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N. Ramakrishnan

IPP model in vogue; Maharashtra the preferred location

IPP model for wind power is the next growth phase for the sector.

Chennai May 21 The wind power sector in the country is in the process of going through a major transformation. One, which the industry believes, will put it in a higher growth trajectory.

A number of large companies, including some foreign ones, are putting up wind farms in the country with Maharashtra emerging the preferred location mainly because of its attractive renewable energy policy.

These companies are adopting the independent power producer (IPP) model for the wind farms they propose to put up - that is, they will enter into long-term agreements with the State utilities and sell the power generated by the turbines to them.

Till now, most of the investment in the wind power sector was by companies that needed the power for their own use or by those who wanted to avail themselves of the tax and depreciation benefits that were provided. Under the IPP model, the wind farms are not eligible for tax and depreciation benefits.

Companies such as Roaring 40s, an Australia-based renewable energy company, and BP Energy India Pvt Ltd have announced plans for wind farms in India.

Others such as Tata Power and Reliance Energy are investing in wind farms because of regulatory requirements and also because it will help them hedge their power costs over a long period.

Mr Tulsi Tanti, Chairman and Managing Director, Suzlon Energy Ltd, and Mr U.B. Reddy, General Manager - Business Development, Enercon (India) Ltd, two leading wind turbine manufacturers, agree that these large investments will signal a shift in the wind power scenario in the country.

Captive consumption

According to Mr Tanti, the IPP model for wind power, especially by companies that specialise in renewable energy, is the next growth phase for the sector. Till now, mostly power-intensive companies like those in the textiles or cement sectors invested in wind power for their captive consumption. A few other companies invested in wind turbines to avail themselves of tax and depreciation benefits. These were only a few megawatts in capacity, but now the investors are talking of wind farms of 50 MW and above.

Attractive tariff

Regulatory requirements, especially in Maharashtra, where the power sector regulator had come out with a progressive ruling and an attractive tariff had resulted in most of these wind IPPs planning projects in the State.

According to Mr Reddy of Enercon, the power sector regulator in Maharashtra had directed that distribution utilities - like Tata Power and Reliance Energy - buy a certain percentage of the power they sold from renewable energy sources.

MNCs' interest

Roaring 40s, an equal joint venture between China Light & Power and Hydro Tasmania, has announced plans to have about 250 MW of wind power capacity in India by 2010. Other multinational renewable energy companies such as Westwind of Australia and Axiona of Spain are also reportedly looking to invest in wind farms. BP Energy India Pvt Ltd, a subsidiary of the multinational BP, is keen to enlarge its renewable energy portfolio and has announced a 40-MW wind farm in India, to begin with.

According to Mr Mahesh Makhija, Business Head in India for Roaring 40s, Maharashtra is foremost among the States encouraging wind energy, in terms of tariff, long-term power purchase agreement and a renewable portfolio standard.

This explains why a large number of the big projects are headed for the State.

Maharashtra's tariff was Rs 3.50 a unit and the State utility was prepared to sign power purchase agreements for 15 years, which made getting long-term debt for projects easier.

Besides, says Mr Makhija, the clean development mechanism and carbon credits brought in additional revenues for wind farm developers.

Carbon credits

According to industry experts, wind farm developers can expect a return on equity of 12-13 per cent and, given the tariff structures prevalent now, hope to completely recover project costs in about 12 years.

Income from trading in carbon credits would add about 7-8 per cent to the revenues from wind farm projects, but some States, such as Maharashtra, insisted that a fourth of the income from carbon credits be given to the State.

At present levels, trading in carbon credit would bring in 30-35 paise a unit of electricity, according to industry experts.

Wind power growth

With the present tariff structures, Maharashtra, Karnataka, Gujarat and Rajasthan are attractive for investing in wind farms, although Tamil Nadu has the best wind conditions but the tariff is not attractive enough, according to them.

At the end of March, the total installed wind power capacity in the country went up to 7,086 MW, with 1,742 MW being added during 2006-07. Tamil Nadu once again topped in capacity addition with 578 MW, followed by Maharashtra with 485 MW, Gujarat 284 MW, Karnataka 266 MW and Rajasthan 112 MW.

More Stories on : Non-conventional Energy | Power | Maharashtra

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