Covid-19 will impact every part of India’s wind power sector including project development, success of new tenders, and ability of OEMs and independent power producers to raise finance – potentially wiping 30%, or 3.5GW, off installations over the next three years.
The pandemic has exposed fault lines that were already present in the Indian industry even before the government announced a complete lockdown of commercial activity and movement of labour on 24 March – restrictions that were extended for a further three weeks in mid-April.
The crisis is also expected to move India even further from its 60GW target for 2022, with the country already expected to reach only 46-47GW by 2022 under a business as usual scenario.
India’s wind power sector is likely to feel the effect of the lockdown in several ways. The first will be to delay or shift project commissioning due to the non-availability of machinery and labour. The second-order impact will be on net installed volumes due to inability of certain players to get access to finance due to their weak balance sheets, as well as squeezed liquidity in the market.
This will be felt in the supply chain, turbine manufacturers, and Independent Power Producers (IPPs) as well as on new demand coming from utilities.
MEC+ expects that the immediate impact will be on projects scheduled for Q3/Q4 in 2020 and not just Q1/Q2. This will lead to a shift of commissioning of nearly 0.7GW to 1.1GW from 2020 to 2021. As a result, volumes could see a drop from an expected 3.3GW to 2.6GW in 2020.
There is the potential for a bounce-back increase from 4.3GW to 5.3GW in 2021 – if the market resumes in three months. However, given the highly uncertain nature of Covid-19, it is difficult to predict the exact impact on 2021 and 2022 until the market opens.
The second order of impact could increase the level of delayed or cancelled capacity in the pipeline from 0.9GW currently to up to 2.5GW by 2022. IPPs with leveraged balance sheets can find it hard to raise finance for projects in the current uncertain times, adding further to dragging issues over grid non-availability, land procurement, and counter party risks.
After China, India is the second-largest hub for the wind industry, and order cancellation or supply chain changes could erode the ability of weak wind turbine OEMs to remain in business, which could further lead to some already-tendered projects being surrendered.
Order cancellation could erode the ability of weak wind turbine OEMs to remain in business.
New demand is also likely to be impacted. 2GW of tenders have been notified by the government as of now (SECI Wind Tranche IX). A delay in the closure of these tenders or lack of financing for them could impact subscription to future rounds.
It was expected that additionally nearly 1.5GW of tenders were to be subscribed to during 2020 for commissioning by 2022. However, in the event of the above delays, subscription of new tenders is expected to shrink from 3.5GW to 2.5GW; a decline of 1GW.
The cumulative effect could be significant. When the pandemic struck, MEC+ estimated an 8.6GW pipeline of projects was under construction in India and due for commissioning in 2020-22. New tenders were expected to subscribe another 3.5GW, making a total of 12.1GW.
As a result of all the above, the total volume impact could be up to 3.5GW of total installations between 2020 to 2022 – 2.5GW of risky projects in the existing pipeline and 1GW from new tender activity.
· Sidharth Jain is managing director at MEC+