Waiting to see the light at the end of the tunnel!

Location: India
07th August 2013  To: 07th August 2013

In Indian wind energy sector, it is becoming important to make distinction between many positive and heartening announcement from the government at the center and actual action on the ground. The action on the ground is obviously at the state level.


In recent times there have been many positive announcements emanating from center. First and foremost is the announcement of  Generation Based Incentive (GBI) by the Finance Minister with the Budget for 2013-14 as well as allocation of Rs. 1533 crores  to the sector.  The good news continues with the Dr. Farooq Abdullah signing a “Join Declaration of Intent” with his German counterpart  Federal Ministry for Economic Cooperation and Development Gudrun Kopp during the second inter-governmental consultations that concluded in Berlin recently. The agreement was signed in presence of Prime Minister Manmohan Singh and German Chancellor Angela Merkel and  a soft lone of Euro 1.3 bn is going to be made available to India to address its grid related issues. Recently, while inaugurating  the Clean Energy Ministerial the Prime Minister, Manmohan Singh said the potential for windfarms had been underestimated earlier and was perhaps much more than what was anticipated earlier.  The governments target for the five year plan ending 2017 has been set at 15000 MW of wind power, which translates into 3000 MW/ year.


With all these announcements it would appear as if the scenario for wind energy in India is very bright. But is it?


Lets look at the problems one is facing on the ground in development and financing of wind energy projects.


Accelerated depreciation (AD) provision and GBI ended 31st March 2012 and as a result, wind capacity addition across the country came down drastically. In the year 2012-13, only 50% of the previous year’s (2011-12) capacity addition has taken place. Now the GBI has been announced but “how and what” of it is yet to be announced. With regard to AD, the industry continues to lobby with the government.  It is well known that the investors who invest  under  AD provision are a class by itself and they have been alienated by its discontinuation.


The Renewable Energy Certificates (REC) mechanism that was to be driven by the Renewable Portfolio Obligation (RPO) hasn’t really taken off as the RPO mandated by the Central Electricity Regulatory Commission (CERC) does not seem to be legally binding. The distribution companies that are supposed to purchase these certificates to meet their obligation have been airing their discomfort with the price of  REC as well as Feed-in-Tariffs (FIT).  In Tamil Nadu, the state with the largest number of windfarms and much scope for further developments – grid issues and non-payment of electricity generated under PPAs is bringing wind energy development to a complete halt. The chronic problems of the electricity sector remain where they were and continue to hinder further developments. The States are half-hearted with the center and drag their feet on many issues related to regulations on wind energy.

Rajasthan has come out with a policy on competitive bidding under which it will procure 300 MW of wind power.  The industry had been fearing this for a long time and has yet to figure out this new creature. In general, it is well established that competitive bidding in wind energy is a non-starter due to reasons that have been discussed many times over.  One must say, at the same time, that competitive bidding is a double edged sword and may spring up its own surprises for Rajasthan.  In Maharashtra, the MSEDCL has opposed wind  tariffs as they are obviously higher than APPC. Scheduling and forecasting issue - Enough has been said about this issue and it presents yet another risk to wind projects.


Apart from these policy and regulatory uncertainties that the developers have to contend with, they also have to face very serious development problems and risks with regard to land acquisition, financing, grid connection, technology, energy output etc. etc. 

The road to development of wind energy projects and their financing does not offer a straight and smooth ride but it is a difficult winding road with many pitfalls. All said and done, while the sun shines brightly from the top, on the ground, however, there are many who are waiting to see the light at the end of the tunnel! 



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