Wind break ends

Centre wants to withdraw sops for wind energy sector; offers an incentive to improve performance

By Ruhi Kandhari
Last Updated: Monday 17 August 2015

Wind break ends

imageWind energy has been the poster child of India’s renewable energy programme. Data released by the government shows the staggering pace at which wind farms have been added across the country. But most of them deliver only a fraction of their generation potential, according to the Union Ministry of New and Renewable Energy (MNRE). This is due to use of obsolete equipment. The electricity regulators now want to discipline this errant child—no tax holidays, and payment subject to performance. But this is likely to happen if the industry agrees to the new direct tax code, which withdraws sops to the industry.

Data maintained by MNRE shows that between 1990 and 2011 about 13,000 MW wind power capacity was installed in India, propelling it to fifth rank among the wind power producing countries. Wind energy forms a little less than 10 per cent of the total installed capacity of the country, but contributes less than three per cent to the country’s power generation, Central Electricity Regulatory Commission (CERC) data shows. “At best, Indian wind farms have managed a capacity utilisation of 30 per cent,” says an MNRE official. According to MNRE data, average capacity utilisation in 2009-10 was a low 18 per cent (see graph).

In 2008, the prime minister announced the national action plan on climate change which mandates that minimum five per cent energy be procured from renewables by March 2010; this was to increase one per cent every subsequent year. Sensing these targets could not be met in existing conditions, a new policy was announced in Decem ber 2009 to improve the sector’s performance. MNRE introduced a generation based incentive (GBI) scheme. Under it, Rs 0.50 is paid for every unit of electricity fed from a windmill to the grid over and above the feed-in-tariff a utility pays.

The GBI scheme was in addition to the government’s promotional scheme, Accelerated Depreciation (AD), launched in the 1990s. It allowed companies investing in wind farms write off about 80 per cent of invested capital in the first year (see ‘How tax sop works’). This led to setting up of a large number of wind farms (see ‘Fanning an alternative’, Down To Earth, August 15, 2008). “A lot of these farms are in a shambles after the tax benefit was availed. In some cases, the promoters have neglected them completely,” says a financier.

The AD scheme did not penalise power producers for inefficiency. Consequently, some of the most favourable sites in the country are under-utilised. On the other hand, the few investors who opted for GBI recently increased generation considerably. “Since GBI, there has been steady increase in the height of wind turbine towers and the size of the turbines, which has increased generation substantially,” says S K Dey, manager of the government-run Indian Renewable Energy Development Agency (IREDA).

imageBut even with incentives, improvement has been sluggish—of the 13,000 MW installed capacity, only 400 MW have been installed under GBI scheme. “No one wants to incur the cost on technology upgradation,” says G Subramanian of the Indian Wind Energy Association. Over 90 per cent of the power plants are installed at the country’s most windy sites under the AD scheme, but the technology is outdated. “In the goldmines of wind, we have outdated technology installed for tax benefits,” says an MNRE official.

Technological upgradation of re-powering of these sites may be the only solution. India Wind Energy Outlook, a report published by Pune’s World Institute of Sustainable Energy (WISE) in April 2011, states that capacity utilisation of small turbines used in Tamil Nadu is estimated to be less than 15 per cent. According to an IREDA report, wind turbines in the 1990s seldom exceeded 500 kW output (see graph). Manufacturers of these turbines have disappeared from the market, which has affected operations. Modern turbines can be twice more efficient.

Solution lies in re-powering

A successful re-powering exercise was carried out by Gamesa wind turbine manufacturing company in Coimbatore, Tamil Nadu where 350 kW and 500 kW turbines were replaced with 850 kW turbines, which is expected to increase capacity utilisation to 25 per cent from the current 13-17 per cent. Another study by WISE in July 2010 notes that if wind turbines installed before 2002 are replaced with new ones, Tamil Nadu’s wind energy generation would jump 50 per cent over the 4,890 MW output last year.

How tax sop works
  If company A makes a profit of Rs 20 crore, it would have to pay a corporate tax of Rs 6.7 crores (33 per cent). But if the company invests Rs 5 crore from its profit in installing a 1 MW wind power plant, Rs 4 crore would be treated as expense under 80 percent accelerated depreciation scheme. The corporate tax on the remaining profit of Rs 16 crore would be Rs 5.3 crore. Investment in wind energy would save A Rs 1.4 crore.  
The study notes lack of economic incentives as the primary barrier to re-powering. “End of AD will lead to not just better generation, but bring in new technology and better forecasting skills,” says Rakesh Shah of CERC.

Wind forecasting is another aspect energy producers rarely heed because they were never penalised for supplying erratic power. The technology ensures beforehand knowledge of the amount of energy a power plant will produce. CERC’s amended India Electricity Grid Code, wherein wind producers had to forecast with 70 per cent accuracy the energy they will feed into the grid, was to be implemented from January 2011 but had to be postponed by a year because of the industry’s opposition. Absence of forecasting technology leads to grid instability and shut-down. In India, power producers pay an Unscheduled Interchange charge if the generation promised to the grid is different from actual generation; renewable energy producers pay no penalty.

Direct tax code

The government’s recognition of the impending problem has come in the form of direct tax code (DTC) that suggests withdrawal of sector-wise sops, and will be enforced from April 2012. The plan is to enforce DTC, which would mean withdrawing AD scheme, by the end of the 11th Five-Year Plan. But the proposal can become a reality only if industry endorses it.

“ DTC’s implementation has already been postponed from April 2011 to April 2012 and the tax holiday for the special economic zones (SEZs) will continue till April 2014 because of pressure by developers and units in SEZs. DTC is likely to be opposed by various interest groups, including those in wind energy,” says an MNRE official. Even MNRE’s suggestion to withdraw the AD scheme in April 2012 may not materialise. “There is opposition to end this route. But it can hamper capacity building in the wind sector,” the official adds.

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  • Good Article on Wind Energy

    Good Article on Wind Energy in India.

    Government move to new incentives linked to the amount of wind energy ¬produced is most welcome. Such incentives are there in countries like US, Canada, Finland, Sweden, and the Netherlands
    Existing incentives reward investments in the sector, but do not factor in actual production of wind energy.
    Currently, a Central scheme provides an accelerated depreciation benefit of 80%, an income tax holiday and exemption from excise and concessional customs duty and state governments provide capital subsidies to wind power projects. Maharashtra has a cess on conventional energy in order to create a ÔÇÿclean energy fundÔÇÖ that will be used to promote renewable energy projects in the state.
    The incentive is beneficial only to balance sheet financers with high tax liabilities. ÔÇ£Right now, the structure is such that only the attraction of tax deferment is bringing in investors (into wind energy). It has become more of a tax deferment instrument for bigger companies with high tax liabilities. As of now, there is hardly any wind project in India which is not used for tax reduction,ÔÇØ says Ram Babu, managing director, CantorCO2e India, a London-based firm which offers financial services to environmental and energy markets worldwide.

    The current benefits, wind energy experts say, have not incentivized the sector enough to drive its growth. ÔÇ£Depreciation benefit does play a good role and it has given the sector the initial fillip it needed but now it needs to be expanded,ÔÇØ according to Debashish Majumdar, managing director, Indian Renewable Energy Development Agency Ltd (Ireda). The current benefits have to do with reducing tax outgo, and most power producers, especially the new ones, do not have much of this anyway.

    IndiaÔÇÖs Wind Energy is not even half of that of China even though China started much later than India. Here are the figures of countries with largest Wind Installations at the end of June 2010 in MW:

    USA 36,300,China 33,800; Germany 26,400 ; Spain 19,500 ; India 12 ; Italy 5,00 ; France 500 ; United Kingdom 4,600 ; Portugal 3,800 ; Denmark 3,700 ;Rest of the World: 24,500 MW. Total 175,000 MW (Source: WWEA 2010). Of course China is the world leader in Wind Today with 41.8 GW (gigawatts) at the end of 2010.

    Another area where India can march ahead is offshore wind farms.

    The 9 European countries with offshore wind power capacity in 2010 were:
    1. UK ÔÇö 1,341 MW
    2. Denmark ÔÇö 854 MW
    3. Netherlands ÔÇö 249 MW
    4. Belgium ÔÇö 195 MW
    5. Sweden ÔÇö 164 MW
    6. Germany ÔÇö 92 MW
    7. Ireland ÔÇö 25 MW
    8. Finland ÔÇö 26 MW
    9. Norway ÔÇö 2.3 MW
    Length of coastline of India including the coastlines of Andaman and Nicobar Islands in the Bay of Bengal and Lakshwadweep Islands in the Arabian Sea is 7517 km. A beginning can be made by conducting intensive wind survey to identify the potential windy region and Wind Farms started. China, South Korea, Taiwan and France have ambitious plans to set up offshore wind farms.

    Hitherto incentives(By way of depreciation) for Renewable Energy are only given to big industries which set up these plants. In Denmark Wind Farm co-operatives do well. In India also A Wind Fund can be set up and those invest in it under Section 80C can be given Income Tax Exemption. This way there will be wide participation of people in Wind and other Renewables. Also Wind farm co-operatives on the lines of the ones in Denmark can be started in India to boost up wind energy in the country.

    Put the WIND to WORK: To get inexhaustible, pollution-free energy which cannot be

    Wind Energy Expert
    Nellore (AP)

    Posted by: Anonymous | 9 years ago | Reply
  • Wind Energy is neither Free

    Wind Energy is neither Free and Neither Clean as it is made out to be. We should have given far more importance to energy conservation and efficiency. Wind energy is just another supply side options.Without plugging the leakages, abuse ,misuse and inefficient use of energy it will not help at all.
    Unfortunately Bureau of Energy Efficiency has utterly failed in its duty to provide the kind of leadership which was expected from it.
    Thanks to the frequent foreign visits by the DG and other officials,defective ECBC,silly schemes like BLY, non-accreditation of energy auditors,non-establishment of the Tribunal,non-sense mechanism called PAT,dubious S & L programme, Useless surveys,False claims of 'Verified energy savings etc.

    Sunil Sood

    Posted by: Anonymous | 9 years ago | Reply
  • You are totally wrong and

    You are totally wrong and ignorant of the potential of Wind Energy. It is by far the expanding Renewable Energy around the globe(excluding hydel).Everybody knows about Energy Efficiency but few practice it.

    Dr.A.Jagadeesh Nellore(AP),India
    Wind Energy Expert

    Posted by: Anonymous | 9 years ago | Reply
  • I am from MP where India's

    I am from MP where India's First Wind Farm Company was established more than 15 years ago.I have been to a factory in Bangalore on Tumkur Road, where they manufacture turbine blades.I was shocked to see the pollution caused due to the manufacturing process and also the energy consumed to manufacture blades,transport them etc. I know how the wind energy was promoted and what means were adopted. Please refer all the debates on Wind energy in the internet.

    Reg your comment-"Everybody knows about Energy Efficiency but few practice it". I agree to some extent as it has not been exploited due to several barriers.It is our job to remove them and promote conservation and efficiency instead of trying to meet the endless demand through energy cannibalism .BEE was formed for that very purpose. But unfortunately it has utterly failed in its duty.

    Sunil Sood

    Posted by: Anonymous | 9 years ago | Reply
  • The Wind farms you talk in MP

    The Wind farms you talk in MP is a total failure. MP has not even medium winds. Only to exploit tax benefits people set up wind farms there. Only in Tamilnadu,Maharashtra,Gujarat and to some extent in Rajasthan Wind farms are working. Regarding Pollution INDUSTRY AND POLLUTION go together. We must fight for safety and non pollution measures rather than asking the industries to close down,

    Dr.A.Jagadeesh Nellore(AP),India

    Posted by: Anonymous | 9 years ago | Reply
  • Hids is vallabh Kapadi from

    Hids is vallabh Kapadi from Global Power Developers in Mumbai. We undertake micro and mega wind turbine projects all over India and abroad. We do have the necessary skills and experience to undertake mega projects. Kindly email me at the email address as I have got some calculations done, about the investment and payback period, specially for those who are interested in setting up windfarm. You can understand it perfectly. Please feel free to contact at 9821321361/

    Posted by: Anonymous | 9 years ago | Reply
  • It's rightly said that energy

    It's rightly said that energy saving should be implemented at all levels, and highly efficient an energy saving devices must be used in order to utilise  resources in an optimal way. At the same time, in order to meet energy demands in future and given our growing economy, we should have the right mix of resources to produce power. Renewable energy sources definitely can contribute a sizeable portion, and particularly wind energy which is proven for many years can still sustain it, as we are left with huge potential in country to exploit. With the launch of megawatt capacity wind turbines, with taller towers and large rotor ,the efficiency of wind farms have gone up 30%, even in low wind sites. These machines have updated technology to perform with high efficiency and have proved efective even in low wind sites, which are getting commercially viable. Repowering, shall be an option to improve the performance of wind farms, but that involves lot of ground level challenges in execution. Still it's a good chance to work out and get the best of it, provided all wind turbine owners in a wind farm have same thought principle, and financial capabilities to invest in repowering. Government has started offering performance based incentives to wind power, in order to make the project still viable and to attract large IPP investments in future. But still, the accelerated depriciation benefit shall be continued for wind mills with some conditions & guidelines, which will make them to operate & deliver a particular level of efficiency, as a MUST. For example in Karnataka, recently, the nodal agency KREDL had issued a notification that any wind farm operating in Karnataka, should deliver an efficiancy of minimum 20%, which is a welcoming rule, to improve the performance of wind farms. It's clearly showing a way forward & hopes, to still utilise the resources in a better way..... CLEAN ENERGY...definitely has a large role to play and lets all have a common goal to make our country energy independent asap..... SARAVANAN.P, Coimbatore (TN)

    Posted by: Anonymous | 9 years ago | Reply