Pundits predict market thaw

Given just a little heat, the frozen waters of the Indian wind market could once again bear life in the not too distant future. The economy is warming up and the industry is ready and waiting to flow with the meltwater. Wind seems fully prepared for any coming opportunities, while avoiding the frenetic pace and mistakes of years past. "There should be no surprises this time around," says one government official.

Google Translate

Frozen for nearly two years after a spectacular period of smooth sailing, the waters of the Indian wind energy market are beginning to thaw. Industry leaders and government officials interpret the present state of the market differently, but they agree that wind is at least fully prepared to ride the meltwaters of opportunity on the way-and avoid the frenetic pace and mistakes of years past. "There should be no surprises this time around," says Dr V. Bhakthavatsalam of the Indian Renewable Energy Development Agency (IREDA), the government financing agency for renewables.

Several tasks still need to be completed before the market vessel can move forward, industry observers report. Among these is reforming the now outdated policies of the Ministry of Non Conventional Energy Sources (MNES) and persuading the government to include renewables in its plan for deregulation of the power market. In addition, wind's credibility-severely damaged during the major growth of the early 1990s-needs to be won again. On the positive side, the long term economic outlook looks good for wind in India and the technology is experiencing unprecedented public support. The big question remains: is the ice about to break?

"Wind energy is truly mature now. Everyone understands its importance and everyone knows its potential," proclaims Ajit Gupta, a senior advisor to MNES who is not known for his pessimistic outlook. India, indeed, is proud of its wind energy success story. With some 990 MW of wind power installed over the past 15 years-though this figure includes 35 MW destroyed in a cyclone in Gujarat last summer (Windpower Monthly, September 1998)-India is the fourth largest wind power generator in the world, behind Germany, the United States and Denmark. During the government's Eighth Plan period from 1992 to 1997, wind overshot its original target by a factor of more than eight. So far in India, wind accounts for nearly 60% of the total renewables investment of INR 90 billion ($2.1 billion). In the coming years, IREDA has committed $460 million to new projects, of which wind's share is $187 million (Windpower Monthly, February 1999).

A bulk of the total wind capacity since 1992 came about through commercial projects, which mostly petered out after 1997. Since then, investment in wind energy has been no more than a tiny trickle, much to the delight of sceptics from within and outside the government. "There were several reasons for this [slow-down], many of which are now widely debated," says Gupta. "But what remains to be seen is whether we have learned anything at all from this."

MINISTRY under fire

Much frustration from the industry's side has been directed towards MNES, which observers say has gone overboard on command and control. From the start, they say, the ministry adopted the role of sole project leader, planner, financier, promoter, R&D manager and policy maker, with little involvement from other stake holders. MNES has also been criticised for failing to provide a link between equipment supplier and end user to a large extent.

Meanwhile, the ministry has continued its program of wind demonstration projects (Windpower Monthly, October 1998), planning to spend another INR 2 billion ($46.5 million) on another 50 MW. Even within the ministry dissent is mounting, caused by arguments that concentrating on demonstrating the viability of wind power is wasteful spending on a technology which is already commercial. One MNES official, who wishes to remain anonymous, argues that this money could better be spent on promoting general awareness of wind energy among the public and a focused campaign to attract industrial investors.

Another area of concern among wind's proponents is India's bureaucracy, which they say is stuck in archaic procedures. "In spite of experience of several years, the paperwork and approval procedure is still too complex and cumbersome," admits the same MNES official. The complicated permitting structure involves clearance from a community forum followed by the district, state and, finally, central ministry. The Wind Energy Producers Association, based in south India, has protested against such outdated government practices to no avail. "We have modified our procedures from time to time to make it simple," says Gupta, further claiming, "Our response time is also highly comparable to that of the West."

A high turnover of personnel within MNES does not seem to help the situation. With yet another change of government, the latest minister has resigned and the new secretary N. Mukherjee has only been in his seat a matter of weeks. He moved from the civil supplies department and has no experience in renewable energy.

Fair pricing

In addition to the problems within the government, industry observers are criticising current policy on fair pricing within the whole of the Indian power market and not just renewables. The government's new Central Electricity Regulatory Commission (CERC), which is overseeing deregulation of the power market, does not once mention non-conventional energy sources in its business objectives. "It is not that we have ignored renewables. We are forming some policy on that also," insists S.L. Rao, chairman of CERC.

Whether CERC comes up with any renewables policy or not, some slight economical winds are already filling the sails of the Indian wind market. In 1997, the government withdrew its 25% import tax exemption on fully assembled wind turbines. Although the industry was hit hard at the time, the act created a level playing field for India's own wind turbine manufacturers and component suppliers-a crucial factor for price competitiveness in any revival phase. The home grown industry has begun to take off, but it has been criticised by foreign turbine makers for its lack of standards (Windpower Monthly, February 1999). A recent introduction of ISO 14000 quality control standards in these companies, however, is expected to help remedy the situation.

Meantime, long term viability of the wind market is slowly being ensured by the increasing prices the State Electricity Boards are willing to pay for wind power. The INR 2.15/kWh ($0.05/kWh) base payment required by MNES currently gives wind power companies a head start on the market, where electricity prices range between INR 3.00-4.00/kWh in most states. "We are doing everything we can to promote wind power," says K. Jayaraj of Karnataka Power Corporation. The southern state of Karnataka is emerging as a major wind energy player along with Tamil Nadu and Gujarat, and more investment is expected here in coming years.

Even though debates about green pricing programs, which give customers the choice to pay more for clean power, and about trade in emissions credits are yet to be seen in India, wind lobbyists have managed to at least familiarise government officials with the fact that wind energy compares well to the conventional thermal energy on capital cost. To set up one megawatt of wind energy today in India, it costs between INR 30-35 million, while a similar coal fired plant costs in the range of INR 35-40 million.

The industry's credibility also suffered in the initial wind rush of non serious players seeking tax breaks rather than long term investment returns. These were often financially weak companies that did not deliver promised returns to their investors. A shift in thinking has happened since, however. "[Investors] have now understood the fallacy of looking for depreciation advantage, rather than the asset quality of their investments in wind," says N. Kumar, a chartered accountant who assists wind energy projects in south India.

MNES insists that all the obstacles can be overcome. To begin with, an awareness campaign is needed to educate people about wind's improvements in technology, physical transport, building and high-tech yield monitoring. "There is an amazing lack of awareness even today about the industry," says Ajit Gupta in a more considered comment. "It still takes a lot to prove to investors that it makes perfect business sense to put their money in non conventional options."

A poor economy and political uncertainty are generally blamed to be major reasons for the slowdown in the wind sector. If large industrial enterprises can be spurred on, however, the current economic situation promises a basis for large investments: inflation and interest rates are down, domestic savings rates are high, and the economy has entered a sustained growth phase (table).

These factors have helped push down the cost of financing drastically, along with a wider choice of funding sources. Loans for wind projects have fallen from 18-21% to 14-16% today, and these prices continue to slide. Even though the period in which the entire loan must be paid off is still under ten years, this is beginning to change for the better. The range of financing options is also wider, with more institutions joining the bandwagon to lend money to wind developers, bringing more competition and therefore cheaper costs and better service for customers. Perhaps because of these improvements, the profile of new entrants is stronger than in the past, indicating more commitment for project sustainability.

The social pull

Another promising gust for wind energy comes from local community acceptance. "Many communities around the country have been transformed and are ready to support fresh investments in their area," says IREDA's general manager, K. S. Sridharan. The promise of thousands of jobs in otherwise barren and arid regions of remote rural areas has created a natural ground swell of support.

The high level of community awareness has also begun to show in terms of greater ease in planning projects and greater flexibility in making land, human resources and other community services available to the projects, a crucial removal of barriers. This aspect is evident in the rebuilding program of the cyclone devastated Gujarat coastal wind program of 38 MW capacity.

A number of services have also developed around the industry to lend further support, such as cost-competitive, indigenous technologies for manufacturing the towers, erecting the wind turbines, and towing the blades and generators through the fields. "There are thousands who have learned new skills in this industry," says B. Revathy, a college lecturer from Tirunelvelli, located in the heart of the southern India wind program. A visit to the largely remote and dry districts of Tirunelvelli, Kattabomman and Kanyakumari in the deep south-where more than 500 MW of capacity of wind power has been installed-reveals the total transformation in the communities. "Muppandal was a sleepy backward village, dependent on the highway traffic for its sustenance for years. It is now a totally changed place. So is Kayathar and also Vallioor, all of which have become boomtowns, thanks to these windmills," observes the 74-year-old, retired government official Gopal Alwar Aiyengar of Nanguneri. He has watched barren hills blossom into an array of white giants, which hum into the night producing power.

Lessons learned

Through experience, the industry has learned from its past mistakes. "Most wind companies did not realise how expensive it would be to procure land, transport materials, liaise with the reluctant local communities and electricity boards and above all find people and spares to maintain the sets in the long run," points out Gupta. Today, he says, there are no more surprises.

Over the years, along with experience has come confidence. "It is not the same attitude that you might have seen earlier," says IREDA's Bhakthavatsalam. "The companies may be the same, but their perspective is different."

Have you registered with us yet?

Register now to enjoy more articles
and free email bulletins.

Sign up now
Already registered?
Sign in

Latest news

Partner content