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Policy uncertainty threatens capacity addition in wind sector

According to reports, the wind power industry fears that capacity addition will suffer due to policy uncertainty. Specifically, the generation-based incentive scheme that offered 50 paise a unit of electricity has not been extended. The industry is hoping that the Ministry for New and Renewable Energy will get this scheme extended for the 12{+t}{+h} Plan period too.

Besides, the facility of accelerated depreciation – which allowed a higher depreciation for calculating taxable profits in the first year of buying the wind turbine – has been discontinued from April 1. Those putting up wind turbines for captive use were the main beneficiaries of the accelerated depreciation scheme.

The net effect of all this, says Mr Ramesh Kymal, Chairman, Indian Wind Turbine Manufacturers’ Association and Managing Director, Gamesa India, is that new installations will suffer. The industry added about 3,160 MW in 2011-12, half of which came under the generation-based incentive (GBI) scheme and the balance availed of the accelerated depreciation benefit.

The Centre introduced GBI towards the end of 2009 to provide incentives to investments in the wind energy sector as an alternative to the accelerated depreciation scheme and to set in place a framework to move from an investment based incentive to an outcome based one.

The scheme offered 50 paise a unit of electricity fed into the grid, over and above the tariff paid by the utility that bought the power, with a cap of Rs 62 lakh a MW. The scheme, available for wind turbines installed after December 17, 2009 and till March 31, 2012, was limited to a capacity of 4,000 MW.

According to Mr Kymal, the industry has represented to the Ministry to extend the validity of the scheme. It hopes the scheme will come into effect retrospectively from April 1.

According to industry sources, the response to the GBI scheme has been lukewarm mainly because the incentive is not attractive enough. The industry has been asking that the incentive be increased to Re 1 a unit and the cap of 4,000 MW removed.

The industry’s argument is that selling electricity generated by the wind turbines to the grid at a discounted price and then availing of the renewable energy certificates trading facility is more lucrative.

For instance, in Tamil Nadu, against a tariff of Rs 3.39 a unit and 50 paise under the GBI, a developer could sell the power to the grid at a discounted price of Rs 2.37 a unit and then trade the renewable energy certificates, which fetched it about Rs 2.70-2.80 a unit last year.

However, according to the sources, if the REC trading market cools down, then investments in wind power will suffer.

Information on the Indian Renewable Energy Development Agency’s Web site shows that it has received 133 applications for a capacity of 1,710 MW for the GBI scheme. The Ministry released Rs 25 crore and Rs 21.18 crore for the GBI scheme during 2010-11 and 2011-12.

According to a Strategic Plan for New and Renewable Energy Sector for the period 2011-17, available on the Ministry’s Web site, the Ministry expects 13,400 MW of wind power to be added during this period. Of this, about 2,400 MW will come up in 2011-12 (the actual installation was 3,163 MW), and 2,200 MW in each of the subsequent years. The paper estimates that the Ministry will require Rs 2,800 crore for the six years (to pay as incentive) to achieve the annual targets during the period.

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