Bidding Adieu: Terminating reverse auctions to fully realise India’s wind energy potential

By Inder Bhambra, country head, business development and sales, Envision Energy India

In January 2023, the Government of India carried out a significant overhaul of the auction norms and put an end to the inefficient process of reverse bidding for wind energy projects. It also simultaneously established a formal procedure to ensure that capacity additions for wind-based power generation are spread across all eight windy states in the country, including Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu and Telangana.

To put things in perspective, this decision was made in response to a steep decline in the installation of wind energy projects since the reverse auctions process was implemented in 2017. While the government has targeted to set up wind energy projects totalling 140 GW by 2030, the country’s installed capacity has been stagnant at 40 GW.

The government has set a target to invite bids for 8 GW of projects each year, till 2030. This change in the bidding procedure can also be attributed to the government’s target of achieving 500 GW of renewable energy by 2030, which aligns with its climate and environmental sustainability commitments. The government formally stated the goal of achieving net zero by 2070 in the 2022 nationally determined contributions, including the commitment to meet 50 per cent of its energy requirements from renewable energy by 2030.

The need to scrap reverse auctions also arose due to the abysmally low bids, which led most companies to choose Gujarat as their go-to destination for better operational efficiencies as it has some of the windiest sites or locations in the country. It was noticed that independent power producers (IPPs) that chose sites in Gujarat and, in some cases, Karnataka, while placing their bids for various auctions, could continue with their investment plans. This restricted the investment influx in only one or two states, while leaving out the other six or seven windy states in the country. Another downside was that wind energy projects were inadvertently won by large businesses that could afford to bid at lower prices, preventing small businesses from entering the sector.

The government has now established a formal process wherein every bid will be a composite bid – comprising state-specific sub-bids for each state. This step was taken to ensure that wind energy capacity increases in all eight windy states and is not restricted to just one or two. The power generated from the capacity installed in each state sub-bid will be combined and offered at a pooled tariff to multiple power off-takers, largely state-owned power distribution companies (discoms). The tariff pooling will adhere to the notified Electricity (Amendment) Rules, 2022.

The government has been taking several initiatives to provide an impetus to the wind energy sector. In its long-term growth trajectory of renewable purchase obligation (RPO) and energy storage obligation up to financial year 2029-30, the government has mandated that 24.61 per cent of the total energy consumed in a discom’s area will have to be generated from renewable energy sources. This time, the RPO has made it mandatory for discoms to purchase wind power, which was optional earlier. This is a significant step in mainstreaming wind energy.

The withdrawal of reverse auctions will accelerate the commissioning of capacities, allowing the wind energy sector to realise its full potential. Capacity addition is now expected to increase to more than 6 GW annually in comparison to the average of just 1.5 GW since reverse bidding was introduced. This is indeed achievable considering that our country had attained an annual capacity addition of 5.5 GW in 2016-17, before the introduction of the reverse bidding framework. Although the plan was to enhance capacity to 8.5 GW in 2018, aggressive bidding by companies led tariffs to plummet and drop to as low as Rs 2.43 per kWh in December 2017 from feed-in tariffs ranging between Rs 4.6 and Rs 6 until 2016.

Owing to the reverse auction framework, the commissioning of wind-based power generation suffered as developers engaged in aggressive bidding, rendering those projects unviable. On most occasions, the developers did not factor in the ground realities and the challenges associated with execution. As a result, more often than not, there were either delays or cancellations.

The government’s newly introduced process should ensure improved tariff levels and accelerate capacity addition. Under this framework, the envelope encompassing the technical bid will be opened first and the financial bid of only those bidders who qualify in the technical bid will be opened. These bids will carefully specify the capacity that is to be installed and each sub-bid will be specific to one state. The new framework also states that the Solar Energy Corporation of India Limited or any other implementing agency will decide the minimum and maximum bid size based on the wind RPO targets of states. This process will enable different states to meet their renewable energy targets in a phased manner. For India to realise its energy transition, it is imperative to set up capacities across states. This will lay the foundation for sustainable development and empower states to achieve energy independence.

Hopefully, the revised procedure of competitive bidding will result in sustainable tariff levels, protecting the interests of IPPs, original equipment manufacturers, as well as lenders. As long as we keep discovering wind power tariffs lower than the average power procurement price of the previous year, both at the state and national levels, we will ensure sustainability from every perspective.

India today has the fourth-highest installed capacity to generate wind energy globally. To fully realise the immense potential, reforms were imperative in the domains of bidding structures and policies.