New incentive insecure in election year -- Uncertainty in India

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Even as profits at many companies across the Indian wind sector took a beating last year, 1787 MW was added to the country's wind generating capacity, just ahead of the target of 1500 MW set by the Ministry of New and Renewable Energy (MNRE) for the year ending in March, bringing the grand total to 9645 MW. The north-west state of Gujarat led the way with 616 MW, partly because activity had shifted away from Maharashtra to the south after long and bitter land use disputes in that state. Another bright spot is the south-east state of Tamil Nadu. Home to 4 GW of installed capacity, the state now plans to increase wind power generation by up to 40%, spurring development of new projects with mandated power purchase prices for wind of INR 3.40/kWh ($0.07/kWh). No time line is provided for the target, but severed power shortages are adding urgency. "While thermal plants take three to four years to mature, wind requires just three to six months for installation," says Anne Mary Swarna of Tamil Nadu's Energy Regulatory Commission, adding, "The need for attracting investment in wind energy is urgent."

Overall, however, economic uncertainty has slowed momentum, with some in the wind sector calling installation of even 1200 MW in 2009 ambitious. As traditional sources of cash investment have dried up and prices for carbon credits for renewables projects plunged to as low as EUR 8 from EUR 22 in the past two months, companies are looking to the MNRE's pilot Generation Based Incentives (GBI) program to attract large independent power producers to the wind sector.

Production incentive

Under the program, grid connected wind power plant with a minimum installed capacity of 5 MW will be eligible for a production incentive of INR 0.50/kWh ($0.01/kWh) to augment revenues from sale of the electricity to utilities under state policies mandating prices for ten years through the Indian Renewable Energy Development Agency. The wind industry is calling for a current 49 MW size cap on projects eligible for the GBI to be lifted, arguing that the difficult economic climate and need for foreign investment justify greater latitude.

According to MNRE, the GBI will encourage developers to achieve high generation output and improve operation and maintenance. Proponents say implementation could boost development this year to 1800 MW. Critics, however, say the program lacks clear guidelines.

Further complicating matters is the advent of political elections in May, which may see the GBI abandoned. "The financial crisis has brought in a new set of priorities for the government and we seriously doubt that renewables will figure on the top. We're back benchers," says Sarvesh Kumar of Vestas RRB India, which has no connections with the Danish firm Vestas. In addition, since the upcoming budget will be a stop-gap until the new government takes over on June 2, no serious decisions are expected until then, likely delaying the GBI further. "We need support now and it is time the policy is introduced," says Madusudan Khemka of turbine start-up ReGen.

A potentially new source of investment could be public sector companies following in the footsteps of oil companies ONGC and NTPC. Indian Railways is also considering investment in about 100 MW of wind capacity. Toward that goal, it is setting up a 10.5 MW wind farm in the Saurashtra region of Gujarat with operation by March 2010.

for survivors

Domestic manufacturers say stark challenges lie ahead. The grim business climate overseas threatens earnings at Suzlon, which says it expects revenue growth in the US to halve in the fiscal year starting in April. The company reported a loss for the final quarter of 2008, blaming the cost of repairing faulty blades on wind turbines in America and poor currency exchange rates. Although it insists growth will pick up in 2010, it has reduced its intended development in India from 5700 MW to 3200 MW.

Others cast 2010 less positively, saying that is when orders from 2009 will dry up. Many smaller companies that had entered a buoyant market eyeing infusions of private equity now fear going out of business. Suzlon, for its part, believes easing of supply chain bottlenecks will herald a period of consolidation.

Vestas RRB says it does not expect to suffer. "We will survive because we have never borrowed money," says Kumar, whose company exported seven turbines to the US in 2008 and has orders for around another eight for 2009. The firm plans to launch a new turbine of less than 2 MW next month, after months of delays, that he calls "25 years of experience coming together." The first prototype is being tested in Tamil Nadu in high winds and another will go through its paces in Maharashtra or Gujarat.

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