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Lower tax break buffets wind power capacity addition in India

According to reports, wind power capacity addition in India has declined following the scaling back of a tax break under which companies got 80% depreciation benefits in the first year, but while this setback is likely to be temporary, it could lead to the exit of smaller operators, experts said.

“Investment in this sector will fall this year due to the withdrawal of the accelerated depreciation benefit,” said G.M. Pillai, director general, World Institute of Sustainable Energy (Wise), an advocacy agency for the renewable energy sector. “During the last financial year, 3,000 MW of wind power was added, of which over 400 MW was installed in the first quarter alone. This year, in the comparable April-June quarter, a mere 180 MW or less than half, has been added.”

Some reports have suggested that 70% of all projects set up in the last financial year did so on account of the tax break.

“The market will recover in the long term,” Pillai said. “This is a temporary setback and its impact is short term. It will not affect the independent power producers (IPPs) who set up large power projects. They will not backtrack because they bring in low-cost external funding.”

A spokesperson for Suzlon Energy Ltd, an industry leader in wind energy, concurred with this.

“While the accelerated depreciation benefit for renewable energy has been scaled back from 80% to an effective 35%, in India we are seeing an increasing contribution from IPPs, public sector units and captive consumers. In the current fisical, FY13, we see nearly 70% of our business in India taking this route.”

Last year, IPPs accounted for 25-30% of all wind energy added, Pillai said, adding that the profile of wind power projects will change as the investment profile changes.

Other agencies tracking the renewable energy sector agreed that the tax breaks led to small-scale projects and inefficiencies. If tariffs are revised, as sought by coal-based power projects importing costly fuel, the wind power sector will benefit.

India had an installed wind power base of 14,158 MW as of 31 March, 2011, the fifth highest in the world, according to the Indian Wind Energy Association industry grouping.

Small companies will exit the sector unless there are better incentives, said Sanjay Ghodawat, chairman of the Rs.700 crore Kolhapur-based Ghodawat Industries (I) Pvt. Ltd, which has a presence in the consumer goods and agriculture sectors besides running a 110 MW wind mill.

“You need incentives to invest in wind energy and we are now looking at the solar power sector but we are waiting for clarity on policy,” he said. “There is a power shortage and capacity addition is needed but so are some incentives.”

A supplier of imported gear box components noted that smaller companies have exited the sector not just because of the withdrawal of the tax-friendly structure but also because the government no longer helps them acquire land. Also, the central government is now focussing on solar power, which is getting greater financial and other support under the Jawaharlal Nehru National Solar Mission. The supplier requested anonymity since he’s not authorized to speak on behalf of component manufacturers or the wind turbine manufacturers they supply.

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