With financial incentives back, the wind power sector in India is targeted to grow to an installed capacity of 60 GW by 2022. But not without addressing the key issues of tariff, infrastructure, and scheduling and forecasting
Delivering the budget for 2015-16, India’s Finance Minister Arun Jaitley announced the government’s ambitious target of achieving 175 gigawatts (GW) clean energy capacity addition by 2022. Of this, a whopping 100 GW is expected to come from solar power, whereas wind energy, biomass and small hydro are expected to contribute 60 GW, 10 GW and 5,000 megawatts (MW) respectively. Though the major focus of the government is on harnessing solar power, the wind power sector is also set to increase its capacity from 23 GW (as of March 31, 2015) to 60 GW in the coming seven years.
In a push to the sector, the government has reintroduced financial incentives to encourage faster deployment of wind power, a move that has been welcomed by private developers, but criticised by some sector experts. A national wind energy mission is also in the offing.
With installed capacity of 23,439 MW, India is the world’s fifth largest wind power producer. The Indian government has been offering various sops such as accelerated depreciation, generation-based incentives and attractive internal rate of return to private developers to promote wind farms. Till 2009-2010, capacity additions in wind sector were primarily driven by investors seeking benefits under accelerated depreciation, which allows companies investing in wind farms to write off about 80% of invested capital in the first year.
The lure of accelerated depreciation led to the setting up of a large number of wind farms across India, but a lot of these farms were in shambles after the tax benefit was availed. According to a February 2015 CRISIL and PHD Chamber report, between 2003 and 2010, India added more than 10 GW of wind power capacities, and nearly 70% of this was to leverage benefits under accelerated depreciation. Average capacity utilisation of wind power projects was as low as 18% in 2009-10.
To address this problem, the Indian government introduced generation-based incentives (GBIs) in 2010. GBI is based on the actual units of electricity generated, and the Indian government offers 50 paise per kilowatt hour (kWh) subject to a maximum of Rs.10 million (approx. $150,000) per MW for 10 years. Driven by both accelerated depreciation and GBI, wind capacity additions in India were the highest in 2011-12 at 3,200 MW. However, the very next year, the Indian government withdrew both the incentives claiming the wind sector had achieved maturity.
There was a sudden dip in the country’s wind energy capacity addition, which nearly halved to 1,700 MW in 2012-13. Thereafter, private developers started pressurising the government to re-introduce sops. The government restored GBI in 2013-14 followed by accelerated depreciation in 2014-15.
“Private developers have misused sops, and there is no accountability or monitoring. Any incentive for wind energy project should only be linked to actual generation of electricity,” says A. Jagadeesh, a wind energy expert from Nellore in the southern state of Andhra Pradesh.
Adopting competitive bidding
According to Ashwin Gambhir of the Pune-based Prayas Energy Group, two crucial issues need to be addressed. “Firstly, wind power is a mature sector and hence a transparent market based tariff discovery, through some form of competitive bidding is important. This is crucial considering wind tariffs (Central Electricity Regulatory Commission tariffs for 2015-16 range from Rs.5.27-6.58/kWh for a capacity utilisation factor of 25-20%) are already becoming cost prohibitive compared to solar PV with recent solar bids at just over Rs5/kWh. The second issue is of lack of forecasting and scheduling regulations at the state level coupled with fair framework for sharing of the balancing costs to enable reliable grid integration.”
At present, there are two mechanisms by which the government purchases renewable energy — feed-in tariffs and auction, also known as competitive bidding. In the former, the government fixes tariffs for projects. In the latter, project developers quote tariffs to the government and are selected based on predefined technical and financial criteria. Typically, wind power has been procured through feed-in tariffs, and solar power through auctions. Auctions for renewable energy are gaining popularity around the world as a more cost-effective mechanism for the government. Competitive bidding in Brazil has led to the decrease in wind energy cost by about 50% from the feed-in-tariff level.
In India, however, private developers are opposing any move towards competitive bidding. Two years ago, the state of Rajasthan tried introducing reverse auction in wind energy projects. The Indian Wind Energy Association and Mytrah Energy Ltd filed petitions against it in Rajasthan High Court.
The union Ministry of New and Renewable Energy had also finalised guidelines for determining tariff for renewable power projects through competitive bidding in December 2012. But, within a week, it excluded the wind energy sector from the guidelines, following requests from the Indian Wind Turbine Manufacturers Association. Developers allege that any move to introduce competitive bidding would depress the market.
“While a competitive bidding based framework for wind power in India is certainly not as easy to implement as compared to solar given the nature of the resource and the industry structure, we should certainly begin with at least a pilot immediately,” says Gambhir.
A May 2015 study, too, supports auctions. “… introduce auctions in a controlled environment, in which the project site is already identified, transmission infrastructure is planned, and resource assessment studies are completed prior to bidding”, recommends the study by Climate Policy Initiative (CPI) and the Indian School of Business (ISB).
In order to address erratic supply and instable grid, the Central Electricity Regulatory Commission (CERC) in 2013, came out with a ‘scheduling and forecasting’ order directing wind power generators to forecast their generation of the next day, for every 15 minute interval and face penalty if the actual generation is 30% more or less over the submitted forecast. This order, applicable to wind turbines installed after May 2010, was also challenged by the Wind Independent Power Producers Association, which filed a petition in the Delhi High Court against the Commission’s order.
Europe and the US already have forecasting of wind generation. In India, scheduling would allow wind power to be sold across states and help authorities prepare network upgrades to accept more clean energy in the future. The Power Grid Corporation of India is already working on the Green Energy Corridor project for transmission of renewable energy from generation points to the load centres by creating intra-state and inter-state transmission infrastructure.
The issue of renewable purchase obligations (RPO) targets also needs to be addressed. RPOs require a percentage of all electricity to be sourced from renewables. According to a February 2015 report by ICRA Ltd, RPO compliance continues to remain weak (ranging between 10% to 50% of the target RPO) in financial year (FY) 2014 in states such as Assam, Bihar, Haryana, Punjab, Uttar Pradesh and Uttarakhand; however, RPO target level has been fully complied in FY 2014 by state owned distribution utilities in Tamil Nadu, Himachal Pradesh, Gujarat and West Bengal.
Meanwhile, there are some positive developments in India’s wind sector. The capacity utilisation factor (indicates plant efficiency) is expected to increase from the present 25% to 29% in 2022, reports another study by CPI and ISB. At present, most of India’s wind deployment is at a hub height of 80 metres; this is steadily increasing and turbines of 100 metres are becoming common.
Jagadeesh believes offshore wind power is crucial to meet the target of 60 GW by 2022. “We haven’t added even one kilowatt of offshore wind power in India. It has lot of benefits, as no land acquisition is required and wind velocity is very high (30% more)… Like Germany, India should also promote wind farm cooperatives, which will increase community participation in decentralised wind power development,” he recommends. Offshore wind farms may soon be a reality in India with the union cabinet approving the National Offshore Wind Energy Policy on September 9.