Tighter margins and policy confusion -- Growth slows for India

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In India, wind turbine installations declined by 266 MW in 2007 compared with 2006. Even so, the country's 1574 MW of new capacity still ranked it fifth among the year's most active markets, just behind Germany, and fourth in the world rankings for total capacity at 7844 MW. The slower growth means the country only just scraped past its 2007 target and some are fearing it may miss its 2000 MW target for 2008 (table). It would be the first time that India does not achieve an annual goal. The market, however, may pick up on the back of a series of more favourable state policies announced in recent months.

Current incentives are not enough, according to industry players. "The only benefit left to the wind industry is accelerated depreciation of capital investment against tax, which supports wind plant owners and end-users, not manufacturers," says Sarvesh Kumar from Vestas RRB. But with a 25% hike in the price of steel, turbine prices have had to go up, he points out. The margin left is too low to attract investment in the sector. Vestas RRB is no longer part of the Danish Vestas group, but an independent turbine supplier.

Project development in 2007 was also hit by ongoing disputes over tribal land rights in the state of Maharashtra, with Suzlon's massive 1000 MW Dhule project a major casualty (Windpower Monthly, July 2007). Furthermore, a delay in the release of the Indian government's new renewable energy policy is slowing the market momentum.

Another key concern, says Kumar, is that India's wind sector is failing to capitalise on use of the UN's Clean Development Mechanism (CDM) as in countries like China. No more than 225 renewables projects in India are eligible to sell their carbon credits under the CDM, according to analysts Dun & Bradstreet. The main problem is that more than 50% of projects submitted for CDM status are being rejected. The problem, says Kumar, is proving that a project would not be able to proceed without the extra revenue from selling its carbon credits. "This issue needs to be sorted out," he says.

Most of the wind farms completed last year went up in the established state markets of Karnataka, Maharashtra, Gujarat and Tamil Nadu, with Suzlon, Enercon, Vestas and RRB Vestas, in that order, supplying the hardware. The bigger hitter was again Suzlon, which installed 1016 MW. Activity by Enercon India was affected by internal discussions on dilution of equity to its German partner. The matter has been settled and Enercon is reportedly "back on a roll again."

Poor rates

In the promising states of Madhya Pradesh, which wants 0.5% of its power to come from wind, and Rajasthan, which has set a target for 1565 MW by October 2009, the markets failed to ignite, largely due to poor power purchase rates, says the industry. Andhra Pradesh, regarded as a key new market with an estimated potential of 8200 MW, saw no activity at all. The problem here, it seems, is that the utility has not implemented the regulator's orders to source 0.5% of its power supplies from wind. Widespread confusion about the power purchase rates is apparently to blame.

The Andhra Pradesh government, in a bid to get things moving, announced a definitive purchase price of INR 3.10/kWh ($0.077/kWh). That is at the bottom of the scale in India, with most ranging from INR 3.15-4.00/kWh ($0.079-0.10/kWh). Just a month earlier, the state of Haryana, which has asked Suzlon and Enercon to help identify the potential for 440 MW of wind plant by 2012, set its rate for wind power at INR 4.08/kWh ($0.102/kWh) with an annual escalation from 2008-09 of 1.5% over a five year period. This may be increased once the state's wind potential is firmly identified, it says. The state is aiming for 3% of its energy to come from renewables this year rising to 10% by 2010.

Meanwhile, at the end of last year the state government of Tamil Nadu was ordered to review its prices after complaints by the industry. It pays INR 2.90/KWh ($0.072/kWh) for new projects and just INR 2.75/kWh ($0.068/kWh) for those developed before May 2006.

Full order book

On a more positive note, SKF India, which makes bearings, seals, and lubrication systems for wind turbines, is expecting major growth. Its wind-related order book, worth $45 million, is to triple by 2010, says the company's Rajesh Thantry. New players also continue to enter the market. Hong Kong power utility CLP Holdings is building a 100.8 MW wind farm of Enercon 800 kW machines for Samana in the Jamnagar district of northern Gujarat, to be online this year. CLP is optimistic it can build at least 360 MW at Samana alone and via its joint venture with Australia's Roaring 40s, it is also building a 50.4 MW wind farm at Khandke, Maharashtra. Gujarat remains CLP's favoured state, however, with a purchase rate of INR 3.37 ($0.082/kWh) for 20 years and guaranteed access to the grid.

A new turbine manufacturer has also appeared, Spanish Eozen, which makes German Vensys turbines under licence. It is supplying 18 MW to Regen Powertech Private, turnkey contractor for Nuziveedu Seeds. Regen has orders in India to build 400 MW by 2010. Indeed, the customer base for wind plant is growing, with the emergence of large industrial giants such as Tata Power, Reliance Energy, and India's National Thermal Power Corporation as budding wind power owner/developers.

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