The scale-up of solar capacity planned by the Narendra Modi government has somewhat obscured the fact that it is wind power that has been the mainstay of India’s renewable energy base over the last two decades, with the installed capacity of nearly 25 GW being five times that of solar. While this is set to change with the Union government aiming to generate 100GW of solar power by 2022, as against 60GW of wind energy, the realignment of priorities does not diminish wind energy’s inherent potential to contribute to India’s energy mix.
However, with the budget reducing the benefit of accelerated depreciation (AD) to 40%—till now AD had allowed developers to show depreciation of wind mills to the extent of 80% and save big on income tax in the first year—and some states bringing down the Feed-in-Tariff (FIT) for new projects, the sector could be facing some headwinds. Last month, regulators in Andhra Pradesh (AP), Madhya Pradesh (MP) & Tamil Nadu (TN) issued tariff norms for sourcing wind energy from projects to be commissioned from April 1, 2016. Levellised tariff for new wind energy projects in AP has been approved at R4.84/unit, remaining flat vis-a-vis the R4.83/unit for the prior period. In MP, the levellised tariff has been revised downwards from R5.96/unit to R4.78/unit. Apart from FIT and AD, grant of generation-based incentive (GBI) has been behind the wind energy sector’s growth—GBI will be phased out at the end of this fiscal.
According to Sabyasachi Majumdar, senior VP, Co-head Corporate Sector Ratings, ICRA, “This reduction in tariff in MP, coupled with a slowdown in signing of fresh PPAs over the last 6-8 month period and reported delays in payments by the state owned utility in the state of Maharashtra is further likely to impact fresh wind energy capacity addition”. Wind capacity addition in Maharashtra and Madhya Pradesh accounted for about 35-40% of incremental capacity addition in the last two-year period.
In a recent report, Icra noted the divergence between FIT approved by state regulators and guidelines issued by the central regulator for the same. “The regulations in MP & Tamil Nadu have stipulated tariffs which remain fixed over the tariff period and thus do not take into account the impact of inflation on the cost structure. Also, wind zone based tariff principles have not been followed by SERCs across these key states, except Maharashtra and Rajasthan,” it said.
The reduction in AD could further queer the pitch for wind power developers. In its report in February, Crisil Research said, “Driven by both AD and GBI, the wind capacity additions in India were the highest in fiscal 2012 at around 3,200 MW. However, in fiscal 2013, the government withdrew the AD benefit given the maturity of the wind sector. It was also withdrawn because capacities were not being utilised optimally. GBI also expired at the end of fiscal 2012. As a result, capacity additions nearly halved to 1,700 MW in fiscal 2013.”
An industry source FE spoke to said that while AD and GBI ensured the viability of wind projects, sector players were more apprehensive about the lack of clarity on the renewable purchase obligation (RPO) front. The tariff policy announced by the government earlier this year mandated that state commissions would fix RPO while ensuring that 8% of the same came through solar sources. The wind energy developers say states have behaved erratically in the past when it came to meeting their RPO target and, in absence of clear direction, there is apprehension of their neglecting wind again. In its audit report for FY14, CAG found that only five states had achieved their RPO target for the year.
Governments employ two mechanisms for procurement of renewable energy—FIT and auctions. Typically, wind power capacity has been added through feed-in tariffs while solar power has seen the use of the auction route. The difference between the two mechanisms is evident in the resultant price discoveries. While solar power has fallen from around R6/unit to nearly R4.30 per unit in 18 months or so, wind power rates have hovered at around the same level. Attempts to introduce competitive bidding in the sector have been met with resistance from developers who argue that the costs are already among the lowest in the world. They highlight that the FIT mechanism has resulted in India becoming one of the largest wind turbine manufacturers in the world, with a production capacity exceeding 10 GW per annum.
