Government shows a new determination

Swaying under the pressure of escalating oil prices, India has again firmed up plans to boost renewables capacity on orders from the country's president, Abdul Kalam, and Prime Minister Manmohan Singh. A long awaited policy to mainstream renewables with conventional energy will be published shortly, the ministry of non-conventional energy sources has confirmed.

India's wind industry is awash with a renewed sense of optimism inspired by a government saying all the right things. New entrants are poised to enter the market

Swaying under the pressure of escalating oil prices, India has again firmed up plans to boost renewables capacity on orders from the top brass -- the country's president, Abdul Kalam, and Prime Minister Manmohan Singh. A long awaited policy to mainstream renewables with conventional energy will be published shortly, the ministry of non-conventional energy sources (MNES) has confirmed. MNES hopes the present installed renewables capacity of 6163 MW can be doubled to 13,500 MW by 2012, when India's 11th government and economic plan since its independence expires. Installed wind capacity, already at 3595 MW by the end of March 2005, is expected to meet most of the new target, with 5000 MW in new capacity expected by 2012 to take it to around 9000 MW in total.

Speaking at the fifth Renewable Energy Summit of the Associated Chambers of Commerce and Industry of India in September, Vilas Muttemwar of MNES assured delegates the new renewables policy is ready for release and was expected to be submitted for approval by Prime Minister Singh within weeks. The draft policy includes state-by-state projections for use of renewable energy. "The policy envisages providing fiscal incentives for those who come forward to undertake promotion and spread of renewable energy," he said.

Time to move

India's government says it is keen to get moving. The president's recent annual address to the nation on the eve of the 59th Independence Day celebrations was dedicated in the main to the environment and the need to develop renewables. He also said the country should first try to achieve energy security by 2020, using fossil fuel resources from wherever it can get them, but attain total energy independence indigenously by 2030.

Kalam stressed that to achieve energy independence, the country needs to have a comprehensive renewable energy policy in place within a year. "Energy independence has to be our first and highest priority. We must be determined to achieve this within 25 years, therefore, by 2030," he said. "Power generated through renewable energy technologies may target 20 to 25% against the present 5%. It would be evident that for true energy independence, a major shift in the structure of energy sources from fossil to renewable energy sources is mandated."

India's new Electricity Act, approved in February 2005, already gives power to electricity regulatory commissions to make it mandatory for utilities to source 10% of their power from renewable sources.

In anticipation of the new policy, a large number of traditional power corporate giants including Indian Oil Corporation, Oil and Natural Gas Corporation (ONGC) and Reliance Industries, are already looking to invest in wind projects for the first time, MNES' Muttemwar confirmed. "Representatives of Indian Oil have met me and submitted a detailed blueprint, envisaging their future diversification drive in the area of harnessing various sources of non-conventional energy, particularly wind energy," he added.

Few details have yet been announced, however. ONGC has firmed up plans for 250 MW of wind power, while Reliance has still to make any pronouncement. "In total, the three oil sector companies are expected to generate about 3000 MW of power through non-conventional energy sources in the near future," says Muttemwar.

Economic well being

With 1000 MW in new wind capacity already expected to be installed in the year up to March 31, 2006 -- the same volume as in the last financial year -- the wind industry is more optimistic than ever. Rakesh Bakshi of Vestas RRB welcomes the news. "Viable, clear and long term government commitment along with clear cut policy initiatives to ensure a fair return for investors are critical elements to ensure a sustainable growth in the sector," he says. "To achieve the target, tremendous investment is necessary. Wind power is not limited to just generation of power -- it can lead to development of states."

Wind power investment has brought significant benefits to several areas, he points out, including Kanyakumari district, Tamil Nadu, Jaisalmer, Rajasthan and Satara in Maharashtra. None of these areas would have reached their present level of development without wind power, says Bakshi.

Targets are not enough on their own. They must be backed by firm policies, says B. Ramachandran, also of Vestas RRB. "Policies must compensate for historical and present market distortions in the electricity market and create an environment which attracts investment capital," he says. There must be a commitment to long term expansion, he adds, while the price for renewables power "must allow for risk/return profiles in tune with production and cost dynamics."

Removing barriers

Long term power purchase agreements are also vital, he notes: "The duration of projects must allow investors to recoup their investments." In addition, barriers to third party access to the grid networks must be removed, while grid infrastructure, management and regulation must accommodate the characteristics of renewable energy technologies, Ramachandran says. The pricing of conventional energy needs a rethink, he adds.

At least some of the issues highlighted by Vestas RRB are likely to be tackled under the new renewables policy. "Efficiency and environment are key drivers in the coming years," says R.K. Jain of the Central Electricity Authority. A truly national grid capable of transporting surplus power generation from one state to another is planned and will, Jain says, be set up by 2012. "It is necessary that this surplus power is utilised by effecting inter-regional transfers, especially during some seasons and during off-peak periods."

If the grid gets built, it will be a significant market opener for wind power. With most of the country's wind farms located on large tracts of land in remote areas, India's lack of a national grid network is a major constraint to maximising opportunities for development. While an earlier estimate for potential wind capacity in India of 20,000 MW has recently been scaled up to 45,000 MW by MNES, the ministry says the exploitable technical potential is limited at just 13,000 MW "due to limited power evacuation capacity of the grid."

Wind plant developers and manufacturers have frequently pooled resources to set up substations to ensure an outlet for electricity generated from their projects, says Vestas RRB's Sarvesh Kumar: "Two to three years ago, we relied on utilities, now we are doing it ourselves. The lack of infrastructure is being addressed by private companies to a large extent."

It is a sign of the wind industry's general optimism that the removal of wind from a subsidy program available to the textile industry has not been cause for much complaint. Under the Technology Upgradation Fund Scheme (TUFS), the textiles industry, perennially short of electricity, has been a key investor in Indian wind development, particularly in Tamil Nadu, a hub for the textiles industry. But the finance ministry has ruled that TUFS money can no longer be accessed to subsidise wind plant development by textiles companies.

While the textiles ministry recommends that wind power investments should still come under TUFS, the finance ministry argues that wind turbines are not textile machinery: investment in them does not constitute modernisation of textile projects, which is what TUFS was set up to support. Any such investment subsidy should come from MNES, says the finance ministry.

The wind industry, while concerned development may slow for a short period as a result of the decision, particularly in Tamil Nadu, has not responded with the outcry that would have been typical a few years ago. TUFS has become less significant as India's economy has improved, says R. Balajee of Indowind Energy. Domestic lending rates have become more competitive, with many companies able to borrow at very low interest rates. "The withdrawal of TUFS in no major way will affect the growth of the industry, since the textile sector now constitutes only a small portion of the wind energy market," he says.

Vestas' Kumar adds that customers are getting more educated about the benefits of wind and are now looking at cost per kilowatt hour. The development of more efficient turbines leading to plant load factor improvements -- now up to 30-35% compared with no more than 12% a few years ago -- has helped attract new customers. "Today's customer is moving away from a subsidy incentive mentality to generation driven incentives," he says.

Blade factories

To tap the growing market, Vestas RRB is looking at new sites in Karnataka and Madhya Pradesh. In Dewas, Madhya Pradesh, it is already planning 15 MW. In addition, the company is setting up a blade manufacturing plant in Chennai, due to be operation by mid 2006. In the first year, the company plans to produce blades for 200 MW of capacity. An interesting trend, says Kumar, is a resurgence in demand for 225 kW turbines. Vestas is due to install around 70, 225 kW machines, mainly in Tamil Nadu, by January 1. "There are smaller companies, accounting for around 15% of the market that cannot afford larger investment," Kumar says.

At the other end of the scale, demand for larger turbines is growing. "We are witnessing a sharp increase in demand for large 1.5-2 MW wind turbines in India," says LM Glasfiber's Søren Knudsen. Last month, the blade manufacturer confirmed it is to invest around DKK 100 million (EUR 13.4 million) to build its second factory in India "in response to the strong growth in the regions' wind power market." Creating 300 local jobs, the new facility will be in Dobespet, Karnataka, and is expected to become operational in the second half of 2006. Designed for the manufacture of blades for multi-megawatt machines, the factory will have an annual production capacity of about 400 MW. Production of smaller blades will continue at the company's existing facility in Hosakote near Bangalore.