The government is looking at ways to make the wind energy business more attractive to independent power producers, essentially private sector power companies. It plans to do this by creating new incentives linked to the amount of wind energy produced. Existing incentives reward investments in the sector, but do not factor in actual production of wind energy.
Currently, a Central scheme provides an accelerated depreciation benefit of 80%, an income tax holiday and exemption from excise and concessional customs duty and state governments provide capital subsidies to wind power projects. Maharashtra has a cess on conventional energy in order to create a ‘clean energy fund’ that will be used to promote renewable energy projects in the state.
The current benefits, wind energy experts say, have not incentivized the sector enough to drive its growth. “Depreciation benefit does play a good role and it has given the sector the initial fillip it needed but now it needs to be expanded,” said Debashish Majumdar, managing director, Indian Renewable Energy Development Agency Ltd (Ireda), a state-run firm that offers financial support to renewable energy projects. The current benefits have to do with reducing tax outgo, and most power producers, especially the new ones, do not have much of this anyway.
The incentive is beneficial only to balance sheet financers with high tax liabilities. “Right now, the structure is such that only the attraction of tax deferment is bringing in investors (into wind energy). It has become more of a tax deferment instrument for bigger companies with high tax liabilities. As of now, there is hardly any wind project in India which is not used for tax reduction,” said Ram Babu, managing director, CantorCO2e India, a London-based firm which offers financial services to environmental and energy markets worldwide.
The new incentives have been listed in a report submitted to the ministry of new and renewable energy by the World Institute of Sustainable Energy (WISE), an India-based think tank that offers consultancy services in the area of alternative energy. WISE was asked by the ministry to prepare a draft of a new incentive structure.
The draft recommends a production-linked incentive that will encourage investors to generate more wind energy, not just invest in a wind farm. The US, Canada, Finland, Sweden, Malta and the Netherlands have a similar incentive. The Planning Commission had previously recommended production linked incentives for wind energy projects in its approach paper to the 11th Plan (2007-2012).
“There is a lot of demand from foreign investors in the wind energy sector. But in order to encourage them, we will have to provide performance-linked benefits. Foreign investment can increase capacity by almost 2,000MW,” said G.M. Pillai, director general, WISE. Pillai added that the draft report submitted to the ministry recommend the continuation of existing incentives, too. “Both incentives should be allowed, but investors can avail of only one of them,” he added. The report suggests that the new incentives come into effect from 2008-09.