Industry calls for a production incentive -- Plan to attract more investors

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The India Wind Energy Association (InWEA) is lobbying the finance ministry to change its tax incentive system for wind power away from rewarding ownership of plant and towards maximising production of wind kilowatt hours. This, it argues, is the key to accelerating growth in Indian wind power development.

x"While the existing provision of an accelerated depreciation benefit has undoubtedly given a boost to the development of the market for different renewable energy technologies, the time has now come to take the wind energy sector to a higher level of performance," says InWEA's Anil Kane. "Performance based incentives will help attract more investors as well as make electricity available to consumers at a lower cost."


xThe association is also calling for an end to the accelerated depreciation of wind power hardware, currently set at 80%. While this has attracted a large amount of investment in the sector, all of the country's wind development to date has been based on balance sheet financing, with companies using wind energy investment as part of their tax strategy. The result has been that while substantial capacity has been developed, plant efficiency has been largely ignored and independent power producers and foreign institutional investors -- unable to absorb upfront risk and thus take advantage of the depreciation benefit -- have effectively been excluded from the market.

xMoving to a normal depreciation regime, Kane says, would change this. The indirect financial benefits arising from the current system could instead be provided as tradable tax credit certificates (TCCs), with the credit level linked to performance. The production incentive would shift the focus to getting more electricity produced as efficiently as possible, rather than just capacity in the ground. The TCCs could be set at a rate of INR 1/kWh (EUR 0.017/kWh) for five years after machine commissioning, says the association, with the credit available to operators capped at a maximum of INR 1.8 million/MW (EUR 31,472/MW) a year.

xInWEA stresses that in making these changes, tax revenue collected by the state would not necessarily decline, but the cost of wind generation would be cut by around INR 0.15-0.23/kWh (EUR 0.002-0.004/kWh), making wind projects less expensive and more attractive to investors.

xThe association is also calling for current import and sales duty of 5-25% levied on blades and other materials to be removed.

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