Wind industry’s pitch to India Inc: 18% IRR

Wind turbine manufacturers in India want to create a new market by enticing large companies to start wind power businesses. Their pitch to them: 18 per cent IRR.

A recent White Paper produced by the rating agency, CRISIL, supports the wind industry’s claim that wind farms can give up to 18 per cent internal rate of return (which is a measure of the profitability of an investment, arrived at by bringing all the future cash flows from the project to their today’s value and comparing the total value with the investment.)

CRISIL’s report speaks of an “attractive IRR in the range of 16.5-18.5 per cent”, thanks to the favourable tariffs that State-owned electricity distribution companies pay for the wind power as well as the 50-paise-per-unit ‘generation-based incentive’ paid by the Centre.

The Chairman of the Indian Wind Turbine Manufacturers’ Association, Madhusudan Khemka, says the Association is making the “high returns” pitch to large Indian companies. Now that the mood in the industry is buoyant and companies are looking at investment opportunities, the time is ripe for the wind industry to make its pitch, he said.

The Indian wind industry has grown by adding market segments organically. It started with textile companies in Tamil Nadu (the windiest state in the country) putting up wind mills for availing themselves of the tax-saving ‘accelerated depreciation’ benefit. The AD market alone sustained the wind industry until a few years ago, when Independent Power Producers came into the play. These IPPs had power generation and sales as their core business, as opposed to the ‘AD customers’, who had other businesses but put up wind projects only for tax benefits.

The IPPs, riding on the global pro-clean energy tide, raised moneys from private equity (companies such as ReNew Power, Greenko, Green Infra, Bharat Light and Power) or public issues (Orient Green, Techno Electric).

More recently, a third segment has come into being — the public sector undertakings. All the major PSUs —NTPC, ONGC, IOC, SAIL, NLC — have large plans for putting up wind projects, more to demonstrate their good corporate citizenship than to make money. They became the ‘tender market’ because they selected their vendors through tendering process.

But now, the Centre is keen that the total installed wind power capacity in India be raised to 60,000 MW by 2021-22, from 22,000 MW today. Meeting this target calls for jacking up the annual installed capacity, which will be about 2,200 MW this year, to a steady-state rate of 10,000 MW from 2018-19.

The three market segments, viz., AD, IPP and PSUs, may not be enough to guarantee demand of this size. Hence, the new market — the corporates.

According to Khemka, many Indian companies are showing interest. The Indian corporate sector already has some experience with wind, having put up some turbines for AD benefits. ITC has confirmed that it is keen on increasing its renewables portfolio, but it is understood that the other large industrial houses, such as Bajaj and Reliance, are also interested.

“The 18 per cent IRR is a powerful argument,” says Khemka, who is also the Chairman and Managing Director of wind turbine manufacturer, ReGen Powertech.

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