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India may re-introduce accelerated depreciation for wind farms

According to reports, the renewable energy ministry is planning to re-introduce incentives for the wind energy sector to allay fears that capacity addition could fall after the sops were withdrawn from April 1.

The government rolled back two key incentives for the sector this year: accelerated depreciation and generation-based incentive. Industry players say the withdrawal of these sops will keep power producers at bay and could reduce annual capacity addition to less than 1,000 mw in 2012-13, against the target of 3,000 mw.

“We have requested the finance ministry again to reconsider introducing the incentives for the current financial year. They see the merit in our request and we have comfort that we should be able to reinstate it,” a senior ministry official said. Sources said there was consensus within the ministry for extension of the two incentives ahead of the Union Budget, but the government ended the tax break from March 31, much against the wishes of industry players. “We are working on the proposal and hope to put it before the cabinet for approval within two months,” the official added.

From April 1, new wind farms can only claim accelerated depreciation at 15% of the cost of the equipment, as against 80% earlier. Almost 70% of the 2,800 mw of new wind energy capacity added last year was set up under this incentive, while the remaining opted for generation-based incentive (GBI). Independent power producers, who set up units to sell electricity to state distribution companies, typically opt for generation-based incentives, which give them a benefit of Rs 0.50 for every unit of electricity.

“The wind industry is facing several issues. Rolling back of accelerated depreciation would lead to a temporary dip in the market. We are also pushing for GBI, which would be key for long-term growth of independent power producers in the sector,” said Ramesh Kymal, chairman and managing director of the Indian subsidiary of Spain’s Gamesa. Kymal is also chairman of Indian Wind Turbine Manufacturers Association.

Chintan Shah, head of strategic business development at Suzlon Energy, said, “Components used in coal power plants can claim higher depreciation rates, while wind projects can now claim only 15%. This is quite skewed, given that the government wants to increase the capacity of renewable energy in the country.”

The wind energy industry, which is expected to add 15,000 mw in the next five years, thrived even as other sectors missed targets due to incentives such as generation-based incentives and accelerated depreciation. Their roll back has also triggered concerns that investors seeking tax breaks may migrate to other sectors such as solar power, which offer incentives.

“The roll back will put a break on capacity addition in the sector. But the impact would not be much if it is reinstated soon since most utilities and investors place orders for wind farms in the second half of the year,” said Hemal Zobalia, Partner, KPMG India.

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