Wind Energy Generation to Surge 4-5 Times on Policy Tailwinds: CRISIL Report

According to a report by CRISIL, the Ministry of New and Renewable Energy has introduced positive policy changes that could lead to a 6–8 GW annual increase in wind capacity starting in fiscal 2026. This would be four times the growth of 1.6 GW seen in the past five fiscal years, which was driven by aggressive tariff bidding in reverse auctions since fiscal 2018. Under a reverse auction, bidders compete on an open e-platform and adjust tariffs within timeframes, with their quotes visible to all participants.

However, this process led to the discovery of irrationally low tariffs favoured by state distribution companies, which compromised returns and provided little incentive for developers to complete projects. Delays in land acquisition and setting up evacuation infrastructure were also challenges. Before FY18, wind projects were awarded under the feed-in-tariff regime, where long-term contracts were made without competitive bids.

CRISIL report found that only 41 per cent of the projects awarded by the Solar Energy Corporation of India (SECI) from fiscal years 2018–21 were commissioned by December 2022. About 23 per cent got cancelled, and the remainder was delayed due to issues with land acquisition, evacuation, and supply-side constraints. Wind capacities grew a meagre 1.6 GW per annum in the five fiscal years through 2022, while the annual solar capacity addition averaged 8.3 GW in the same period.

However, the CRISIL report highlights a silver lining suggesting that this trend may change with the introduction of four policy measures by the Ministry of New and Renewable Energy in January.

The Four Policy Measures by MNRE

Through the first of its four policy measures, the ministry aims to increase wind tendering to 8 GW per annum – a significant increase from the previous 3.3 GW per annum. This goal could accelerate capacity growth if executed properly.

Secondly, the ministry has replaced the reverse auction process with a single-stage, two-envelope closed bidding system that should reduce irrational bidding. Due to the change in the bidding process and other factors, such as resource variability at new sites, tariffs are expected to rise by 20–30 per cent from the recent rate of Rs 2.89–2.94 per unit, providing a return of over 10 per cent.

Thirdly, to ensure that higher wind power tariffs are feasible for state discoms, the ministry has mandated that all discovered renewable tariffs for each state be pooled and offered to discoms at an average pooled tariff by an intermediary such as the SECI. This policy should lower the risk for wind projects as the SECI is more reliable than state discoms in terms of payments.

Finally, to ensure timely project completion, the ministry has notified developers that their bank guarantees will be revoked if they delay project completion by more than a year beyond the scheduled commissioning date. Developers who delay projects beyond 18 months will be barred for five years.

The CRISIL Ratings Director, Ankit Hakhu, gives a positive picture owing to the “policy push by the government”. He suggests that around 6–8 GW of capacity can be installed every year starting in fiscal 2026, considering 8 GW of bids in fiscal 2024 and 20–24 months for the commission. However, historical issues such as project cancellations, delays because of land acquisition, the setting up of power evacuations, etc., need to be permanently resolved.

Despite being costlier than solar, the increase in wind power generation is crucial to India’s energy transition goals. This is because wind projects can generate electricity even during the night, which is important for meeting peak power demands and balancing out day-centric solar generation on the grid. As a result, wind power plays an important role in providing a round-the-clock electricity supply, as desired by discoms, until more economical and scalable storage solutions become available.