KOLKATA: The Gujarat Electricity Regulatory Commission's (GERC) proposal to share generation based incentive with utilities or consumers is likely to result in 75bp lower rate of return for wind energy developer's projects, says India Ratings and Research (Ind-Ra). Ind-Ra believes such policy levels changes which impact the developer IRRs would lead to a slowdown in wind capacity addition.
In what could turn out to be a fresh headwind for the wind sector's already uncertain capacity addition, the GERC in a discussion paper has proposed sharing of the generation based incentive in the ratio of 50:50 with the distribution licensee or end consumers.
In case a similar policy were to be implemented by other state electricity regulators, the impact on IRRs will be higher for states where the tariffs are low, since the GBI incentives would form a bigger share of the overall income stream. Additionally, the introduction of GBI was primarily to boost investments into the sector, serving as an additional source of revenue which could improve the project IRR. Sharing the GBI goes against the underlying objective of incentivising developers toward generating renewable energy.
Ind-Ra believes developers in order to protect their IRRs may need to either renegotiate with the wind turbine manufacturers to lower the capital cost or to increase hub heights in order to improve capacity utilisations.