According to reports, ending a federal tax break for wind farms in India, the largest market for turbines after China and the U.S., would cause a $540 million drop in demand just as suppliers including General Electric Co. (GE) expand local capacity.
Wind park installations may fall 15 percent in the financial year starting April 2012 from the 2,600 megawatts projected for this year should the benefit be discontinued, said Ashish Sethia, lead analyst with Bloomberg New Energy Finance in New Delhi.
Panchabuta’s projections according to our internal research is closer to 3100MW this year.
The government wants to axe an accounting rule next year that encouraged companies to erect most of India’s 14,157 megawatts in wind projects as a way of cutting taxes rather than generating power. It favors a less-generous subsidy that companies have been slow to adopt.
“We could see some disturbance in demand and some filtering out of smaller players,” said Mahesh Makhija, director of renewables at the local unit of CLP Holdings Ltd.
A 400-megawatt slump in demand could cut investment by 24 billion rupees ($540 million) based on current construction costs.
India’s biggest property developer DLF Ltd. and Hindustan Zinc Ltd. , used the tax benefit called accelerated depreciation to build some of India’s largest wind farms, project design documents show. The accelerated depreciation accounting method allows companies to write off investments at a faster rate than normal, which reduces tax liabilities.
“The wind farm was really more of a financial instrument than a power plant,” said Arvind Prasad, managing director of the power unit of Ushdev International Ltd. India’s third- largest non-state metal trader, which also develops wind parks.
“It’s not the best way to address the country’s power issues,” said Prasad, who heads the Indian Wind Power Association’s chapter in the state of Maharashtra.
“Wind projects need to increase generation, not be put up just for tax benefits,” Renewable Energy Minister Farooq Abdullah said in February. The finance and renewable energy ministries plan to discontinue the benefit next April, when India is expected to introduce a new tax code, he said.
Sources we have spoken to from the manufacturing side have said that they are working hard in convincing the ministry to keep this going though the minister himself has been very keen to remove the accelerated depreciation benefits.
Given some of the biggest beneficiaries of this mechanism and their influence, the decision is still far from made according to experts in tax planning and consulting.