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Reinvigorating India’s wind sector

According to reports, the sheer energy deficiency even at the current GDP growth levels and the complex set of problems faced in the conventional power sector, makes focus of renewable in India a no brainer.

Within the renewable space too, there is little point in debating which resource should be focussed upon. India needs it all. In the past few years, India has done a fairly commendable job in putting itself on the global solar map (though much is yet desired for India to monetise the immense inherent solar potential). However, in doing so, we need to also evaluate whether we have been inadvertently undermining the role of wind energy . Make no mistake, wind has been (with 67% capacity contribution to the renewable portfolio as on 31.10.2013) and in the near future, will continue to be, the mainstay of the Indian renewable energy sector.

Some of the key reasons for driving focus into the wind sector are as follows:

1. Wind is a proven model with participation from large players across segments including corporate India, global utilities, Indian fund, global funds and listed entities. Practically the entire capital deployed in the wind sector is from the private sector. Except for last year, wind has consistently achieved capacity addition targets.

2. Wind tariffs are already comparable to tariffs related to imported coal. This is without considering the hidden subsidiaries enjoyed by the conventional projects

3. The financing model is mature. Banks are comfortable with project financing and DFIs (development finance institution) are showing interest. Herein, an ironical aspect is that the short project implementation cycle at times makes it difficult for wind projects to be funded by DFIs, a rarity for most capital incentive projects across the infrastructure space. Given the scale of the projects, wind should soon be in a position to attract annuity investors with low risk and moderate return appetite. This could be in the form of listing of trust in foreign countries or by attracting pension funds.

4. Wind has an existing manufacturing base in India lead by both Indian and foreign companies. This segment has been under significant pressures given the global environment and the withdrawal of the accelerated depreciation benefits in India. Promoting domestic manufacturing has been a key focus for India. It thus becomes important to ensure that we nurse this segment back to health, though without compromising on the competitiveness.

5. Wind can play an important role in limiting the forex outflow by supplementing the coal imports. The environmental earnings (key driver of renewable energy in the developed nations) is simply a by-product in the Indian context. However, with growing importance of environment, this aspect will only get more prominent with time.

6.Finally wind plays a tangible role in developing rural infrastructure and providing gainful local employment. Government needs to take immediate cognizance of the importance of the wind sector and put in a more definitive plan to support this segment. The key fundamentals of the wind sector are in place.

It simply needs recognition of its contribution and renewed focus from the Government to not just meet but significantly exceed the planned target of 3 GW annual capacity additions.

The author of the article, Sanjay Chakrabarti, is Partner, Infrastructure, Industrial & Consumer at Ernst & Young LLP

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