Over the past few months, two seemingly conflicting developments have emerged around wind energy in Tamil Nadu.
The first is a milestone for the wind energy sector in the State. On July 11, the Tamil Nadu Generation and Distribution Corporation (Tangedco) evacuated more than 5,000 MW of wind power, replacing almost 1,000 MW of thermal power and operating several other plants at half capacity. Wind power accounted for almost a third of the State’s electricity demand that day.
Tamil Nadu has been historically struggling to evacuate the huge amount of power generated by its wind farms, especially from June to September when the winds are the strongest. This was partly attributed to its inability to predict wind-power generation ahead of time and plan contraction of coal power accordingly. Starting 2015, the State took the lead in using good forecasting techniques, with the support of the National Institute of Wind Energy. As a result, there has been a steady rise in the amount of wind power evacuated.
Tamil Nadu is also expected to fully realise its renewable energy potential once the Raigarh-Pugalur green power transmission corridor, with a capacity of 6,000 MW, is completed by May 2019. It is also investing in its fourth wind power sub-station at Thennampatti, in addition to the ones in Ramnathapuram, Thoothukudi and Tirunelveli.
Market sentiment
The second revolves around the bleak market sentiment for wind developers in the State and across the country. In February this year, India took baby steps towards discovering wind energy tariffs through auctions rather than feed-in tariffs fixed by regulatory commissions.
Under the first auctions held for 1,000 MW, wind prices fell to a new low at ₹3.46 per unit from the previous low of ₹4.16 per unit fixed by the Tamil Nadu Electricity Regulatory Commission. While auctions are a step in the right direction to ensure competition and transparency, this development has led to a situation where States like Tamil Nadu refuse to sign future power purchase agreements (PPA) at feed-in tariffs. Some States are also rethinking their existing PPAs that are priced higher than the auction price. For instance, Karnataka cancelled 400 MW of existing PPAs leaving developers with no option but to go for resource-intensive legal remedies.
Tamil Nadu recently announced its plans to procure 500 MW through auctions with a base price of ₹3.46 per unit, but the wind energy companies filed a petition with the Madras High Court opposing the move since they felt that it would cut into their profit margins. The court allowed Tangedco to go ahead with the auctions, which led to another record low price of ₹3.42 per unit. However, it has asked that the auction winners not be issued allocation letters till the case is resolved. Additional problems such as arbitrary curtailment of wind power and backlogs in payment by Tamil Nadu’s electric utility further eroded their faith in participating in the auctions at low margins. All of these also reflected the larger sentiment for the sector in the country, prompting the Ministry of New and Renewable Energy to write to seven States, including Tamil Nadu, to facilitate honouring of wind energy contracts.
In the context of the larger developments in the country, the two narratives emerging present a unique opportunity for Tamil Nadu, which successfully showcased the benefits of better planning and forecasting in integrating wind energy into its energy mix. It has progressive plans that take into account the increased potential for wind energy markets once the green corridor is put in place. And it has the largest wind capacities in the country and significant developer and manufacturer interest. But as the recent developments show, transitions will never be linear. Flexibility for cheaper, better energy options need to be balanced with market stability and investor confidence. Tamil Nadu, like other States, needs to ensure this balance for regulatory clarity and sending the right signals. And most importantly, it must continue to build on its planning process for the sector to truly integrate clean energy into its grids.
Amala Devi and Bharath Jairaj are project associate and senior associate, respectively, with the energy programme and Governance Centre at World Resources Institute, India