ICRA expects wind energy capacity addition during the current fiscal to grow at 20 per cent over the last year to about 2800 MW and will be driven both by the IPP and non-IPP segments.
In the rating agency's view, the demand drivers for the wind energy sector remain favourable in the long run. This is mainly aided by strong policy support in place at the Centre and in key states having wind potential, favourable regulatory framework in the form of renewable purchase obligation (RPO) regulations, as well as the cost competitiveness of wind-based energy vis-à-vis conventional energy sources.
However, the wind energy sector continues to face regulatory challenges. These arise out of wide variance in RPO norms and weak compliance of the same by obligated entities — many being state-owned distribution utilities. The sector will also be affected by the absence of enforcement of penalty framework by the State Electricity Regulatory Commissions (SERCs) for any shortfall in RPO compliance in most states.
RPO norms vary across the states in terms of both quantum of RPO (varying from 1.50 per cent to 11.25 per cent in FY2016 across the states) and also the period of RPO trajectory (only nine states stipulate RPO norms till FY2020).
In a statement ICRA said based on the study of RPO compliance during FY 2014 by utilities in 14 states (accounting for 65 per cent of all-India energy demand), utilities in five states alone have fully met the RPO targets. The average RPO compliance in the rest remained at 60 per cent of the norm. In most cases SERCs have, however, allowed carry forward of the shortfall in RPO compliance to the next fiscal, while enforcement of RPO compliance regulations is seen only in few instances recently.
Feed-in tariff norms by SERCs also vary across the states, not being consistent with CERC's tariff norms and mixed trend is seen in feed-in tariff revisions by SERCs for FY 16. However, ICRA believes that the current feed-in tariff levels in most key states are remunerative for wind energy developers.
The wind energy projects also remain exposed to the counter-party credit risks of state-owned distribution utilities, which are key obligated entities to meet the RPO norms and given that these utilities in many of the high wind potential states continue to have weak liquidity and a stretched financial position.
The recently approved UDAY scheme is a significant positive for the power sector, ICRA believes, and estimates that if the scheme is implemented, the aggregate relief to discoms is likely to be around Rs. 880 billion per year by FY 2019. This translates into a reduction in losses by around Rs. 0.95/unit on an all-India basis, although the per unit impact on the most affected states of Uttar Pradesh, Tamil Nadu, Rajasthan, and Haryana is likely to be significantly higher.
Source- The Hindu