Although still showing impressive signs of growth in wind power capacity compared to many countries, India is looking increasingly likely to fall short of its goal for 10% of power to come from renewables by 2012. Wind industry players put the blame on state governments who are continuing to procrastinate over the introduction of new renewable energy policies, despite continued pressure by the Ministry of Non conventional Energy Sources (MNES) and despite a few new policy announcements from them in the last few months. The delay in passing the country's Electricity Bill 2001, which will provide a better framework for renewables development (Windpower Monthly, June 2002), has done nothing to help the situation.
Last year, some 195 MW of wind power capacity was installed in the country, taking the combined wind generation to 1702 MW. Two months into 2003 and the total had reached 1819 MW (3.81% of India's total installed power capacity) and a further 125 MW of wind was due to be installed by the end of March, when India's financial year ends. India had set a revised target of 200 MW for the financial year April 2002-March 2003 and this is likely to be have been met. The target is part of the country's tenth financial plan (2002-2007) which now aims for 3300 MW of renewables by the end of 2007 (down from the original target of 4236 MW). Wind is expected to account for 1500-2000 MW of the target.
Industry players continue to warn, though, that meeting the revised targets will be difficult while long term policies for renewables remain absent and many state governments refuse to toe the MNES line. The absence of legislation for mandatory purchase of renewable power, the lack of a green power market -- and financially weak state utilities which all too often default on power purchase agreements (PPAs) -- are all additional barriers the industry faces. The planned Electricity Bill could help remove some of the barriers and could mean the introduction of mandatory state targets for renewables.
"We could have grown more in the last year, but rumours that tax holidays were being removed made many wait and watch," says one developer. Indowind vice president R. Balajee adds: "Until there is a national renewable policy charted out, we cannot say the wind energy scenario is galloping."
India's recently announced annual budget has also been less than kind to wind, increasing import duty on four turbine components (sensors, flexible coupling, brake hydraulics and brake callipers) from 5% to 25%. MNES says this will encourage indigenous manufacture. Others, however, suggest that with a possible Gulf war on the horizon, leading to possible hikes in insurance rates and increased diesel prices combined with a strong euro, costs are likely to increase by around 10% anyway and the hike in import duty just adds an additional financial burden.
The wind industry could live with it, though, if state policies were improved. The current piecemeal, short term approach to policy -- relying on the political goodwill of each state -- has been the main stumbling block to the wind industry fulfilling its potential in India. But there are some reasons to be optimistic says Balajee. "When a state government takes it upon itself to encourage wind energy and accordingly comes out with a favourable policy, it can induce the developer to add mega projects."
Some states, albeit few, have embraced MNES guidelines and announced new commitments to renewables. Wind development is once again expected in Gujarat, where the government recently announced its new Wind Power Generation Policy. With 166.9 MW of wind by the end of 2002 and the maximum gross potential for wind energy in the country, Gujarat has an estimated potential for around 5000 MW of wind development on the coastline of Saurashtra and Kutch. The new policy is expected to spark a resurgence of interest from project developers.
Projects installed within the lifespan of the policy (five years) are eligible for benefits that can be claimed for up to 20 years. For non industrial developments, the State Electricity Board (SEB) will pay INR 2.60/kWh ($0.054), increasing by INR 0.05 (0.001/kWh) every year for ten years. After ten years, the rate will be negotiable and the option of wheeling electricity to where it is needed most will be made available. Only industrial developments will be allowed to wheel power initially at a wheeling charge of 4%. Third party sale of electricity is not permitted, but surplus energy generated can be banked for a period of six months. In addition, the policy includes exemption from electricity duty for 30% of the installed capacity of the wind farm. Due to constraints on the state's financial resources, however, there are no cash incentives or sales tax incentives included in the policy. Commentators suggest the high wheeling and banking costs could deter some developers.
Rajasthan, with a potential for 885 MW of wind development, is set to become the industry's new rising star. The state, with just 25.1 MW of wind capacity by the end of 2002, now has an attractive policy offering wheeling at 2% and a tariff of INR 3.51 (0.073/kWh), rising by 5% a year. Significantly, consumption of electricity generated by producers for either use on site or sale to a third party is exempt from electricity duty up to the end of March 2005.
The policy, which expires in March 2004, has already led to the installation of 42 MW at Jaisalmer, Devgarh and Phalodhi. The state is aiming for at least 100 MW in new wind by the time the policy expires and with 55 MW planned for installation by March, it seems well on the way to meeting that goal.
Some 300 MW in projects have been proposed for the state by major developers including Suzlon and NEG Micon. The Rajasthan Renewable Energy Corporation (RREC) says it hopes to announce its post-March 2004 policy for Rajasthan soon. "We expect to announce the new policy in a month's time," says the corporation's G.S. Somani. "There will be a policy change, however. The 5% escalation clause will not be there to the same extent. We expect to introduce banking in our policy next year."
While the new Gujarat and Rajasthan policies are signs of progress, there is still a need for other states to follow and for more long term planning to encourage investor confidence, the industry says. "The potential market for wind energy is immense and we could easily add 1000 MW a year to our grid for the next ten to 15 years," says Girish Tanti of Suzlon Energy. That will only happen, he adds, if long term policies generate confidence in the market. "The investment opportunity is excellent in terms of the returns on investment," he told delegates at the recent Clean Energy Expo held in Bangalore. The cost of wind power projects has come down and in many cases plant load factor has increased from around 18% to 28% in the past four years, he said. "If a conducive policy framework is put in place in Karnataka, it alone can have investments of up to $1600 million by private players."
In fact, Karnataka Renewable Energy Development Limited (KREDL) has received 89 project proposals for a combined capacity of 1169 MW of wind power and 24 projects with an installed capacity of 79 MW have been commissioned. No new power purchase agreements (PPA) are being signed, however. The Karnataka SEB is prepared to pay INR 3.32 ($0.07/kWh) for wind power, but only for three years, while wheeling charges are high. Developers are preferring to bide their time than risk going ahead under those conditions.
Karnataka's renewables policy is under review with an announcement expected in June. It is widely believed the tariff will remain around INR 3.0, with no price indexing. Nonetheless, Suzlon's Tanti is optimistic that Karnataka will become the next wind power generation hub. "We expect to see some activity in terms of installations only after June. If the PPA constraints and evacuation are taken care of, Karnataka has the potential of adding up to 100 MW in the next year alone," he says.
Low tariffs appear to be the norm. Despite hopes of an increase, Tamil Nadu has kept its wind tariff at INR 2.70/kWh ($0.057/kW). "Something is better than nothing," says Bikramaditya Raha of Vestas RRB. Despite the low tariff, Raha says the state has "no hitches" and will continue to be a focus for development by the company. Tamil Nadu is aiming to install 300 MW of new wind by the end of 2005. Indowind's R. Balajee agrees with Raha: "The policy for renewables in Tamil Nadu seems to be the best compared to any other state since there is consistency, although there is no escalation in tariff." He points out, however, that "unless the tariff offered by the respective electricity boards in the states is attractive, the growth as envisaged by MNES cannot see the light of the day."
Raj Kumar of the state's NEPC, one of the veterans of the Indian wind business, says developers should just accept the rates that states like Gujarat and Karnataka are offering and get on with things. "Unfortunately, developers promise their customers higher tariffs and end up hitting their heads against a wall," he says. "We have to accept the reality that SEBs are in a poor financial condition."
A solution to the problem of financially weak and unreliable SEBs could be the creation of state electricity regulatory commissions (SERCs), as proposed under the Electricity Bill. SERCs would, it is suggested, be responsible for regulating electricity tariffs and could impose a system providing greater incentives for renewable energy development in line with national policy.
Lack of supportive regulation for wind can stop progress in its tracks. Maharashtra, the state with the second most wind power capacity in the country (399.2 MW at the end of 2002) has been without a policy for a year. "Had the policy continued, instead of just maintaining the same installation of about 200 MW, we would have seen a definite growth," says Tanti.
As well as longer term policies, the sanctity of contracts has to be recognised by SEBs. "If state governments and state electricity boards were to give assurances like firm wheeling and banking agreements for 20 year periods, and were ready to commit and honour long term power purchase agreements for a minimum of ten years, then the investment opportunity will become extremely lucrative," Tanti notes.
NEG Micon's Ramesh Kymal agrees: "The need of the hour in India is for the wind sector to ensure that the focus shifts from incentives based on setting up of wind farms to the production of power. Long term power purchase agreements and better project financing options would spearhead growth."