Competitive Bidding in Wind Energy: Will it work?
By: Jami Hussain, Chief Mentor &; Co-founder Windforce. Jami Hossain is currently on the National Council of Indian Wind Power Association (IWPA -www.windpro.org), on the Governing Council of Indian Wind Energy Association (InWEA-www.inwea.org) and is also Treasurer of World Wind Energy Association (WWEA - www.wwindea.org).
Competitive Bidding in wind energy has not worked in any part of the world. It is well established and demonstrated now that what works is Feed-in-Tariff. However, the Ministry of New and Renewable Energy (MNRE), Government of India, has recently posted “Draft Guidelines for Tariff Based Competitive Bidding Process for Grid Connected Power Projects Based on Renewable Energy Sources” (http://mnre.gov.in/pdf/draft_guidelines_for_renewable_power.pdf). The guidelines refer to Section 63 of the Electricity Act 2003 and it is claimed that the guidelines are issued under the provisions of Section 63. It also refers to the National Tariff Policy (Section 6.4). The guidelines are applicable to Solar Power (PV and Thermal), Wind Power and Hybrid Power. As per the National Tariff Policy, as far as possible, future procurement should be through competitive bidding process under Section 63 of the Act within suppliers offering energy from same type of non-conventional. At a ‘macro-economic’ level, the rationale of procurement of electricity through competitive bidding route to enable least cost power to the consumer is well established. The justification at the ‘macro-economic’ level has perhaps been well deliberated upon in the formulation of the Electricity Act 2003 and the National Tariff Policy within the government circles, consumer groups and industry associations. We do not refute this justification, which is obviously for the greater good. However, if in certain cases competitive bidding, however desirable it may be, is likely to hamper further development and investments and leads to scenarios that are full of impracticalities in project implementation, then a deviation from the theoretically well meaning policies would be required. Wind power development is such a case and it seems that MNRE has posted these guidelines with complete disregard towards understanding of how a wind energy project happens. Prior to examining these issues of impracticality in competitive bidding with regard to wind power, it is important to have an overview of wind energy development in India. Wind Power has been the fastest growing segment in the entire power sector as well as within the renewable energies in the country. Today, we have nearly 15000 MW of installed capacity in which apart from a few odd megawatts, the entire capacity has come up through private sector investments. A few years back, India ranked III and IV on the world map of wind power installations till China took over rather rapidly. While government owned Center for Wind Energy Technology (C-WET) has continued to claim that India has only 45,000 MW of wind power potential, the reality is that several studies carried out by independent agencies and experts indicate that the potential is of the order of several thousand gigawatts and not megawatts ( a scale difference). Since the establishment of Feed-in-Tariffs first by Maharashtra Electricity Commission (MERC) in 2004 and later by most of the other State Electricity Regulatory Commissions (SERCs), countrywide wind power development has been taking place in a more or less sustainable manner. In this backdrop, if we look at what’s happening in the mainstream power sector, we find chronic shortages that have not been addressed, power cuts, shut downs lack of electricity to both rural and urban areas having the greatest impact industrial production. At the time of writing this article, the country faces a major crisis in coal supply and it cannot be conclusively said if this is a short-term crisis or a manifestation of the long term shortage of coal resources. Because of these shortages, already there is a huge investment that has taken place in back-up systems across the country in domestic, agricultural, commercial and industrial segments. Establishments resort to costly diesel generation while households have invested in inverters. The very important and significant point we make here is that the rationale of low cost of power does not hold, when there is no power to supply. Enabling investments and creation of generation capacity should have priority over issues such as competitive bidding. There is no doubt that the electricity demand is increasing and the country has limited options to meet this challenge in a sustainable manner. This very important point we think is being missed by the policy maker. With this overview we return to the issue of competitive bidding in wind energy. We have noted that wind energy is one of the segments of energy sector that continues to attract investments in the current policy and regulatory regime and a capacity of more than 1000 MW gets established every year. This year (FY 2011-12) the capacity addition is likely to be of the order of 3000 MW. Due to many reasons associated with practicality of wind farm development, we feel that competitive bidding will bring wind power development that is on a up-swing to a near standstill and that would indeed be most undesirable from a national perspective. Following are the main reasons due to which, wind power development cannot be sustained under competitive bidding regime:
1) Even in the mainstream power sector, competitive bidding is yet to be proven as a practical development route that leads to successful project implementation and operation. There is no proof of sustainability of this model.
2) Prior to making a bid, the developer must have complete control over aspects related to land acquisition and grid connection infrastructure and conditions. Getting to such a commanding position would at least take 3 years.
3) The input conditions (wind and grid parameters) that enable a windfarm project are not in the control of the developer. In case of coal or any other fuel based power projects, one can have coal linkage or long term coal supply contracts on the basis of which a bid can be made. However, in case of wind, it would not be possible for the developer to arrive at a very high level of understanding with regard to wind resource availability at the site being considered.
4) A developer is unlikely to undertake development of a site, beginning with installation of measurement systems, locking in lands for the project on a firm basis and obtaining grid connection approval from concerned utility as well as to carry out many other associated costly activities including equipment procurement contracts, operation and measurement systems, load flow studies over a period of three years jus for a bidding event.
5) If at all some bids are submitted, high risks involved emanating from a lack of understanding of wind conditions as well as future grid scenario, will result in high cost of power under competitive bidding, defeating the entire purpose. There is no doubt that competitive bidding will bring wind power development in the country to a complete stand still. More importantly, it will also hit sustainability of wind power development in the country. We feel that while competitive bidding approach is well meaning to the society at large, it is completely unpractical in case of wind energy and the MNRE should withdraw or suitably amend these draft guidelines. The current model of development is well established and should not be tempered with in any fundamental way. It should only be strengthened through REC, GBI, accelerated depreciation, industry friendly regulations on open access, wheeling, banking, third party sale and captive and group captives. Reproduced with Permission from the Author. Jami Hossain, (Chief Mentor & Co-founder), is a known international expert in wind energy and over the last 25 years has carried out pioneering work in this field. He is credited for bringing cutting edge technologies to India and for having initiated some of the most flourishing businesses in the wind energy sector in India. In the past he has held senior mangement positions with Enercon (India) Ltd., Vestas RRB Ltd., Indian Wind Energy Association and Gujarat Flourochemicals Limited. Having implemented the first windfarm projects in India, he is also known internationally for research in wind resource assessment, modeling and simulation of wind power, grid integration, assessment of wind power potential and policy and regulatory research.
By: Jami Hussain, Chief Mentor &; Co-founder Windforce. Jami Hossain is currently on the National Council of Indian Wind Power Association , on the Governing Council of Indian Wind Energy Association and is also Treasurer of World Wind Energy Association .