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India seeks to revive interest in wind sector

According to reports, the government plans to revive interest in the wind energy sector by reintroducing tax and fiscal incentives that were removed last year, a move that a lobby group alleges caused a fall of 1,500 megawatts (MW) in wind power generation in 2012-13.

Specifically, the government is considering the reinstatement of accelerated depreciation benefits, which reduce tax and strengthen cash flows, and generation-based incentives (GBIs).

The Indian Wind Power Association grouping has been lobbying for such a change and the ministry of new and renewable energy (MNRE) has now drafted a note to this effect that’s being circulated among various ministries before a decision is taken at the end of the month.

“The finance ministry has agreed. We have moved a note. It will offer a huge relief to the sector and will restart the interest in wind power generation. We expect the decision to be taken within a month,” said a senior MNRE official who didn’t want to be identified.

The cabinet note is yet to reach the finance ministry, said a senior finance ministry official, who also didn’t want to be identified.

Under the earlier accelerated depreciation benefit that was withdrawn by the Central Board of Direct Taxes in April 2012, wind power generation companies could claim a depreciation benefit of up to 80% of their investment in the first year of the project itself. The GBI, also withdrawn in April 2012, was aimed at discouraging investments that were merely aimed at availing of tax concessions and promised 50 paisa for every unit of electricity generated by wind power firms.

The withdrawal of both benefits saw interest in the sector—it was once popular even among individuals as a tax saver—wane. Indeed, at the peak of its popularity, the sector, thanks to the tax benefit on offer, encouraged fraudulent schemes where investments in wind energy remained on paper and companies and individuals got extensive depreciation benefits.

“Government had earlier realized that accelerated depreciation was used more as a tax-saving tool and often tax authorities suspected over-invoicing. It was also not helpful for investment by serious wind sector players, thus GBI was introduced as an option,” added Debasish Mishra, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, an audit and consultancy firm.

A generation-based incentive rewards output, but “even this was withdrawn as the government thought the feed-in tariff was raised to such a level that there was no rationale for giving GBI”, said a partner at a Delhi-based consultancy, who spoke on condition of anonymity.

India moved to so-called feed-in tariffs that effectively compensate generators of wind and solar power by setting a price per unit that covers their cost and guarantees a certain rate of return.

According to audit and consulting firm EY’s Renewable Energy Country Attractiveness Index released on 22 June, which covers all forms of renewable energy India’s ranking slipped from the fourth position (April-June last fiscal) to eighth position in the last quarter.

The reintroduction of the benefits will benefit both equipment makers, such as the debt-laden Suzlon Energy Ltd and wind energy producers.

“While reinstatement of accelerated depreciation benefits will bail out the wind power generation equipment manufacturers, GBI will drive the demand from the independent power producers,” added the partner in the consulting firm cited above.

“Reintroduction of GBI and accelerated depreciation will give a big boost to the investment in the wind generation sector and has a potential to take the capacity addition back to 3,500-4,000MW per year,” Deloitte’s Mishra added.

While most investors have shied away from Indian power projects that use conventional fuel such as coal and gas, private equity (PE) firms have shown considerable interest in renewable energy sources such as wind and solar power.

In some ways, the withdrawal of incentives led to a streamlining of the business, said one expert. “At the operational level, withdrawal of accelerated depreciation caused the overnight disappearance of the wind retail market. However, this has also brought to the fore the independent power producer (IPP), mostly backed by large PEs,” Sanjay Chakrabarti, partner and national leader, clean tech, EY, said in a 22 June statement. “The wind sector’s size has therefore shrunk, but it has also arguably resulted in a stronger market, with IPPs committed to setting up quality assets,” he said.

India has an installed power generation capacity of 225,133MW, of which 12.2%, or 27,541.71MW, is fuelled by renewable energy. Of this, 19,618MW is wind power capacity. While there is interest in developing wind energy sources, funding has become a concern. It takes capital expenditure of Rs.4.2-4.5 crore per 1MW of power generated through coal-based or gas-based projects, while wind-based projects require Rs.6 crore per 1MW.

The industry has been awaiting the reinstatement of the incentives. “The GBI was announced by the finance minister in the budget. It has been something that has been in the works within the central government for the last almost one year now and we are hopeful that in a short period of time, it will get actually implemented,” said Sumant Sinha, chairman and chief executive officer of ReNew Power Ventures Pvt. Ltd, a renewable energy firm.

Sinha wasn’t sure about the reinstatement of the accelerated depreciation benefit, though: “I don’t know. It remains to be seen. My sense is that there are different points of views in the government and I think ultimately the cabinet will take a call.”

The National Action Plan on Climate Change recommends India generate 10% of its power from solar, wind, hydropower and other renewable sources by 2015, and 15% by 2020.

Experts maintain that the future for renewables is robust.

“Despite a difficult economic context, renewable power is expected to increase by 40% in the next five years. Renewables are now the fastest-growing power generation sector and will make up almost a quarter of the global power mix by 2018, up from an estimated 20% in 2011,” the International Energy Agency (IEA) said in its second annual medium-term renewable energy market report released on 26 June.

“Led by China, non-OECD (Organization for Economic Co-operation and Development) countries are expected to account for two-thirds of the global increase in renewable power generation between now and 2018,” IEA added.

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