The Ministry of New and Renewable Energy (MNRE) is looking to bring back "reverse auctions" for auctioning wind power capacity to energy companies, government sources have confirmed to CNBC-TV18.
The ministry has sent a letter to government-owned companies like NTPC, NHPC, SJVN, SECI for the implementation of capacity auction process. The letter said that the bidding method is being reviewed in view of undersubscription and higher tariff discovery in recent wind bids.
According to the letter, bids should be issued on pan-India basis instead of the present practice of state-specific bids.
As per reverse auction, bidders will continue to bid against each other after opening of initial bids till a bid tariff goes unchallenged by a counterbid.
Earlier reports said that the MNRE has reinstated the earlier approach of reverse auctions, limited the size to 600 MW for plain vanilla wind tenders and mandated the issue of bids on a pan-India basis by renewable energy implementing agencies.
The ministry had given up the ‘reverse auction’ method at the beginning of this financial year, only because the method was not delivering results in terms of wind capacity installations.
According to data from the Central Electricity Authority, India added just 10,354 MW, or a mere 1,725 MW per year in the six years between March 2017 (when wind capacity auctions began) and March 2023.
Analysts on the Street believe that the MNRE directions are a negative for equipment suppliers and developers. They further said that tariffs coming down would impact returns for developers like ReNew and NTPC and may also lead to margin pressure for equipment suppliers.
Currently, wind power purchase agreements are based on single stage, two envelope closed bidding process. A closed bidding system is where bids are opened and the lowest bidder is declared as the winner.
The Street is concerned as this is a policy U-turn. Highly competitive bids bring down returns for the entire wind energy supply landscape. The move is negative for developers as it is likely to bring down returns.
Domestic broking house JM Financial believes that the current changes will have limited impact on the sector, with high probability of policy reversal in due course.
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