At present, wind power accounts for about 67% of the total installed renewable energy capacity in the country. The challenges are many, as are the risks. But no one can deny the benefits of wind as a renewable source of energy.

Wind power does after all have a lot working in its favour. It is the world’s fastest growing energy source, it has achieved a level of maturity that no other renewable energy-based electricity-producing technology has reached, it is attractively shielded from environmental issues and price volatility and has no major technical barriers.All of this has gone toward putting India in the top 10 globally in the wind sector.

With an installed capacity of more than 21,000 MW, India currently ranks fifth in the world, with a 6.3% share in global installed wind energy capacity, after China, USA, Germany, and Spain. India’s installed capacity of wind energy stood at 21,996.78 MW at the end of September 2014.It is the second largest market in Asia, and continues to present significant investment prospects for international as well domestic players. The country’s cumulative installed wind energy capacity currently accounts for 67% of the total installed capacity in the renewable energy sector.

Wind power is more affordable than ever, rapidly establishing itself as an important part of the Indian energy landscape, but there is still much to do. This industry will continue to see challenges but remains confident in its ability to come out on top.

What’s Propelling Wind Sector Growth?

Economic growth leading to higher energy demand
It comes as no surprise that as the economy grows, the demand for energy grows proportionately. As India marches ahead, it is expected to remain energy hungry. While a number of large capacities have come up, partially bridging the gaping hole in the country’s energy requirement, India’s woes continue with faulty distribution and huge transmission losses. With India assuming its awaited growth trajectory, these incremental capacities would soon prove to be insufficient to meet the growing needs.

Tapping the untapped

It is widely believed that the country’s untouched wind power potential is vast and affords plenty of openings for this industry to flourish. A number of states have tapped only a fraction of their potential, which itself is increasing with every technological advancement

Rural Electrification Programmes
In 2006, the government initiated its “Rural Electrification Policy” that focuses on optimally utilizing renewable energy sources to power villages in the country. This program has led to the growth of all renewable energy sources in the country. With approximately INR 360 billion earmarked for the rural electrification drive during the 12th five year plan, the growth of renewable energy sector looks promising. With the level of advancement and stability of the wind power technology, wind sector is set to benefit the most from the thrust on renewable energy.

Going Green
An ever-increasing carbon footprint poses a threat for one and all. Global carbon-dioxide emissions from fossil-fuel combustion was estimated to be 36 billion tonne in 2013. Coal accounted for 45% of total energy-related CO2 emissions in 2011, followed by oil (35%) and natural gas (20%).

India accounts for around 6-7% of global emissions, making it the 4th largest emitter behind China, United States of America, and the European Union! This has only served toward giving the wind sector the fillip it needs, as wind energy assures zero carbon emissions.

Demand-Supply Shortfall in Coal & Depleting Coal Reserves

Coal is the main feed for power generation in India with largest portion of its electricity requirement being met out of coal fired power plants. India faces acute shortage of coal. While the new mine allocations are a welcome step, the much is still desired.

 

Availability of other sources for thermal power such as gas remain a point of concern for the country. This leaves the way open for huge opportunities in the wind segment.

Moving towards Grid Parity

The cost of generation from conventional sources such as coal- and gas-based plants has inched up due to increasing fuel cost. Wind power is therefore moving closer to grid parity

 

 

The introduction of preferential tariffs has added an element of certainty to tariff structures over the life of wind energy assets, while providing reasonably attractive returns adjusted for the wind resource of each state. The preferential tariff model will remain the favoured option of wind-based IPPs

Access to local manufacturing base

India also has a strong manufacturing base for Wind Energy Generation Equipment and has emerged as a preferred manufacturing hub for wind turbines. Leading domestic, as well as global manufacturers have expanded their capacities in India to cater to domestic needs as well as export demand for wind turbines. As per MNRE, there are 19 certified wind turbine manufacturers making about 55 different models ranging from 250-2,500 KW.

 

What’s pulling down Wind Sector Growth?

The formidable growth trajectory has been somewhat checked by a bottlenecks that have plagued the infrastructure sector as whole.

Improper Grid Integration
Improper grid integration has been a major concern in recent years with wind power generation levels increasing continuously in the power system. This can impact grid stability, congestion management, transmission efficiency and transmission adequacy. This calls for substantial upgrades in the grid infrastructure.

Counter-party risk
The dichotomy of the wind power sector in India is that states with the richest wind resource have the weakestdistribution entities / frameworks, such as Tamil Nadu and Rajasthan

One of the key counterparty risks that IPPs face arises from the weak financials of state distribution companies or discoms. While there are no reported instances for defaults by state discoms, in the past, there have been significant payment delays by some discoms such as Tamil Nadu and Rajasthan (both of whom incidentally are high wind zones)

Land woes
A wind farm requires a huge parcel of land. Given the volatile political and bureaucratic system in India, procuring this land requires expertise and specialized skills. Building a wind farm very often comes down to needing a lot of land preceded with a lot of paper work. The cascading effect of this is the delayed development of wind power projects.

Growth Outlook
India’s gross wind energy potential is estimated at 107.28 GW at 80 m hub height. As per certain preliminary studies by international agencies, a total potential of 350 GW is available in the offshore wind energy segment, while actual potential still needs to be ascertained and validated.

The MNRE has planned a 15 GW capacity addition in wind power in the 12th five year plan, taking the total wind installed capacity to 32 GW. For this targeted capacity addition, the cumulative installed capacity addition from wind energy is required to grow at a CAGR of 13.3%.However, after analyzing its actual achievement during FY 2013 and FY 2014 of the targeted addition, renewable energy, including wind energy, are likely to see some slippage in its target addition by about 5-6%.

Government Initiatives to facilitate growth

RECs

In November 2010, the Government launched the Renewable Energy Certificate (REC) mechanism that enables obligated entities to meet their Renewable Purchase Obligations (RPO). This mechanism is likely to encourage investments in the renewable space including wind sector.

GBIs

Generation Based Initiatives (GBIs) is the benefit provided by the government providing the wind IPPs anrevenue source of additional 50 paise/kWh subject to a maximum of Rs.1 crore per mw over 10 years. The Ministry of New and Renewable Energy has given hope to wind power developers by reinstating the GBI scheme in August 2013

 

Other Fiscal Provisions

A ten-year tax holiday has been proposed in the Union Budget 2014-15 for power plants that begin generation, distribution, and transmission of power by March 31, 2017

The clean energy cess has been increased from INR 50 per tonne to INR 100 per tonne on coal, peat and lignite.

A reduction in basic customs duty from 10% to 5% on forged steel rings, used in the manufacture of bearings of wind operated electricity generators has been introduced.

There is now also an exemption from special additional duty (SAD) of 4% on parts and raw materials required for the manufacture of wind operated generators.

Implementation of the Green Energy Corridor Project will be accelerated to facilitate the evacuation of renewable energy across the country.

Accelerated Depreciation

AD benefits have been instrumental in paving the way for wind energy projects in India. Starting from FY 2003 for around 7 years, AD benefits drove the growth of the sector.

Re-introduction of the accelerated depreciation (AD) benefits in the FY 2015 Union Budget for the sector would further propel the growth of the sector.

 

Trend in Wind-Capacity Addition (GW)

Trends – Short to Medium Term

IPPs will power the sector in the next five years
The ownership pattern of wind farms in India is changing, shifting away from ‘depreciation seekers/tax savers’ to serious, long-term IPPs.Prominent IPPs with a sizeable portfolio of assets are expected to contribute more than 75 per cent of the new installations.

Focus on states with low counterparty risk
IPPs have focused and will continue to focus on setting up capacities in states which have a good payment record such as Maharashtra and Gujarat

Geographical diversification at an SPV level and at a group level
To address counterparty risk, IPPs to focus on diversifying their portfolio across states both at the special purpose vehicle (SPV) and group levels, thereby easing the pressure on receivables to some extent

Innovative structuring of debt to partially offset wind variability risks
Some of the IPPs have also resorted to pooling of cash flows of several projects to raise debt, instead of linking cash flows of a single project to debt repayments. As a part of loan structuring, projects also maintain cash in the form of debt service reserve account. As a prudent measure, IPPs also maintain cash at the group level for contingencies.

Others
To mitigate design and construction risks, IPPs would diversify their procurement across various wind turbine equipment manufacturers.

Future Trends – Long Term

Re-engineering of a windmill
One way to increase the lifetime and efficiency of a windmill is by re-engineering. Re-engineering the lifetime of a windmill can help in increased power generation. It even adds to the profits of a windmill.

Increasing the hub heights and replacing wind farms with older technology would also go a long way in optimizing the wind source in the country.

Exploiting low-wind sites
Globally there has been an interest in efficiently exploiting areas with lower wind speeds. Over the last few years, wind technology has evolved to exploit low wind sites in economically viable manner

Tapping Offshore potential
The most obvious of these is India’s 7,600 km long coastline, which can be tapped for its offshore development capacities. India has rights over its Exclusive Economic Zone, 200 nautical miles from baseline, to develop offshore wind energy. Offshore wind farms are higher, have more consistent wind speeds, and consequently, higher efficiency. Of course the challenge here lies in the fact that it is costlier to build and maintain (wind mills as well as the transmission infrastructure) and it can be tiresome to conduct feasibility studies for the same.

 

Hybrid generators
Cost effectiveness is the name of the game and thus hybrid generators are gaining prominence in the wind market. These can be produced by combining the power of wind with either solar energy or diesel and offers an unparalleled opportunity for market players.

 

 

 

 

 

 

 

 

 

 

 

In Conclusion

Wind power is the world’s fastest growing energy source. No other renewable energy based electricity producing technology has attained the same level of maturity as wind power. There are no major technical barriers to large-scale penetration of wind power. Wind power has the advantage of being insulated from environmental issues and price volatility of other fuels. Wind of change, if used to their full potential, could surely take India’s growth story to farther shores.

 

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References

CRISIL Ratings “A white paper on India Solar and Wind Energy by CRISIL & PHD Chamber”

Analyzing the Market Outlook of Wind Sector in India-2014

Wind Power Market in India 2014

 

Santosh Swamy

Santosh Swamy is Senior Vice President with the Debt Syndication for IL&FS Financial Services (IFIN) , based in Mumbai.



Disclaimer
Opinions expressed by the Contributors are their own and do not reflect any opinion of IL&FS Financial Services on the said subject

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