Improvements to Competitive Bidding for Wind Power Projects in India

The Indian government has taken steps to improve the competitive bidding process for wind power projects by addressing some of the longstanding demands of the industry. A recent notification by the Centre has made changes to the method of bidding and the way tenders are invited for wind power projects.

Changes to Bidding Method

• The method of bidding has been changed from ‘reverse auctions’ to ‘closed bidding’. In reverse auctions, bidders continue to offer competitive quotes even after the bids are opened. In closed bidding, the best bidder is offered the project after the bids are opened. This change is expected to act as a fillip to small wind power generators and encourage more investment in the sector.

State-wise Tendering

• State-wise tenders will be invited to allow for equitable distribution of sites across the eight windy States: Tamil Nadu, Gujarat, Maharashtra, Rajasthan, Karnataka, Andhra Pradesh, Madhya Pradesh, and Telangana. This will smoothen out costs across regions, encourage procurement by Discoms through the aggregator, SECI, and spur output.

Composite Bids

• Every bid will be a composite bid comprising State-specific sub-bids for each of the windy States. Power generated from the capacity established through the sub-bids will be pooled and offered at a pooled tariff to the Discoms. Developers can diversify across States to levelise costs from saturated States with expensive sites to less developed ones.

Pooling Rule

• The pooling rule is in keeping with the latest Electricity Amendment Rules, which state that “there shall be a different central pool for each of the sectors of the renewable energy sources”. The aggregation of supply and pooled tariff across renewables is expected to spur the Discoms to ramp up procurement beyond merely meeting their RPO needs.

Challenges to Overcome

• The finance constraint for developers should be addressed. In addition, for the pooled tariff to work to the advantage of both producers and procurers, two factors must be overcome: first, the operational efficiencies of the Discoms on the one end (a central problem of the electricity sector) and second, bottlenecks faced by the developers.
• At present, wind capacity creation has taken a hit, as yearly fresh capacity additions are struggling to touch even the 2 GW mark — not least because of unviable tariffs. Capacity additions are just not happening at the pace required to meet India’s international commitments — 500 GW of non-fossil-based energy capacity by 2030.
• Solar too is facing a rise in costs due to both increase in global module prices as well as the effect of basic customs duty. The challenge at a broader level is to keep renewables tariff low and volumes high, so that the green hydrogen push becomes possible — transforming industrial production and mobility altogether.

Synopsis

The Centre’s recent steps to improve the competitive bidding process for wind power projects are welcome and address some of the longstanding demands of the industry. The changes to the method of bidding and State-wise tendering are expected to act as a fillip to small wind power generators and encourage more investment in the sector. Additionally, the pooling rule and composite bids will help levelize costs across regions and encourage procurement by Discoms. However, there are still challenges that need to be overcome, such as addressing the finance constraint for developers, and improving the operational efficiencies of the Discoms and addressing bottlenecks faced by developers.