Also rising cost of conventional energy sources and persistent domestic fuel shortages would make wind energy more cost-competitive.
"The share of the IPP segment in the overall installations remained muted in the past but improved to about 20% in FY 2011. ICRA expects the share to increase to about 40-50% over the period of next three year period," the rating agency said.
The increase in the share of IPPs can be attributed to larger project size undertaken by them, ranging above 50 mw. Also, the share of retail and corporate investors is likely to reduce when the accelerated depreciation benefit available to them goes away after the implementation of the Direct Tax Code.
"The new wind-based projects/IPPs are likely to prefer the REC route against the preferential tariff route, and within the REC route, many IPPs would prefer to sign their power purchase agreements (PPAs) with discoms at their average power purchase cost instead of selling on merchant/short-term basis," Sabyasachi Majumdar, senior vice president and co-head corporate sector ratings, was quoted as saying in the ICRA statement.
"This is due to open-access and banking facility constraints and volatility in merchant tariffs, although the merchant option under the REC route is the most remunerative option available", he added.
Although ICRA maintains a favourable long-term demand outlook for wind energy sector aided by regulatory and fiscal support, it says that capacity addition could be affected by weak financial position of state utilities. Also implementation of renewable energy portfolio obligation norms and strengthening of the intra-state transmission network would also impact the capacity addition.
Source- Economic Times