Wind mills, spinning at 15% capacity, need tailwinds

The domestic wind power industry, having grown five fold in the last four years, may lose the wind behind its sails unless the government steps in with more creative forms of support, a report by consultant Ernst & Young said.

The report pointed out that the existing installations in India suffer from poor utilisation due to the loading of incentives towards the setting up of wind mills, rather than their actual usage.

“The average plant load factors (PLFs) of Indian wind farms stand at around 15%, which are low as compared with the global average of 30%. There is an urgent need for a significant modification of the policy regime to ensure that the wind power sector grows in a healthy manner,” the report, ‘Renewable energy in India - the evolving dynamics’, said.

India, with a share of around 8%, is the world’s fourth largest wind power producer in terms of installed capacity, ahead of China. The country, which has a total power generation capacity of 150,000 megawatt (mw), had an installed wind-power capacity of 10,240 mw as of 2008 — up 17% from the previous year. However, E&Y pointed out that the form of incentive given to the sector has led to growth at the expense of operating efficiency.

Under the current policy, any company investing in wind energy installations can add 80% of its investment to the company’s depreciation account, thus bringing down overall taxable profits. This policy has led to companies blindly investing in wind farms without studying the power generation ability of the same, the report authored by E&Y partner Kuljit Singh and Anvesha Thakker, said.

Since a company has to have large revenues and profits to take advantage of the tax concessions offered by the accelerated depreciation scheme, many independent power producers have shied away from the sector in India, they said.

To provide an impetus to pure-play wind power companies, the government should give an option to collect subsidies on the power generated and not the money invested, they said.

As of now, a generation related subsidy of 50 paise per unit is available in place of the investment-related incentive, but the scheme is available to a maximum of 49 megawatt out of the nearly 1500-2,000 megawatt of wind energy added every year.

“Assuming an average plant load (capacity utilisation) of 25%, the existing cap will lead to a subsidy of just around Rs 5.4 crore per annum by the government…a per capita subsidy of just around five paise per person per annum…For strengthening the scheme, the cap of 49 mw should be removed,” they said, adding that subsidy amount should also be increased from 50 paise per unit.

Suzlon, one of the top three wind-power equipment makers in the world, agreed that generation-based subsidies will have to be increased if it is to compete with ‘dirty’ fuels such as coal and oil, which produce power at around Rs 2-3 per unit.

“Our cost of production is around Rs 4 per unit. The maximum price we can get in the market is Rs 3.5, but it also drops to Rs 2.5 in many states,” said Vivek Kher, vice-president at Suzlon which also runs its farms for the investors.

For Suzlon’s clients, Kher pointed out, the depreciation incentive is a factor, but most have set up wind farms to meet their own captive power requirements.

As for pure-play wind-energy investments, “If the power price offered can give a return of 16-20%, there will be no dearth of investors,” he said. “Perhaps subsidy is not the right word when it comes to clean energy like wind because, unlike conventional energy, it doesn’t come with a lot of supplementary costs like pollution, increased spends on health etc. So, you recover your subsidy through lower spends on other items,” Kher, who expects equipment-makers’ topline to remain stagnant this year, said.