Wind power projects: New bidding norms positive, but leave existing projects in the lurch

Published On: 13, Dec 2017 | Source:

The new bidding guidelines for the award of wind power projects is a positive development for the sector as it mitigates off-take and grid curtailment risks to some extent, but the concerns of existing projects would continue as the rules alleviate concerns of only new projects, said ratings agency Icra. The latest bidding guidelines issued by the government address some of the key concerns of the sector related to off-taker’s credit profile, grid curtailment and termination of payments. The new guidelines mandate the buyers to sign the PPA with the wind power developers and provide a payment security through letter of credit that would be equivalent to one month’s average billing. It further prescribes that procurers create a payment security fund to support payment for at least three months of receivables. The buyer can also choose to provide state government guarantee in a legally enforceable form, both for payment of energy charges and termination compensation.

Sabyasachi Majumdar, senior vice-president & group head, Icra Ratings, said, the payment security approved in the new bidding guidelines was not 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,” Majumdar said.

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.