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India

India

DYNAMIC MARKET RAPIDLY UNFOLDS

Having put up demonstration wind farms and proved the technology works, India's government has introduced a series of market incentives to promote investment in wind and other renewables. The result has been a booming market. Guidelines on market stimulation have been distributed to all Indian states, giving advice on tariffs, tax exemption, connection to grids, and so on. Applications for construction and grid connection must be submitted to the regional branch of the federal energy agency and the State Electricity Board. The guidelines insist that clearance to proceed must be given within two months of application and a final agreement one month later. If the project is not started within six months, the authorities can terminate the agreement and offer it to another developer.

The private sector is taking over the reins of wind energy development in India and the pace of wind plant construction on the sub-continent is now one of the fastest in the world. Some 64 MW was installed in India during the past year and applications to build a further 970 MW are being processed by the authorities, some of which is already going in the ground. Total installed capacity in India is currently about 120 MW.

The rush of development activity over past months has been spurred by a number of events. Confidence in wind energy has been boosted by the commercial success of a series of wind plants in Tamil Nadu, developed by the private sector since 1990 (see story pages 28-29). Following this success in the south, the government's aim has been to create a national market in which wind and other renewables become an attractive investment in their own right. Some direct government support of wind still remains, in particular the 100% depreciation allowed in the first year of a project and the exemption from importy duty for up to ten separate components, but this kind of direct assistance is now the exception rather than the rule.

Instead a number of market incentives have been introduced, the most recent of which is a far reaching action plan for renewables. Couple this to a five year tax holiday for all new industrial undertakings for the generation or distribution of power, then the wind market in India has arrived.

The action plan was officially announced by Ajit Gupta, the director of the Ministry of Non-Conventional Energy Sources. It will run until 1997. It expands the country's target for wind energy, contained in India's 8th Plan for economic development, from 100 MW to 500 MW. Aside from hydro this is the largest target for any single renewables source. The total renewables target has been expanded from 600 MW to 2000 MW.

More importantly, the plan includes detailed guidelines outlining how the Indian states should structure their market incentive programmes for non-conventional energy sources. The guidelines cover a wide range of activity, from tariffs and conditions for grid connection, to sales tax exemption and other tax credits. "The guidelines have been forwarded to all states for adoption by them towards a uniform policy for non-conventional energy sources. They have also been requested to consider additional incentives to encourage private sector participation," says Gupta.

The states appear to be responding well. Punjab, Uttar Pradesh and Madhya Pradesh have already announced incentive programmes based on the guidelines. Tamil Nadu, Kerala, Andhra Pradesh and Gujarat have also devised programmes, though with modifications to the guidelines. Gujarat has introduced a scheme of sales tax credits which MNES is encouraging other states to follow. And Andhra Pradesh in the south says it has introduced a programme which closely follows the guidelines laid down by MNES (see box story page 27).

Incentives in detail

The "Guidelines for promotional and fiscal incentives by state governments for power generation from non-conventional energy sources" are a clear indication of the level of political will directed towards fully developing India's renewables resource. The fiscal incentives are to start immediately and remain in force for five years. The minimum rate of purchase for renewables power by a State Electricity Board is set at INR 2.25/kWh ($0.072), with no limit on the amount which may be delivered or on when delivery should take place. The rate will be reviewed annually and linked to a standard index, such as the wholesale price index.

India's unusual "power banking" system will also continue. In a country where power cuts are common, electricity producers able to "bank" power with the utility and avoid being plunged into inactivity during a power cut have a clear commercial advantage. Power can be banked for up to one year.

On grid connection, the guidelines rule that the power plant operator should pay the cost, but that standards are to be specified by the relevant State Electricity Board. The board can also carry out connection work by arrangement with the developer at charges fixed by the board. Any grid improvements, however, should be paid for by the electricity board if these are needed before new capacity can be connected. There will be no restriction on the amount of power which can be supplied.

All renewables power producers are eligible for market incentives, including commercial consortia and co-operatives. They will be charged for using the grid, though. A 2% levy of the tariff-value of electricity wheeled along the grid, irrespective of distance and irrespective of whether the power is consumed by a third party or by the producer, is stipulated. Third party purchasers must be high tension grid customers.

Consumption of electricity by a power producer is exempt from energy tax and a producer is also exempt from power cuts in proportion to 30% of the installed capacity of the project. These are among a number of exemptions from regulations from which wind plant operators can benefit. All incentives normally available to new industrial undertakings in India are applicable. These can include concessions granted to developing areas, such as tax exemption or the provision of capital subsidies. Infrastructure for wind power plants, such as approach roads, water supply, cranes and power during the construction period, will also be provided -- as they would for any new industrial venture.

Applications for wind plant construction and grid connection must be submitted to the State Nodal Agency and the State Electricity Board. The guidelines insist that clearance to proceed with a project must be provided within two months from the date of application and that a final agreement with the producer must follow no less than one month later. If the project is not started within six months of a site being obtained, the authorities can terminate the agreement and offer it to another developer.

Gupta says that meeting rural energy needs must be the prime target of India's renewables policy. He considers wind's potential contribution to be so significant he classifies it as "grid supply augmentation." Minister for Non Conventional Energy Sources, S Krishna Kumar, points out that the government investment in renewable energy is less than 1% of the total investment in the energy sector. "As a result of our efforts we are able to mobilise five rupees from outside our budget for every rupee we put in," he says.

As well as outlining the market incentives to be adopted by the states, MNES is also masterminding detailed wind mapping of the whole of India. The ministry says it has approved 150 wind monitoring stations and 470 wind mapping stations in 22 states. Of these, 251 wind mapping and 88 wind monitoring stations are in operation. At 58 wind monitoring stations in eight states -- Tamil Nadu, Gujarat, Andhra Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra and Lakshadweep Islands -- mean annual wind speeds greater than 5 m/s have been recorded. Detailed wind plans have also been mapped out for the southern Tamil Nadu coastal area and southern districts of Andhra Pradesh. A government wind energy centre is being established at IIT of Madras, to be financed by Danida and the United Nations Development Programme.

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