Wind power has played a crucial role in meeting this rapidly growing demand. Since 2003, the wind sector has delivered an impressive compound annual growth rate of 29%. Last year, India was ranked in the top three countries in the world for new installed wind capacity.
Many policies have helped to drive this wind energy success, most notably attractive tax breaks. In addition, the Electricity Act of 2003 has been influential by requiring state electricity regulatory commissions (SERCs) to promote renewable plants and aid their connection to the grid. This landmark act has helped spur the majority of SERCs to introduce renewable purchase obligations, and has also led to various state-level feed-in tariffs, thus giving confidence to clean-energy investors.
Yet the Indian wind industry is now marked by nervous chatter about a possible slowdown in activity. Of particular concern are the drastic cuts to tax breaks and, to a lesser extent, the introduction of charges for unscheduled interchanges (UI) for inaccurate forecasts.
According to the Indian Ministry of New and Renewable Energy (MNRE), 70% of wind installations in 2011 was driven by a generous and relatively risk-free tax break, accelerated depreciation (AD). AD is a fiscal mechanism that speeds up the depreciation in value of wind projects in the financial year after project commissioning, meaning a significant reduction in tax liability. Until April 2012, investors were entitled, under AD, to claim 80% of the cost of project equipment as expenses, paying no tax on this amount.
But the glory days are over: on 1 April the rate was dramatically cut to 15%, although a further 20% could possibly be claimed on power equipment. This has triggered concerns that wind deployment will suffer a slowdown, with some sections of the wind industry lobbying to maintain the higher depreciation rate.
While other support mechanisms already exist or are likely to be introduced, they have a less convincing track record. And, unlike AD they increase performance risk, being designed to drive electricity generation rather than simply encouraging installed capacity.
For instance, at the time of going to press it seems likely that the generation-based incentive (GBI) will be re-introduced. In its previous incarnation from December 2009 to March 2012, the GBI paid INR 0.5/kWh ($0.009/kWh), with an overall cap on payments. When first introduced, the energy ministry envisaged that this incentive would fund up to 4GW by March 2012, but less than half of this was actually claimed. In part, investors seem to have been hesitant to take on performance risk: GBI payments are determined by actual generation (kWh) not capacity (kW), so a wind farm that performs poorly will suffer a big revenue hit.
The renewable energy certificate (REC) programme is similarly generation-focused. RECs are tradeable certificates awarded for electricity generated from renewable sources. They are purchased by obligated entities in India that are unable to generate cost-effective sufficient renewable power themselves. The system is promising but has only been introduced in 2011, so is yet to be fully established as a tried-and-tested, reliable mechanism.
Unscheduled interchange requirements
In addition to the dramatic cuts to AD, another key policy change is the introduction of UI legislation. The Indian government has made daily forecasting of power generation a requirement for wind farms since 2012. The Central Electricity Regulatory Commission (CERC) states that the new forecasting provisions apply to all wind farms with a collective capacity of more than 10MW and connected at 33-kilovolt level and above.
Wind-farm operators face charges if actual generation is more than 30% above or below what was predicted. For those trading wind energy on India's day-ahead markets, at the Indian Energy Exchange or the Power Exchange of India, the price implications associated with both shortfalls and over-production could significantly affect project profitability.
But these policy changes need not necessarily be seen as a threat to the wind sector. There are technical solutions to manage both the risks of performance-based support mechanisms and scheduling charges.
Prepare and monitor
Although some risk is inherent in every project, the heightened performance risk from support mechanisms such as GBI can be mitigated with technical measures - namely pre-construction energy assessments and post-construction operational monitoring. These analysis have historically been less rigorous in India than in Europe or North America.
During the pre-construction phase, a high-quality wind measurement campaign that uses a sufficient number of onsite meteorological masts can help to optimise wind turbine layout and performance. Thorough energy assessments include a review of site characteristics, such as terrain and wind monitoring equipment, wind data filtering and quality control; and a calculation of likely wind farm loss factors, for example, wake loss, non-availability and electrical efficiency.
Wind-flow modelling can be undertaken with a linear computer programme, such as the Wind Atlas Analysis and Application Program, and in some cases augmented with computational fluid dynamics (CFD) model results, or even a conceptual model if site terrain creates an unusual wind-flow regime. Uncertainty analysis can also explore the probability of exceeding different energy levels. All of this can help investors to make well-informed decisions and minimise performance risk.
At the post-construction phase, performance optimisation through studying detailed operational wind-farm data - ten-minute data output from a supervisory control and data acquisition (Scada) system - has become commonplace in mature European and North American markets. This experience can be applied directly to wind farms in India.
Any unexpected drop in power output from the turbine can be easily identified if individual turbine nacelle anemometer wind speed and power are recorded on a ten-minute basis. Rotor speed and blade pitch angle signals can similarly help to identify performance problems, especially when complemented by physical on-site inspections.
The risk of incurring unscheduled interchange charges can be mitigated through accurate wind power forecasts using a physical and statistical approach - refining weather model inputs from a number of approved suppliers and enhancing the data. This is achieved using high-resolution meso-scale weather models, micro-scale wind-farm flow models and via statistical routines that can adapt to the measured conditions.
Using a common international measure of forecast performance - as used in Denmark, Germany, the UK and the US - it is possible to achieve a typical accuracy of day-ahead forecasts in India of 12% mean absolute error as a percentage of the capacity of a wind farm.
In other words, if the wind farm has an installed capacity of 100MW, the average difference between its forecasts and production is 12MW. This means that when forecasting power output of 50MW from a 100MW wind farm, the actual production will be 38-62MW most of the time, thus meeting the required margin of +/30%.
Of course, the very nature of forecasting weather conditions means that there will be occasions when the actual production will fall outside the +/30% margin and charges would become applicable. But, the overall financial benefit derived from accurate forecasts compared with basic forecasts could be as much as INR 30 million ($568,000) per year for a 100MW wind farm (assuming a capacity factor of 20%).
Contrary to the belief that policy changes in India are undermining wind deployment, the reality may be quite different. It could be argued that cuts in tax breaks and UI requirements are driving the sector's longer term maturity and sustainability by encouraging more rigorous energy assessments, operational monitoring and forecasting.
Certainly, the shift in emphasis from installed capacity to electricity generation should help to improve India's weighted average capacity factor - which, at 21.2%, is currently well below that found in other markets. Similarly, accurate short-term forecasting should aid the integration of increasing amounts of variable generation on the grid, ensuring maximum use of the wind resource.
However, a rather more important issue is being overlooked: power sector infrastructure. This might at first seem to be an unexpected assertion, given that infrastructural challenges in the Indian energy sector have historically helped wind energy to flourish, chiefly by hitting its coal-based competitor. Despite substantial domestic coal reserves, the country has experienced debilitating logistical difficulties in both the extraction and transportation of coal, leading to domestic production shortages and a reliance on costly imports. As the investment plans for coal-fired power plants have faced financial ruin, interest in wind has soared.
Yet the infrastructural challenge is now starting to affect wind energy too. Grid difficulties in particular are becoming critical. The transmission and distribution grid desperately needs to be modernised and upgraded - losses are high and there are instances of power theft. Power transmission systems require more rigorous planning and implementation, and regional grids need to be better interlinked.
The underlying problem is systemic underinvestment, with the appropriate bodies - such as state transmission utilities and state electricity boards - lacking the finance to upgrade the network. This is exacerbated by the market distortion of underpriced power, such as subsidised electricity for the rural poor.
The impact on wind energy is already being felt. The creaking infrastructure struggles to transmit the large volumes of electricity generated by wind plants, which are often located in remote areas. There have been instances of curtailment in Tamil Nadu and in some areas of Maharashtra, where during periods of high congestion the state load dispatch centre has asked wind farms to restrict their generation. This means huge losses for developers and may make distribution utilities more cautious in accepting wind plants in future.
To a certain extent, developers can take technical precautions against these grid challenges. For instance, low-voltage ride-through capability can help turbines to accommodate varying grid conditions; this enables them to continue to generate through voltage dips. But what is really needed is a substantial programme of infrastructural investment and network upgrades.
Shocked into action
The high-profile power cuts in July - when more than 620 million people were thrown into darkness - is helping to galvanise policy action in this area. Most notably, in September the Indian cabinet approved a plan to bail out power distributors saddled with around $35 billion debt.
Even before July's major power outage, promising steps were being taken. A joint working group of MNRE, the Ministry of Power, the Central Electricity Authority and the Power Grid Corporation of India is working on the issue of transmission development, following prioritisation in MRNE's provisions for the 12th Plan Period (2012-2017). The creation of the India Smart Grid Task Force, set up by the Ministry of Power in 2010 bodes well. The possible interconnection of the national grid with the southern region grid - due to occur in 2013-14 - will help further.
The wind industry needs to do more to engage with these activities; it needs to ensure that plans and policies are converted into action - and urgently. Although tax break cuts and the introduction of UI will have a near-term impact on the Indian wind market, it will be infrastructure that constrains its long-term prospects unless the problems are tackled now.
Felicity Jones is a policy analyst at renewables consultancy GL Garrad Hassan. Contributions also from Jeremy Parkes, James Mclean, Jack Marriott and Alok Kumar.