The Hindu Business Line : Wind power industry upbeat on generation incentive

Energy drive
Incentive was announced by Ministry for Renewable Energy.
The amount is over and above what State utilities pay as tariff.
It is for those who solely sell to the State utility.

Our Bureau

Chennai, July 7 A 50-paise-a-unit generation incentive announced recently by the Ministry for New and Renewable Energy, over and above what State utilities pay as tariff, has got the wind power industry upbeat.

This is a welcome start, though a lot more needs to be done to attract large investments, say industry representatives.

The Ministry’s generation-based incentive will make it more attractive for foreign investors in the wind power sector, especially those that adopt an independent power producer model, according to the representatives.

The incentive will increase the internal rate of return (IRR) of the projects by 1.5-2 percentage points, according to Mr Ramesh Kymal, Managing Director, Vestas India, a leading wind turbine manufacturer.

The IRR has taken a hit of late due to the higher cost of installing a wind turbine because of rising raw material prices and the higher interest rates. Investors, say industry representatives, will be happy with a post-tax IRR of 14 per cent.

However, according to Mr U.B. Reddy, General Manager (Business Development and Operations), Enercon India, another leading wind turbine manufacturer, this return was not possible as the cost has gone up to Rs 5-5.75 crore for 1 MW from Rs 4.25 crore, while interest rates have increased to 12.5-13 per cent from 7.5-8 per cent.

The industry is seeking clarifications on the incentive and the large investments will come in only after these are sorted out, says Mr Mahesh Makhija, country head of Roaring 40s, a global power company investing in wind power. “It is a good start. We are looking at larger projects and need more clarity to push forward,” he says.

Who is eligible?

The Ministry’s generation-based incentive of 50 paise a unit is available to independent power producers of wind energy, that is to those who sell to the State utility and do not consume it themselves or sell to a third party. The Ministry will pay the incentive for 10 years and those with an installed capacity of more than 5 MW will get the incentive.

Till now, those putting up wind turbines were eligible for an accelerated depreciation. Most of the investment so far has been for power-intensive industries that set up wind turbines for captive consumption and also for the tax breaks they got.

However, foreign players did not have a balance sheet in India and hence could not derive benefits from the accelerated depreciation scheme, because of which the industry had been asking for incentives that encouraged performance rather than mere installation of turbines.

New markets

According to Mr Kymal, the incentive will open up a huge, new market. A number of foreign players it the wind energy sector are waiting to invest in the country. “All the leading foreign players have only placed dipstick orders. The moment they see the sector giving good returns, they will come up with huge orders,” he says.

Foreign players such as Roaring 40s, an equal joint venture between CLP of Hong Kong and Hydro Tasmania of Australia, and BP Energy, have invested in wind farms in the country. Roaring 40s, which has set up a 50-MW farm in Maharashtra, will increase its capacity to 230 MW, with 100 MW in Gujarat and 80 in Karnataka. GEI of Spain has signed up for projects totalling 220 MW, in Karnataka and Maharashtra.

Industry representatives said it was not clear if leading domestic power utilities such as Tata Power and Reliance Energy, which were investing in wind power, would get this incentive. These companies had to source a percentage of the electricity they distributed from renewable energy sources. This meant that their investment in wind energy was to meet their own requirement. And, the incentive is not available for those who put up wind turbines for their own use.

More Stories on : Non-conventional Energy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page