According to reports, wind power firms slowed capacity addition for the first time in 20 years chiefly as the government stalled on announcing a replacement for the incentive programme that expired last fiscal.
Capacity addition in wind power generation dropped 39% between April and September over the year-ago fiscal first half, after having grown at a 22% annual compounded growth rate, on average, since 1992, according to data published by the Indian Wind Turbine Manufacturers Association (IWTMA).
Industry experts blame this on the lack of clarity on the government’s proposed generation-based incentive (GBI) scheme, the poor health of state government-owned distribution companies (discoms), and the prohibitive cost of capital.
GBI works on the basis of the number of units a firm generates — the more it generates, the more GBIs it gets. Wind power firms added 851.35 megawatts (MW) of capacity in the first half of this fiscal, lower than the 1,402.66MW they added a year ago.
“The sector earlier enjoyed accelerated depreciation benefits, which ended in fiscal 2012, and these incentives were supposed to be replaced by GBIs but the government is yet to announce the framework for GBIs,” said D.V. Giri, secretary general of IWTMA.
He expects the GBI scheme to be announced by November. “But even if they do that, we will end up adding only between 1,800-2,000MW by the end of the current fiscal and will be nowhere near adding 3,000MW, which the country added in fiscal 2012,” said Giri.
India aims to have 25,000MW of wind energy capacity by April 2017, according to its 12th Five-Year Plan (2012-17), Giri said.
According to data on the ministry of new and renewable energy’s (MNRE) website, wind power firms added just 614.50MW of generation capacity between April and August. It did not table comparable figures for the year-ago period.
“The overall investment climate in the country is not very conducive for fresh investments despite the government’s so-called big-bang reforms,” said the chief executive of a Mumbai-based power producer engaged in renewable energy, who did not wanted to be identified.
“Interest rates are still very high, and there is a lack of clarity on policy issues in various sectors, which also includes the wind power sector, which is facing issues such as GBIs, inadequate grid connectivity for the renewable power sector and poor health of state-owned discoms,” this executive said.
MNRE secretary Girish Pradhan did not answer or reply to calls and text messages sent to his mobile phone.
“Perhaps, concern regarding the mounting budgetary deficit is one of the reasons behind the delay in the GBI announcement by the government,” said Ashwin Gambhir, senior research associate at Prayas Energy Group, a Pune-based think tank that researches policy-related issues in the energy sector.
“However, the best way to address the concerns of wind power generators is to follow the model adopted by Germany, which is based on incentive tariff. This model does not put a strain on the budgetary resources of the public exchequer. Rather, it recovers the cost from users,” he said.
There’s another issue that is adding to the woes of wind power firms—that of the domestic renewable energy certificate (REC) market not becoming attractive enough to earn profits.
In 2010, the Central Electricity Regulatory Commission made it mandatory for discoms to buy a certain percentage of their total power purchase from renewable sources. They were given the option to buy RECs if they failed to meet this obligation. But it set no penalty for failing to buy RECs, said the chief executive.
Utilities are entitled to one REC for every 1,000 units of power generated from renewable sources. These RECs can be traded through power exchanges like the Indian Energy Exchange and Power Exchange India Ltd.
“Availability of capital from both the debt market and private equity is a major issue, and the cost of debt has also gone up from around 11% to around 13% and this is forcing wind project developers to take a hard look at their plans,” said Seshan Balakrishnan, director of the infrastructure practice at consultancy firm Ernst and Young India.