The last few years have been challenging for the wind energy sector in India, especially with regard to policy issues. However, hope reigns despite confusion created by two versions in two languages, in the recent budget
India’s new Finance Minister Arun Jaitley announced a slew of mega solar power projects in his recent budget. But when it came to wind energy, there was more confusion than certainty, at least initially. And there was disappointment when the confusion was cleared up.
“The Hindi version of the 2014-15 budget document promises the re-introduction of a tax break that is crucial for the wind power industry,” says Sumant Sinha, Chairman and CEO of ReNew Power. “However, the English version, which was presented in Parliament, omits the point completely. This has led to ambiguity within the wind industry.”
In the Hindi version, point 118 of the budget speech announces reinstatement of the benefit of accelerated depreciation (AD) for the wind energy sector. It reads, “Pavan urja ka tvarit vikas karne kay liye main tvarit avmulyan kay fayde ko punh bahal karne ka prastav raktha hun (I propose to reintroduce the benefits of accelerated depreciation to accelerate the growth of wind energy).” However, this did not appear in the English version.
AD and generation based incentives (GBI) were withdrawn at the beginning of the 12th Plan period in 2012. Since then, investors have been pushing for their reinstatement. “Currently AD is not being offered,” Sinha points out. AD is essentially a tax deferral scheme.
English version the official one
K. Kasthurirangaian, chairman of the Indian Wind Power Association, met the finance minister on July 15, five days after the budget was presented in parliament. After the meeting, Kasthurirangaian said it was the English version, and not the Hindi one, which would be taken into consideration.
“As of now, AD has not been reinstated,” he confirmed. However, he hopes that it will be reinstated in the coming months.
So does Vineet Mittal, Vice-Chairman of Welspun Renewables. “We are looking forward to the government’s decision (on AD),” Mittal said.
D.V. Giri, Secretary General of Indian Wind Turbine Manufacturers Association (IWTMA), says the wind industry deserves AD, as such concessions are given to high efficiency coal fired boilers. “Reintroduction of AD will add capacity of around 800 to 1,000 MW per annum, especially from the MSME (micro, small and medium enterprise) sector,” he says.
When GBI was reinstated for the wind energy sector in late February 2013, the industry was relieved. However, they were also hoping that sooner or later, the government would announce a similar move for AD.
In mid-June 2014, at the Renergy 2014 conference in Chennai, Madhusudan Khemka, Chairman of IWTMA, had told reporters that compared to 2,100 MW last year, the wind energy industry in the country would see an addition of around 3,000 MW of capacity during the present year. “If AD is there, this will increase to another 1,500 MW or more,” he had predicted.
Khemka had said India is capable of producing 10,000 MW of wind energy every year. “We should have a target of 5,000 MW per year and for that AD is very important.”
A month later, on July 2, representatives of the wind power industry, during a meeting with Piyush Goyal, Minister of Power, Coal and Renewable Energy, had sought restoration of AD. They had pointed out that the provision of AD is not a loss to the government as it is a deferment of income tax. In addition, the government loses other taxes (MAT, service tax, central sales tax etc.) if there is no investment because there is no AD.
When Kasthurirangaian met the Finance Minister after the budget, he gave a memorandum which says, “Since the removal of AD with effect from April 1, 2012, the growth of the wind sector is on a decline. The years 2012-13 and 2013-14 had new installations of 1,700 MW and 2,100 MW which is far less than 3,200 MW of 2011-12. The MNRE (Ministry of New and Renewable Energy) had planned a growth of 3,000 MW wind energy per annum. The decline in new installations could be arrested and the growth trajectory restored as envisaged by MNRE, only with the restoration of AD. The turnaround can take place when AD is restored along with GBI.”
It adds, “AD has a proven track record as a driver of growth for renewable energy in India. It provided the much needed seed or margin money for investment as it is only a deferment of tax collection. AD is not a dole or government subsidy and does not require annual allocation of funds in the budget. In seven years, AD becomes revenue neutral and is pollution neutral. Industries in the Ministry of Micro, Small and Medium Enterprises (MSME) sector who used to plough back their annual profits as 25% margin money for ordering wind mills coupled with borrowing from banks are no longer able to invest in wind mills for want of equity or margin money.”
“Wind energy at Rs 3 to 4 per kilo watt per hour is much cheaper than the power purchased from the grid. Cheap wind energy enables MSME sector in India to produce goods at much competitive costs enabling exports that compete with Chinese manufacturers and earn precious foreign exchange. The absence of AD has slowed down investments in the MSME sector substantially thereby inhibiting export growth in this sector.”
Sumant Sinha however says the removal of AD “was not the only reason for the wind industry’s problems. There are other pressing issues such as the lack of proper grid infrastructure to evacuate power and delays in payments by state utilities that need to be addressed.”
Despite the confusion created by the budget, those in the sector are positive about the announcements made recently. Mittal says, “Overall, we believe that the recent union budget will help in the future growth of the clean energy industry. Post solar, wind holds a priority focus area for the government. Hence, the overall policies for the renewable energy sector will benefit wind as well. There is an exemption on customs and excise duties on power equipment, which will help in setting up projects within a conducive cost matrix and expanding wind farm installation in the country.”
He feels that the issue on supply of power which was a major area of concern has been addressed –instead of annual extensions it has now been extended by three years. “This will give predictability to the tax implications. This stability in policy will help investors plan their investments better.”
Mittal also points out that the finance minister “has tried to increase the Clean Energy Cess rate on coal, thereby seeking to generate more funds for continued subsidies to the wind energy sector.”
The budget does give specific sops to the wind energy industry. Sinha points out, “Specific to the wind industry, the FM reduced basic customs duty on forged steel rings used in the manufacture of bearings of wind-operated electricity generators to half, from 10% to 5% and exempted special additional duty of 4% on parts and raw materials required for the manufacture of wind-operated generators.”
Jaitley’s move to double clean energy cess from Rs 50 to Rs. 100 per tonne of coal, peat and lignite “will mean the clean energy fund corpus will increase from the existing Rs 2,500 crore to Rs 5,000 crore,” says Sinha. “This can be effectively used to fund grid based incentives, viability gap funding, green corridors, etc. The multiple measures announced highlight the positive focus and intent of the government with regards to the sector.”
Some other experts in the wind energy sector, such as D.V. Giri, believe that the recent budget “has addressed the concern of the wind industry in a different way. It has given concessions by reduction of customs duty on some imported components and raw materials and similarly, removal of special additional duty (SAD) on wind components. This concession may not have a very big impact in cost reduction. However, the industry welcomes the move, especially on removal of SAD. Also, the budget has given the benefit of 80IA (tax holiday) till 2017 for all power projects and hopefully the green energy corridor project will be accelerated.”
Apart from budget concessions, these are what the wind industry requires to ramp up from the present 2000 MW per annum to 5000 MW, according to Giri:
- Long term visible policy by “wind states” which will enthuse independent power producers (IPP) and their lenders.
- Mandating of renewable power purchase obligation (RPO) by states. This will help the renewable energy certificate market which is practically dead now. Power being a concurrent subject, mandating would require amendment in the Electricity Act. Additionally, in a progressive approach, the states that have fulfilled their RPO can get incentives to exceed these limits.
- Revival of power distribution companies, whose financial health is very weak.
- Provision of adequate funds for GBI disbursement, especially in the absence of AD.
- A long-term transparent open access policy under which a generating firm can sell electricity to whoever it wants, or can use the electricity itself; without this policy, this is considered a high risk transaction.
- Encourage interstate and intrastate sale without central transmission utility charges – ramping up of wind energy will require movement of power from “wind state” to “non-wind” state.
- Encourage wind solar hybrid plants.
- Set aside competitive bidding till the end of the 12th plan period (2017) or till the National Action Plan on Climate Change targets are achieved.
- A rational approach to scheduling and forecasting in a cluster management and involvement of State Load Despatch Centres (SLDC), which will lend credibility, better accuracy and for the SLDC to consider wind energy as a part of the power planning and distribution system.