About 400 million people have no access to electricity. The World Energy Outlook from the International Energy Agency projects that by 2020, 327GW of total power generation capacity will be needed in India.
According to estimates from the leading Indian research organisation, the World Institute for Sustainable Energy (WISE), wind power would be equivalent to 64GW.
Historically, capacity additions in the conventional power sector have fallen well short of government targets. Thanks to a booming wind power sector, however, renewable energy has generally exceeded the targets set in the government’s five-year plans.
Renewable energy currently accounts for about 11% of India’s total installed power capacity, up from just 2% in 1995 and contributing over 4% of the electricity generation mix. Of this, wind power accounts for 70% of installed capacity.
In 2010, India was the world’s third-largest annual market for wind power installations after China and the US, and it ranks fifth in terms of total installed capacity. In 2010, a record 2.14GW of new capacity was installed, bringing the total to 13.1GW.
The state of Tamil Nadu accounts for 41.8% of total national installed wind capacity, generating 53.4% of India’s wind power.
Gujarat, Maharashtra and Rajasthan have all seen significant growth in wind capacity over recent years, mainly thanks to stable policy and regulatory regimes.
With proper incentives wind power could meet about a quarter of India’s electricity needs by 2030, according to the Indian Wind Turbine Manufacturers Association. And WISE estimates that wind could yield a potential onshore wind energy capacity of 65–100GW,using the current generation of wind turbines.
Strong growth in the wind power market has stimulated domestic manufacturing activity, and expansion of the in–house manufacturing capacity of the Indian wind industry has attracted several new manufacturers.
Today, India is one of Asia’s major wind turbine manufacturing hubs.
Suzlon continues to lead the Indian market with a share of nearly 52% in 2009, followed by RRB Energy and Vestas India.
Some international firms with Indian subsidiaries are sourcing more than 80% of their components in India, leading to significant job creation.
Even in the face of a global slowdown, India’s market grew by almost 68% in 2010. That strong growth, however, could be a reflection of developers rushing to use the accelerated depreciation tax incentive, which may be phased out from April 2012.
There are 17 manufacturers, with an annual production capacity of 7.5GW, but according to WISE, this capacity could surpass 17GW by 2013, boosted by new entrants within the next three to four quarters.
The main policy support for wind power in India stems from the Electricity Act of 2003, which provided a framework for foreign and local investment in renewable energy technologies.
At national level, the key financial incentives for wind power development have been the ability to claim accelerated depreciation of up to 80% of the project cost within the first year of operation, and an income tax holiday on all earnings generated from the project for ten consecutive assessment years.
This tax-driven policy has attracted much criticism, with its focus on installed capacity rather than megawatt hours produced and, in December 2009, the government’s ministry for renewable energy approved a generation-based incentive (GBI) scheme for wind power projects installed by 31 March 2012.
This GBI provides, in addition to each state’s feed-in-tariff, an incentive tariff of INR 0.5/kWh (€0.008) to eligible projects for up to ten years.
The GBI and the accelerated depreciation are mutually exclusive, and uptake of the GBI has been slow because it is currently seen as a less attractive option.
In 2010, the Central Electricity Regulatory Commission introduced tradable renewable energy certificates (RECs). All renewable energy projects commissioned after April 1, 2010, can register for these tradable certificates of proof that 1MWh of electricity was generated in a particular state.
A power exchange platform allows sale of these certificates at a price determined by market demand, but between INR 1,500/MWh and INR 3,900/MWh (€25/MWh-€65/MWh).
State-level legislation has also encouraged wind power development. Eighteen out of the 28 states have issued feed-in tariffs for wind power, and 17 have specified state-wide renewable purchase specifications (RPS).
These are helping to create mid-term policy certainty and investor confidence, which are likely to help increase wind energy capacity in those states.
Obstacles to development
There are two main factors that could limit wind power growth in India: inadequate grid infrastructure and the lack of long-term regulatory framework for promoting renewable sources.
Grid limitations seriously inhibit states that have significant wind potential and are already struggling to integrate the wind electricity produced. Weak distribution and transmission networks mean utilities are hesitant to accept more wind power.
National and state governments urgently need to improve infrastructure and provide stronger interconnections between regional grids.
A first step towards this was the announcement last year of the inter-ministerial smart grid task force to co-ordinate grid-related activities.
In addition, a host of policy, regulatory, legal and institutional measures need to be adopted in the coming years.
The most important of these is the enactment of a comprehensive renewable energy law.
There are a number of discrepancies between existing policy guidelines and frameworks, including contradictory targets for renewable energy: the National Action Plan on Climate Change’s suggested target of 15% of energy from renewables by 2020 contrasts sharply with the approved Integrated Energy Policy figure of 5% by 2032.
This year is likely to be another bumper one for the Indian wind market, and the states of Tamil Nadu and Gujarat are expected to lead the new capacity additions.
The newly launched REC scheme alongside the states’ annual RPS targets will provide further support to the sector.
The real impact of these schemes, however, will only unfold in the longer term.
Shruti Shukla is policy director for the Global Wind Energy Council
INDIAN BUSINESS MODEL - ENTER THE INDEPENDENT POWER PRODUCER
Most wind turbine manufacturers in India provide end-to-end solutions — projects that are developed and built, and then sold on in a ready-to-use condition.
As a result, manufacturers are involved at all stages of a wind power project, from the identification of sites, undertaking of wind monitoring to commercial development and operation of the completed projects.
This has suited individual power-intensive companies, such as those in the textile or cement sectors, which have invested in wind projects for their own consumption to reduce their energy costs and benefit from accelerated depreciation.
Firms and individuals with large tax liabilities have also invested in wind turbines to benefit from these accelerated depreciation benefits, resulting in the market being dominated by investors with ownership of small wind projects.
New model emerges
More recently, however, an increasing number of investors — mainly independent power producers — have been planning larger wind farms rated at 50MW or more.
These investors are starting to explore the developer model, which is expected to increase in popularity over the coming years.
The emergence of the independent power producer model for wind power means that it is likely to represent the next-generation growth phase for the sector.