'Uncertainty on incentives may hit 60 GW wind power target'

The uncertainty on extension of generation based incentive (GBI), coupled with unwillingness of state discoms to support costly power, may adversely impact government's vision to achieve 60,000 MW wind capacity by 2022, a report said.

However, the reverse auction of wind projects may prove to be a game changer for the sector as it is likely to reduce the cost of power, improving its relative competitive advantage, said the report by ICICI Securities.

According to the brokerage, although India has already met 45 per cent of the 60,000 MW target, rest of the target seems difficult as removal or reduction of incentives like GBI and AD (accelerated depreciation) and reduced willingness of states to support costly renewable power, will result in slower capacity addition.
 

"Removal of incentives such as GBI, reduction in AD benefit and introduction of reverse bidding as against the current feed-in-tariff mechanism may deter new investments in the sector.

"Additionally, wind power technology is fairly matured vis-a-vis solar power, reducing the possibility of significant reduction in cost of generation and/or technological obsolescence," it said.

However, ICICI Securities believes that reverse auction will be a game changer as the sector will wean away from the regulated regime to a more transparent market-linked price discovery mechanism.

"It may reduce the cost of wind power, improving its relative competitive advantage," it said.

It, however, noted that the reverse auction may also hit the internal rate of return (IRR) as tariff bids will trend downwards.

"However, tighter margins will force efficiency optimisation measures and better capital employment. The ensuing fall in tariffs will improve cost competitiveness of wind power. We also believe players with access to superior sites will be at an advantageous position in the auctions," it added.