Excerpts from a paper on Wind Energy

In this paper, I tried to highlight the hurdles faced by investors in India when they want to invest in wind energy projects specifically in wind mills. I have also suggested how effective regulation may encourage private investment in wind energy.

Following are some of the benefits / incentives provided by the Indian government to the investors -

1. 80% Income Tax Accelerated Depreciation
80% depreciation can be claimed in the first year of installation itself, if the project is commissioned on or before 30th September in a financial year; and 40% depreciation in case the project is commissioned on or after 1st October in a financial year

2. Tax Holiday under Section 80 I (A)
100% income tax holiday for the income generated from the project for any 10 consecutive years during first 15 years of operation

3. Equity / Loan Ratio
The project involves app. 30% Equity and 70% Loan Funding. Various PSU and private banks provide funding for wind power projects

Limitations

1. Wind machines must be located where strong, dependable winds are available most
of the time

2. Winds do not blow strongly enough to produce power all the time, therefore energy from wind machines is considered "intermittent," that is, it comes and goes. Therefore, electricity from wind machines must have a back-up supply from another source

3. As wind power is "intermittent," utility companies can use it for only part of their total energy needs

4. Wind towers and turbine blades are subject to damage from high winds and lighting. Rotating parts, which are located high off the ground can be difficult and expensive to repair

5. Electricity produced by wind power sometimes fluctuates in voltage and power factor, which can cause difficulties in linking its power to a utility system

Pain Points in Investing in Wind Energy in India

1. Price / WTG
This price is quoted by the manufacturer as a whole and this
is “negotiated” with the investor. Although C-WET (a regulatory body) certifies
the minimum quality standard, it does not specify the maximum charges for the equipment. If government sets a maximum price for a particular size of WTG then the investors get a reliable estimate of the initial costs

2. Generation (KWH)
At present, manufacturers quote this figure primarily depending on their own estimates and calculations. However government agencies need to estimate the wind speed and generation for a particular location so that investors have a realistic estimate of the potential power generation. This expected potential will also help in setting the price for the equipments.

3. Interest Rates
There is no set policy according to which loan is provided to the investors. At present, various PSU and private banks give loans against the WTG according to their own perceived risks and understanding. Government needs to incentivize the banks to rationalize the interest rates

4. Plant Load Factor
The quoted plant load factor is usually 21-25% in India. However global experience
shows that this high load factor is not possible for all the time. This factor varies
according to environment which is not in investor’s / manufacturer’s control.
There is a need to formalize a policy according to which the manufacturer should quote the realized load factor from the farm instead of only estimated load factor.

5. Transparency and Disclosures
According to me, corresponding figures for load factor, power generation, down time etc should be disclosed to all the investors in a wind farm

6. Payment Collection
The power purchase agreement (PPA) is signed between the investor and the state electricity board. The State Electricity Board (SEB) is supposed to pay the investor within 45 days. However collecting the money from the SEB is problematic and time consuming. Maharashtra SEB has introduced Real Time Gross Settlement (RTGS) payment system so that timely payment can be done. Extending RTGS to all the states can certainly lessen the woes of the investors.

Conclusion
India has set itself ambitious targets in renewable energy generation and government has indeed provided a host of subsidies and benefits.
However a lot of work has to be done in order to standardize the investment process; government needs to instill transparency so that more investors may diversify their portfolio taking exposure to renewable energy sources like wind energy.