Transparency, alignment with international standards and a focus on project as well as type certification could encourage international investment and make it easier for Indian manufacturers to succeed in foreign markets.
Wind power in India has been a big success. The country has the fourth largest installed wind power capacity in the world, which at 37.5 GW is around 10% of its total power generation capacity.
That success, however, is bringing India’s wind energy towards a critical point. Early wind power projects benefited from a feed-in tariff that ensured a relatively secure revenue stream for projects that made it to the operational phase. As India’s wind power capacity and experience has grown, the cost of wind energy has dropped. The industry has been so successful in reducing the price of wind energy that project auctions are being won by bids without any (direct or indirect) subsidies. This has encouraged the government to phase out the feed-in tariff.
While this is a great achievement for the Indian wind power industry, it does have two potential negative consequences. Firstly, new wind projects in India will be fully exposed to the variability and merchant risk of the open market, meaning their revenue and return on investment will be less predictable. Secondly, extreme competition on price could encourage excessive cost cutting, leading to increased technical risk. Both these factors could damage investor confidence, making them be less ready to invest in new projects in India. And that in turn could slow growth and put an end to India’s wind power success story. Already, we are seeing several Indian wind turbine manufacturers starting to struggle financially.
Maintaining investor confidence in a variable market
Certification offers a solution. By ensuring that turbines and projects confirm to an agreed standard, certification reduces technical risk and eliminates dangerous corner cutting. Consequently, all stakeholders can be confident that the turbine/project will operate safely and according to expectations. This increased confidence can go some way to compensating for the increased merchant risk of trading on the open market – which is why many international investors require some form of certification before agreeing to put money into a project.
To reap the full rewards of certification, a great deal of thought and care must be put into the standards used in certification. India has always known the importance of independent and up-to-date standards.
International alignment benefits local manufacturers and project developers
The Indian Ministry of New & Renewable Energy (MNRE) is currently creating a new turbine standard. key strength of this future standard, developed by the National Institute of Wind Energy (NIWE), is that it is based on a widely renowned international standard (IEC 61400-22) with some modifications to suit local conditions in India. While IEC 61400-22 has since been superseded by the IECRE Conformity Assessment System, its content is largely unchanged in the new international standard and it remains the foundation of wind power certification around the world.
For Indian manufacturers, alignment with international standards is a critical business advantage. It means that they can develop products for the local markets and then address global markets with a minimum of modification. Local and global products can then be manufactured on the same production lines, allowing manufacturers to access the economies of scale that are vital to turning a profit in a highly competitive market.
Indian project developers also benefit from India aligning with international standards. They can choose from a wider selection of suppliers from around the globe, helping to reduce costs. Moreover, with Indian manufacturers benefiting from economies of scale, developers can choose locally sourced components with local supply chains without having to pay a premium.
However, while the NIWE and MNRE have done a very good job in developing the new standard, there is some possible cause for concern. While the standard lays out technical requirements for both type certification of components and project certification of the entire wind farm, only type certification is mandatory.
Certification beyond type certification
Of course, type certification provides essential confidence in that the key components of a wind power project are up to the task required of them. But it only goes so far. There are many factors that lie outside the remit of type certification that can affect the ability of a wind farm to perform to the predicted level or even to successfully reach the operational phase at all. For example, more than one Indian wind power project has had problems caused by turbines failing due to foundation design issues.
For this reason, we at DNV believe that type certification alone is not enough to help the wind power sector make the transition to a subsidy-free model. A more holistic approach – ideally full project certification – is required to address all technical risks and stimulate investor confidence. And by making it compulsory, regulators ensure that no bid in a project auction can undercut rival by cutting corners – helping guarantee a reliable and sustainable electricity supply.
It is worth noting that in Europe where wind power is most established, the countries with the best performing wind power industries – and the first to move towards subsidy-free wind power – are those that mandated project certification. These include Germany, Denmark and the Netherlands. Even where project certification isn’t mandatory, we see that investors demand it and project developers ask for it to improve their insurance coverage and premium costs.
Looking forward to offshore
Following its successes to date with onshore wind, India is now setting ambitious targets for offshore wind. There is certainly interest from international investors to suggest that these targets are achievable. However, the approach to certification and standards will be crucial.
If the approach to certification is the same as for onshore wind, there is a very real possibility that the ramp up of offshore wind in India could be delayed. In contrast, Taiwan has taken a very open approach to safeguarding offshore wind projects and investigating the technical requirements for offshore wind project certification. As a result, it is one of the leading offshore wind power markets in Asia. Just as Taiwan learnt from and built on lessons from Europe, India can learn from and build on what Taiwan has done to achieve its own offshore wind goals.
Of course, the argument against project certification always comes down to cost. But the cost of project certification is minimal compared to the overall cost of an offshore wind project. And that minimal cost could be the difference between success and failure for a project, and the vital stimulus for the Indian wind power industry as it navigates the tricky transition to zero subsidies.