Fanning an alternative

Progressive Maharashtra has rushed to install wind energy plants. But, ask nidhi jamwal and shikha lakhanpal, reporting from Mumbai and Dhule, why so little electricity is actually generated? Is there an other purpose to private interest in wind? Of greater note If India must develop wind energy, should it go the way of this state?

Published: Friday 15 August 2008

Fanning an alternative

Today Maharashtra is second only to Tamil Nadu in terms of installed capacity to generate wind power; as on March 31 this year 1,756 mw. The potential? A whopping 3,650 mw in 28 feasible sites.

"The incentives offered are a win-win situation for wind farm developers," explains Mahesh Zagade, director general of Pune-based Maharashtra Energy Development Agency (meda), the state's nodal agency promoting non-conventional and renewable sources of energy. "We offer a differential wind power tariff of Rs 3.50 per unit with annual escalation of 15 paisa for 13 years. The sales tax subsidy has also helped. Central incentives--an 80 per cent accelerated depreciation, 10-year tax holiday--and indirect tax benefits, such as on custom and excise duties, altogether make it highly viable for business houses to enter this emerging business."

Almost everyone here talks in terms of installed capacity.What is not discussed is how much power wind farms actually generate. As per meda data, the installed capacity of 1,756 mw generated about 1,804 million units of electricity. Break these figures up; the picture short-circuits

Down to Earth 1 mw means 1,000 units generated (1 unit is one kw in one hour; thus 1 mw is 1,000 kw). A capacity of 1,756 mw ought to translate to about 1.756 million units in an hour. Bring in a variable, uncontrollable natural raw material (wind isn't coal), as the state regulator has, allowing an average of 20 per cent plant load factor (plf).

We come to the nub in 2007-08, wind farms in Maharashtra generated just 1,804 million units. This means they functioned at a plf of just 11.7 per cent. Pathetically low, compared even to the low average countrywide; much lower than other wind states such as Tamil Nadu and Karnataka. Interesting and baffling, generation has decreased, even as capacity's increased. In 2002-03, wind plants in Maharashtra operated at 19 per cent efficiency. Now, with capacity increased manifold, plf is down (see table Puzzling little fact).

Are the government's estimates erroneous? Or...?

This is the real story of wind energy in India. The sector has, rightly, received huge incentives, but these have not upped power generation. As it emerges, companies have merrily installed plants, not to generate power, but to gain from tax and depreciation benefits. The business seems a closed loop--the turbine-maker makes deals with investor companies to set up plants. Nobody quite knows the cost of a windmill. The turbine-maker gains; the investor profits. Indeed, nobody seems really interested in selling power, increasing efficiency and cutting costs. How does it work?

Windfall of incentives
Till 1993, the then Union ministry of non-conventional energy sources (mnes), now the Union Ministry of New and Renewable Energy (mnre), provided capital subsidy to set up wind farms. Subsequently, onus shifted to state governments. The Union government, however, continued to provide accelerated depreciation (80 per cent in the first year), virtually allowing an investor to write off its capital in a year, and a 10-year tax holiday (see table They call it the breeze).

Maharashtra launched its wind power policy in 1998. "It fixed wind power tariff at Rs 2.25 per unit with 5 per cent annual escalation for the first 10 years," informs Sudhir Kumar, general manager, meda. "The government also decided to provide infrastructure development support to private developers...(and) capital subsidy of 30 per cent, octroi exemption and various sales tax benefits."

The policy was revised in February 2004. The revision, kinder, set a target of 750 mw wind power by March 2007. As more incentive, it offered electricity duty exemption for 5 years along with infrastructure support (all money on making approach roads, erecting transmission lines and installing a substation would be put up by the state). A fund was set up to promote renewable energy, by imposing cess on commercial and industrial consumers (see box For equity's sake).

Maharashtra also decided to pay for evacuation-feeding power from windmills to transmission grids-by strengthening transmission and distribution lines and erecting 33 kilo volt lines from sites to high-voltage and extra-high-voltage substations.

What a boost Pune-based wind farm developer, Suzlon Energy Ltd, demanded and got Rs 58 crore as evacuation arrangement for its three wind farms, for instance.

According to Zagade, the cost of this arrangement depends on the distance of the wind turbines from sub-stations. The cost per mw of wind power comes to Rs 25-30 lakh. "The developer/company carries out evacuation arrangement and gets this cost reimbursed by the local distribution licensee (50 per cent) and the green cess (50 per cent)."

Puzzling little fact
i.e Plant load factor, Maharashtra (2000 - 2008)
  00-01 01-02 02-03 03-04 06-07 07-08
Generation (IN MILLION KWH) 143 333 667 684 1,714 1,804
Installed Capacity (IN MWH) 190 399 401 407 1,487 1,756
Plant Load Factor (IN PERCENTAGE) 8.6 9.5 19.0 19.2 13.2 11.7
They call it the breeze
Central and state incentives to wind farming in India

State level incentives Central incentives
Wheeling charge of mere 2 per cent 80 per cent accelerated depreciation on wind farm equipment/devices
Uniform T&D loss of 5 per cent 10 years tax holiday for wind farms
Buy-back tariff of Rs 3.50 per unit with 15 paisa escalation for 13 years Custom duty exemption (Notification No. 21/2002-custom dated 01-03-2002)
Third party sale and self-use allowed Excise duty exemption (Notification No. 6/2002- Central Excise and amendments Thereof)
For evacuation arrangement (laying down high tension cables, feeder, sub-station, etc), 50 per cent money given as subsidy through green fund and rest 50 per cent as interest-free loan  
No electricity duty levied for first 5 years from the date of commissioning of the projects for captive consumption  
Construction of approach roads to be fully funded through green fund  
Diversion of forest land for wind farms with a lease period of 30 years  
Source Compiled from Information Booklet on Wind Energy, MEDA, Pune, Government of Maharashtra.
6.5 crore/mw!
Cost break up of Suzlon’s 1.5 mw wind turbine generator

  Rs lakh per 1.5 mw WTG
Cost of land 8.45
Cost of tower 135.20
Cost of WTG 663.58
Erection and commissioning charges 121.72
Infrastructure development (Rs 30 lakh per mw) 45.00
Processing fee 1.05
Total 975.00









Sunita Narain

"There is no doubt wind power and other renewable sources of energy need to be promoted. But, at present, too many incentives are offered to private wind farm developers that are not translating into more green power to consumers. Promoters need a conducive environment, but that should not translate into unnecessary private profits with no public good," says Shantanu Dixit, member of the energy group of Prayas, a Pune-based policy research and advocacy group.

They also allege a huge subsidy, to private developers, on capital installation as well as a high--they say, unjustified--tariff. Zagade says capital subsidy on sales tax was part of the 1998 policy but got withdrawn in 2002. In the past, "if the plf was below 12 per cent, then no subsidy was given, but as the plf increased, the sales tax rebate also increased. A 12 per cent plf got 50 per cent sales tax subsidy; 13 per cent plf got 60 per cent; plf above 17 per cent got 100 per cent sales tax rebate."

Things have got bad
In a recent case, the state energy agency discovered a wind farm that existed only on paper. The company, M/s Tuljhabhavani Wind Farms Pvt Ltd, based in Satara, forged its no-objection certificate from the zoology department and the mining department.

In April 2006, the i-t department in Pune began investigating Suzlon's wind-farms as part of a nationwide operation--spanning Gujarat, Rajasthan, Madhya Pradesh, Andhra Pradesh, Tamil Nadu, Daman and Diu, Pondicherry, Delhi and Karnataka--to check for false depreciation claims, and ascertain if equipment suppliers and state electricity boards connived with equipment owners to manipulate such claims. i-t authorities believe windmill owners make false depreciation claims to evade taxes; to the tune of Rs 700-1,000 crore.

Opaque green
In 2003, the Maharashtra Electricity Regulatory Commission (merc) raised differential tariff for wind power from Rs 2.25 per unit to Rs 3.50 per unit, with a 15 paise per year escalation for 13 years for projects commissioned till March 2007 (now extended to 2010). "At policy level, Maharashtra was the first state to declare such a tariff. Other states like Karnataka and Rajasthan are fast catching up," says G M Pillai, founder and director-general of Pune-based World Institute of Sustainable Energy (wise). But industry sources claim business houses are least bothered; they just desire income tax benefits.

Such is the 'opaque' wind business. Companies determine their costs, and with only a few companies making wind mills, there is no competition and even less transparency. It is a closed cycle--a wind turbine company interested in selling equipment sets up the plant on behalf of the private entrepreneur interested only in depreciation benefits. "In India there is no correct data on cost per mw of wind turbine generator (wtg). Companies like Suzlon sell their 1.5 mw wtg for over Rs 9 crore, but what is its actual manufacture cost? No one knows; this data is not available in the public domain," says an expert on condition of anonymity (see table 6.5 crore/mw!).

It is also a sweet real estate deal (see box Dhule's fighting). The wind farm developer--a Suzlon or a Vestas--also keeps the land to itself. "A wind farm developer approaches an investor, telling him all he needs to do is get the bank loan for capital investment. Rest is taken care of," explains an expert on condition of anonymity. "In return, the investor gets income tax benefits and also money through selling generated wind energy to the grid. The developer gets to sell turbines and is paid annually for operation and maintenance (o&m)."

"For instance," the expert continues, "neg Micon asks for Rs 9.50 lakh per annum per wind energy generator (weg) with an escalation of 7.5 per cent per annum as o&m charge. This increases to Rs 16 lakh per annum per weg after the 5th year of commissioning. Suzlon demands Rs 17 lakh per weg per annum as o&m charges. This is nothing but loot; there are no running charges for a farm running on free wind." Also, none of the companies give any guarantee on the plf of the turbine, often quoted at 30 per cent, but usually is 10-15 per cent.

Who buys?
The buyer and the seller need to sign a power purchase agreement (ppa). If a developer intends selling wind power to the state grid, a 13-year ppa is signed, a limit merc has set.

Here, developers have an edge. Once the windmill is installed, there is minimum maintenance cost and no fuel cost. According to Wind Energy by mnre, wind power machines can be maintained at Rs 0.25 to Rs 0.60 per kwh, with a payback period of 5-8 years.

Down To Earth tried to get data on payments made to various wind farm developers in last two years, against the number of units fed into the state grid it isn't available. "As per the Electricity Act, 2003, the entire power sector has been deregulated. A seller is free to sell its power to anyone--local distribution licensee, third party sale, captive use. Buyer and seller sign an agreement whose details they need not share. Hence, we do not know what kind of payments have been made to wind power companies. For that data, contact individual companies or local distribution licensees," says Zagade.

Under the renewable portfolio standard (rps) or renewable purchase order (rpo), electricity suppliers are required to provide a percentage of their supply from renewable energy sources. In India 12 states have declared this green energy quota--between 2-10 per cent of total power supply.

merc introduced rps in Maharashtra through an August 16, 2006, order. As per this order, three utilities supplying power to Mumbai--Reliance Energy Ltd, Tata Power and Brihan Mumbai Electric Supply and Transport (best)--have to buy, every year, a minimum amount of renewable energy "The Percentage Specification stipulated ... is intended to facilitate growth of renewable energy sector and to harness renewable energy resources within the State to the maximum possible".

In case utilities fail to meet rps obligation, merc has specified a penalty. "The Commission rules that during the first year of rps operating framework, i.e., 2006-07, there shall not be any charge towards enforcement. However, eligible persons shall be liable to pay at the rate of Rs 5.00 per unit of shortfall in 2007-08, Rs 6.00 per unit of shortfall in 2008-09, and Rs 7.00 per unit of shortfall for 2009-10."

How to use this tool to create a market for green power?

In the first year, the three Mumbai suppliers did not meet their 3 per cent target and were exempted from penalty. In June 2007, meda set up a 17-member Maharashtra rps Technical Task Force to review availability of renewable energy, and work out projections to meet rps obligations up to 2009-2010. This task force is yet to submit its final report.

Says S A Puranik, additional general manager (supply), best, Mumbai, "rps is a good policy decision and we are keen to use green power. But due to shortage of green power and statutory obligation imposed on distribution licensees to procure fixed percentage of total power requirement through renewable sources, the traders and generators are exploiting the situation and quoting unreasonable and unrealistic rates. We therefore are proposing to make our own arrangements to meet the rps target. There should not only be intra-state capping of tariff but also inter-state, which will create a competitive market."

But merc chairperson Pramod Deo is quick to clarify, "rps has now become a sort of incentive; utilities realise it is cheaper and easier to set up their own renewable energy plants, than to buy from other developers. In fact Tata Power has already started work on its own wind farm. The capping or ceiling on the rate at which green power is to be procured by the utilities is inconsequential because rps is essentially a promotional drive. The main motive is not to penalize the utilities but to make them generate green power to meet the future power requirement of the state. In case utilities still face problems, they can approach the commission and then we will look into it," Deo told Down To Earth.

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