen and deepen the wind supply chain for us to be able to de-bottleneck this whole wind power issue,” Nanavaty said. European wind turbine manufacturers like Vestas and Siemens are no longer competitive in India.

 

Amit Kansal, CEO of Senvion India, a wind turbine manufacturer and a firm votary of the government’s “Make in India” programme, called RLMM “an anti-dumping exercise”, because “we don't want dumping in India; people can disrupt your domestic manufacturing by dumping in India on a short term and local manufacturers can go bankrupt”. He has indigenised 80 per cent of his turbine production. Approximately 70-80 per cent indigenisation has been achieved across India, with a total manufacturing capacity of about 18 Gw per annum, MNRE said.

 

Developers questioned the need for RLMM when most manufacturing is already done in India, with local makers proving more competitive than western turbine producers.

 

WIPPA has come up with a compromise, according to a document seen by Business Standard, which was presented to MNRE, where it has recommended exempting existing awarded and bid-out projects, as well as bids to be submitted over the next one-two years; allowing producers to pass through any change in pricing; an advance notice of two-three years for the sector to prepare; and a phase-wise implementation for increased localisation over the next four-five years. In the interim, it has suggested a graduated import tax, with an initial exemption for the first three years for all new and existing players.

 

But, the jury is still out on which way the wind will blow.