Execution challenges slow down wind power projects from going onstream

Execution challenges, a tight financing environment and regulatory delays in tariff adoption are slowing down the pace at which new wind power plants are being commissioned. This, along with continuing challenges in grid curtailment and significant payment delays from distribution companies (discoms) have turned investor sentiment on the sector negative.

The wind power sector witnessed a capacity addition of 2.1 GW in FY20, improving over the 1.6 GW added in FY19. However, the actual capacity commissioned last fiscal was only 2.5 GW, against the 7.5 GW that should have been commissioned by March 2020 as per the timelines provided.

“The slow execution of the capacity awarded by the central nodal agencies and the state utilities is because of the continued execution challenges, a tight financing environment and regulatory delays in tariff adoption from the regulators in the past,” Girishkumar Kadam, Sector Head & Vice President - Corporate ratings, ICRA, said in a press note. “These challenges are further augmented by the adverse impact of the lockdown imposed to control Covid-19 pandemic on the execution of under-construction projects as well as on the revenues and cash flows of discoms. Therefore, ICRA’s outlook on the wind energy sector continues to remain negative. The wind power capacity addition is estimated to remain modest in the range of 2.0-2.5 GW in FY21.”

These challenges have further led to a slowdown in the tendering activity, with no wind power project awarded post August 2019. While the government agency Solar Energy Corporation of India (SECI) has issued a tender for 2000 MW under Tranche IX, the reverse auction for this tender is pending.

“The slowdown in electricity demand growth in FY20 and with the demand de-growth expected in FY2021 amid Covid-19, the incremental wind capacity requirement is estimated to remain lower than projected earlier for FY2021-23,” Vikram V, Associate Head & Assistant Vice President - Corporate ratings, ICRA said. “As a result, the potential for new tenders in the wind power segment remains limited in the near to medium term. Nonetheless, long term prospects for wind energy remains intact given the strong policy focus and improved tariff competitiveness.”