Home » New bidding guidelines to boost wind power sector: ICRA

New bidding guidelines to boost wind power sector: ICRA

New bidding guidelines to boost wind power sector: ICRA

The recent notification of bidding guidelines by the Government of India for the award of wind power projects is a positive development for the sector. The guidelines address some of the key concerns for the sector pertaining to off-takerÂ’s credit profile, grid curtailment and termination payments. The guidelines require the procurers to direct sign power purchase agreements (PPAs) with wind power developers to provide a payment security through letter of credit equivalent to one month average billing and a payment security fund to support payment for at least three months of receivables for the projects tied up. In addition, the procurer may also choose to provide state government guarantee in a legally enforceable form, both for payment of energy charges and termination compensation.

Says Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, “The payment security approved in the new bidding guidelines has not been seen in PPAs signed by the state distribution utilities (discoms) with wind power developers in the past. This along with the measures on compensation for grid curtailment and termination payments, if implemented, is favourable for the wind power developers and improves the bankability of the PPA document.”

The guidelines provide for compensation to wind power generators in case of off-take constraints arising from the delay in commissioning of transmission infrastructure, grid unavailability and grid back-down, which is favourable for wind power generators. While wind and solar power projects enjoy a “must run” status under the Indian Electricity Grid Code (IEGC) and have to be scheduled before any other source of power, there have been instances in a few states like Tamil Nadu and Rajasthan, where grid curtailment has been observed. On the other hand, the developer will have to compensate the procurer in case of the generation falling below a prescribed capacity utilisation factor (CUF) agreed at the time of signing of the PPA. The minimum declared CUF should be 22% as per new guidelines.

Further, so far, most PPAs did not provide for a termination clause and termination payments to the developers in case the developer decided to terminate the PPA over a procurer event of default. In this context, the provisions for termination liability, which, along with substitution rights as approved in bidding guidelines, are expected to provide greater protection to the developers and the lenders. “It is noteworthy that these regulations shall be applicable only for new projects. The aforementioned concerns would continue to prevail for existing projects,” added Mr. Majumdar.

The wind energy sector is going through a transition from feed-in tariff regime to the competitive bidding regime which in turn has adversely affected the wind capacity addition in the first six months of FY2018. However, the Ministry of New and Renewable Energy (MNRE) has recently announced the trajectory for award of wind power projects of 25 GW over the next 27 months through competitive bidding, so as to achieve the cumulative wind capacity target of 60 GW by FY2022. Such bidding programme as announced by MNRE is quite significant and provides a visibility to support the capacity addition over next four year period, provided the same is implemented in a timely manner.

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