Wind energy developers face possible incentive cut

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.

Ind-Ra opines such sharing of the GBI, if approved by GERC is likely to result in the decline of project equity IRR by 125bp. As per the current policy, the wind developers are entitled to receive an incentive of Rs 0.50 per unit for a unit of electricity generated.

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.

Part of the reason for lower investor interest is also includes government's thrust on solar capacity addition, since solar tariffs have reached Rs 4.5 - 5 per unit and with competitive bidding a potential to fall further.

Moreover, the ambitious plan set out by the Government of India for 60GW installed capacity by 2022 requires three states namely Rajasthan, Gujarat and Mahrashtra to add nearly 27% of the incremental capacity. Ind-Ra believes that the continuous policy changes and non-developer friendly policies will make it difficult for key states to attract developers.
(sourced from economictimes.indiatimes.com)