India Industrials:India wind,Second SECI auction sets new lows

Solar Energy Corporation of India (SECI) has held its second auction of windprojects: The new auction-based tariff for wind-based power is INR2.64/unit,representing a decline of 24% compared with the tariff at the first auction, held inFebruary 2017. This is 33-56% lower than tariffs paid under the previous Feed-in-Tariff (FIT) based regime. Interestingly, it is only c10% higher than tariffs set by SECIauction for solar-based projects and at par with the recent solar tariff.。

    Implications: We believe the 24% reduction in the tariff in just seven months reflectsimproved clarity on the availability of the transmission infrastructure required forenergy offtake and lowered return expectations from developers given the paucity ofinvestable opportunities due to the absence of a state Feed-in-tariff pipeline andslower solar auctions. While this will put incremental pressure on the profitability ofequipment manufacturers, we had already anticipated this and factored it into ourforecasts. We estimate a c300bps EBITDA margin reduction as the industrytransitions from FIT-based procurement to an auction-based regime. The significantlyreduced differential between solar and wind tariffs should alleviate investor concernson the viability of wind-based power projects vs solar.。

    Investment view: As highlighted in our recent report, India wind