According to reports, the great green hope that renewable energy will help wean us away from “dirty” fossil fuels appears to be fading. In the last financial, only 1,073 mw of new capacity was added in the country in the absence of clear-cut policy and uncertainty in the fiscal incentive regime.
Across the world, renewable energy sector is heavily dependent on subsidies, so the economic downturn, the high current account deficit and the depreciating rupee at home do not augur well.
“Wind to an extent is driven by foreign currency, so micro economic and political scenario has significantly impacted the sector. With such a volatile rupee, investment is difficult in the sector,” said Sanjay Chakrabarti, partner and national cleantech leader at Ernst & Young. He wind sector has been particularly unfortunate. A total absence of any form of subsidy for more than a year, the refusal by state governments to pay their dues to wind energy producers is making the sector unattractive for investors.
Though India continued to be among the top wind power generators at fifth place with capacity to produce 19,000 mw of wind energy, the rate at which new wind farms were being set up dropped significantly. In the first five months of this fiscal, barely 512mw of new wind farms have been added, compared to 3,000 Mw in 2011.
The biggest blow was the uncertainty and total absence of incentive or subsidy for the sector. The fiscal incentive component for the sector fell between two stools; as the government attempted to move from increasing the country’s capacity to generate wind energy to one that incentivised the production of wind energy. “It’s been 16 months that the wind sector is without any incentive scheme and is struggling for survival,” said DV Giri, secretary general, Indian Wind Turbine Manufacturers’ Association. This was the worst thing that could have happened to a sector, heavily dependent on subsidies.
In the early years of the 21 Century, the country’s capacity to produce wind energy put in place an incentive structure that encouraged capital investment. The system of appreciated depreciated guaranteed the investor return of 80% of the total cost of setting up a wind farm.
An incentive system that guaranteed protection from the risk from total loss resulted in investments from traditional power sector players to obscure transporters, sweet shop owners, marble and copper manufacturers, to celebrities such as cricketer Rahul Dravid and actress Aishwarya Rai.
“During 2002-2008, there was so much excitement for wind power sector that everyone from celebrities to commoners jumped in to evade tax,” said an officer with Rajasthan Renewable Energy Corporation Limited.
While many wind farms were set up thanks to the capital subsidy from the government, the promoters felt no need to increase wind power generation.
By 2010, there was increased rumbling both within and outside the government to opt for system that incentivised actual generation of wind power rather than the setting up of wind farms. The idea was to move to a generation-based incentive.
However, delays in requisite approvals, lack of adequate budgetary support delayed the introduction of the generation based incentive. Meanwhile, appreciated depreciation was discontinued in 2012 resulting in a situation, where the sector received no subsidy of any kindâ€” whether for capital investments or for producing energy for a year.
After a gap of more than a year, the generation-based incentive was reintroduced earlier this week. Projects that have been commissioned after April 1, 2012 will be eligible for this incentive.
“The incentive will be paid with retrospective effect from April 1, 2012, so wind power developers would benefit Rs 38 lakh per mw,” an official told ET. With the incentive structure now in place, analysts say that wind energy sector will begin to recover.
“The sector is going through a stage of natural progression. There will be consolidations leaving only serious players in the market and the sector would witness a major growth then,” said Chakrabarti.