The report, "Market Analysis and Opportunities for Wind Energy in India," was co-ordinated by Ecotec Research & Consulting Ltd of England and involved a consortium of firms: British wind energy consultants Garrad Hassan, Cowiconsult of Denmark, British wind farm developer National Wind Power and India's Tata Energy Research Institute.
"Our main message was that although the market had slowed and given that there are still structural problems, there is still a very large untapped potential for joint ventures and a willingness on the part of the Indian authorities to achieve the targets," says Steve Imrie of Ecotec.
The desire of private companies to generate their own power has been driving the development of wind energy in India. Wind turbine manufacturers interviewed for the study are either developing their own projects or seeking experienced partners for joint ventures, where the developer takes advantage of government incentives while selling power to SEBs. But most of the SEBs have been on the verge of bankruptcy and unable to give long term power purchase guarantees (Windpower Monthly, March 1998). In a move to remedy their "precarious financial situation," the report notes, SEBs in Tamil Nadu and Gujarat are now no longer allowing independent power producers to bypass them by wheeling electricity over SEB grids directly to customers. "By allowing wheeling, they were losing their best customers to third parties," Imrie explains. "And with wheeling charges as low as two per cent, the benefit was minimal."
Further complicating the issue, he notes, are the rules governing independent power producers, which are set by individual states and not a central authority.
Energy over investment
The report points out that a central factor driving the slowdown of the market in 1996-1997 was the system of tax incentives that only support installation and not performance or output. Against a target of 300 MW of new wind generation installed in India last year, only 100 MW was planned -- and only around a third of that was actually installed. These figures contrast starkly with those of the previous two years, where nearly 800 MW of capacity was built. The report concludes, though, that last year's crawl toward growth will pick up speed. "There is absolutely no reason to feel that the gears have stopped turning in Indian wind development," says Imrie. "We feel there has just been a slow-down, as opposed to an ending."
The fall in corporate tax rates has been a major reason for the market contraction, according to the report. Wind plant investments are fully tax deductible, but the corporate rate has dropped from 46% in 1994 to 30% today, meaning a parallel decrease in the size of the tax exemption. The report finds, however, that there is strong government support for re-focusing the investment schemes from the Ministry of Non Conventional Energy Sources (MNES) and the Indian Renewable Energy Development Agency (IREDA). "It is clear that MNES, IREDA and other bodies are moving towards a regime where the energy factor is the driver and not the investment factor."
Future market trends in India also indicate more interest in developing wind farms larger than 5 MW and using machines larger than 500 kW. Turbines this size have been rare so far in India, partially due to infrastructure problems like bad roads and high costs of large cranes for installation. But such problems are beginning to work themselves out as larger wind farms involving bigger sums of money are under consideration, the report finds.
Another reason why larger turbines have not proliferated, the report notes, has been the resistance of most foreign manufacturers to pass turbine licenses of 500 kW and larger to their joint venture partners. But Imrie says this trend is reversing, due to an increase in local production of machine parts. "The market is becoming one in which local organisations are starting to take more of a share in the process," he explains. "In the past when many components such as brakes, gears and hubs were brought into the country, they were free of import duties and tariffs. That list is getting shorter and shorter. Our impression is that there is an implicit market reaction in using things on more of a local basis."
More than 90% of the total of 900 MW of capacity installed in India by the end of March was located in the states of Tamil Nadu and Gujarat. The largest wind farm area in Asia, the report notes, is located in Muppandal in Tamil Nadu, where 300 MW of generating capacity has been installed. According to the Tamil Nadu Electricity Board, more than 300 private sector companies have erected over 1000 turbines of various sizes in the area, which covers 5000 hectares. The largest site belongs to the Dalmia group. It has set up 15 MW and applied for permission to set up another 15 MW. The neighbouring state of Andhra Pradesh is a key area with 825 MW of potential for wind turbines. "An enormous potential still remains in terms of untapped areas in India," says Imrie.