The country’s wind energy policy should go beyond tax breaks and subsidies to more market-based incentives.
After the euphoria of last year, the wind power industry is down in the dumps. During the year ended March 2012, a record 3,100 mega-watts (MW) of capacity got added and nothing seemed to go wrong. But the joy was short-lived and the current fiscal may end up seeing capacity additions drop by a half or more. Industry players cite two immediate reasons for it. The first has to do with the withdrawal of accelerated depreciation benefits – wherein wind energy developers could write-off 80 per cent of the value of their investments in the first year itself, reducing their tax payout – with effect from April 1. Secondly, the Centre had a scheme to pay an extra 50 paise for every unit of electricity generated from wind power and fed to the grid. The validity of this generation-based incentive or GBI, too, expired at the end of the last fiscal. Despite the Ministry of New and Renewable Energy saying that it would be restored along with a higher GBI of 80 paise, nothing really has moved so far.
There is no doubt that the above sops have been key in attracting investments, so much so that the country’s current installed wind power capacity, at over 18,000 MW, is the fifth largest in the world. While the industry has reasons to lobby hard for restoring these, the time has also come to look beyond mere tax breaks and subsidies to make investments feasible. An important issue to focus on – this will apply to solar power, too, as installations go up – is the inadequate grid infrastructure to evacuate the electricity produced. Wind turbines are located in remote rural areas, where demand for electricity is limited, whereas generation is non-uniform – peaking in certain months when wind speeds are strong. While some developers have even erected the sub-stations to which electricity from a group of turbines is fed, transmitting it further to the end-consumer is, however, the responsibility of the State utilities. There can be no better incentive to the renewable energy sector today than investing in evacuation infrastructure, which would guarantee that the turbines are not forced to idle even when the wind is blowing hard.
The second incentive that the industry can legitimately demand is strict enforcement of renewable portfolio standards. Distribution utilities should be mandated to source a specified percentage of electricity from renewable sources – and levied penalties for not doing so. Alternatively, they should be forced to buy renewable energy certificates (REC). The market for these tradeable instruments is now tepid, only because the utilities that are required by law to buy them (or the costlier green power directly) are neither meeting their obligation nor being fined. Enforcing renewable portfolio regulations will help push up the price of RECs, making financing of renewable energy projects more attractive. And we need to move more to such market-based incentives.