Although the country's colossal growth in energy demand means that long-term prospects for wind remain good, there is considerable uncertainty in the short-term until the government reinstates financial support.
India's total installed wind capacity topped 18GW by the end of 2012, with more than 2.2GW of new installations, according to the Ministry of New and Renewable Energy (MNRE). This is a slowdown from the previous year, when over 3GW was installed, but it was not a bad result given the amount of policy uncertainty.
However, installations for the first three quarters of the financial year that started in April 2012 are markedly down, with only 1.07GW added, a significant drop from the 3.1GW achieved in the previous financial year, even taking into account that the final quarter usually accounts for around 50% of additions. This drop is significant because two major incentives for wind were withdrawn in April 2012.
The first, accelerated depreciation (AD), allowed developers to save tax on their wind investments. AD largely drove the rapid growth of the Indian wind industry - in 2011, it was responsible for some 70% of new installations. The ITWMA has been lobbying the government for the reinstatement of AD in the country's February budget. It argued that wind was being discriminated against as polluting coal was still eligible for the tax benefit.
The second support mechanism, known as the generation-based incentive (GBI), was introduced in 2009 in order to incentivise the generation of energy rather than purely the installation of turbines. The GBI did not attract as many independent power producers as hoped for as investors believed the rate was too low. However, the industry was hoping that it would take off once AD was removed. The loss of the GBI as well as AD was a shock for the industry. Although it was generally expected that the GBI would be reinstated in January, there has been no official word from the government.
Another government wind support mechanism is the renewable energy certificate (REC) programme, which was implemented in 2011. RECs are tradable certificates awarded for electricity generated from renewable sources. The tariffs for wind-power generation were revised last year and are now INR 1,400-3,480/MWh ($26.3-65.3/MWh). RECs are bought by generators and utilities that are unable to generate cost-effective sufficient renewable power themselves.
In the past year, the REC market has suffered weak enforcement at state level. In September 2012, no state-owned electricity distribution company bought certificates, even though they are all obligated to do so. The REC market has a glut of unsold certificates - in September there were more than 700,000 non-solar RECs for sale, but only around 260,000 were bought and these were at the lowest possible price.
As DV Giri, secretary general of the Indian Wind Turbine Manufacturers Association (ITWMA), says: "The REC market is totally wrecked." There are no incentives for state utilities to adopt renewable purchase specifications higher than the levels suggested by India's National Action Plan on Climate Change. "It needs to be mandatory for all states. It's like a guy who can commit a crime and go home afterwards," says Giri.
The ITWMA has teamed up with the Indian Wind Energy Association and the Wind Independent Power Producers Association to lobby for penalties for utilities that do not buy RECs. They submitted a petition to electricity tribunal Aptel in January, but are not expecting a response for at least six months.
Bottlenecks caused by India's weak grid system are another barrier to higher growth of wind energy. In September, the government published a strategy for "green energy corridors". This will see an investment of around $8 billion by 2017. Around half of this will pay for strengthening the intra-state grid network, while the other half will upgrade the inter-state transmission system. If the initiative is implemented successfully it could be a major driver for renewable energy in India, according to the Global Wind Energy Council.
Another development for the Indian grid last year was the introduction of legislation known as "unscheduled interchange", which means that wind farms over 10MW have to forecast their power generation on a daily basis. Operators face fines if actual generation is more than 30% above or below what was predicted, which could significantly affect profitability. However, implementation has been delayed.
Meanwhile, India has been making tentative steps towards developing offshore wind. Last April, the MNRE put together a steering committee to drive offshore development and it is expected to announce policy and guidelines soon. Wind resource assessment studies are being conducted. But there is little support for offshore wind within the wind industry as many believe it is too expensive. It is also politically complicated as ownership of the seabed is split between multiple agencies.