According to reports, in a few weeks from now, the Global Wind Energy Council, a representative body of the wind power industry, will come out with its assessment of the industry’s performance in 2012 and the issues confronting it. It had forecast a 13 per cent growth in installed capacity in 2012. The statistics when they are released will show whether this was achieved or the forecast was optimistic. For 2013, the council has forecast a marginal drop in installed capacity.
The reasons for the uncertainty over wind capacity additions are many. Europe’s economic woes continue; demand growth is slow, non-existent or negative in most of the OECD, so demand for new power generation of any kind is slim; China has been the main driver of growth for the last five years and now it has stopped; the Chinese market is not expected to show significant growth until after 2015; Brazil, India, Canada and Mexico are dynamic markets, but cannot yet make up for the lack of growth in the traditional markets in Europe, the US and China.
India added more than 3,000 MW of wind power capacity in calendar 2011, a record for the industry in the country. But, the industry should be happy if it adds even half that in 2012. Apart from the high cost of finance, there are two specific reasons for the poor performance. One, the generation based incentive — 50 paise a unit of electricity generated — that was given to wind power projects has been withdrawn, or not yet been extended. Two, an accelerated depreciation — under which project developers could write off 80 per cent of the project value in the first year as depreciation thus reducing tax payout — has also been withdrawn. The industry would ideally like to have both the benefits restored, if not at least one. The Government has been making all the right noises, but has little to show as proof of its intention.
Therein lies the problem for the wind power industry, or the renewable energy sector as a whole. Its fortunes are tied in a large measure to the policy support that the government provides. For long, the wind energy sector has been battling image issues — that it is not a reliable source of electricity and that it is expensive. The proponents of renewable energy have been striving hard to make Green power part of the mainstream of the energy debate. They are convinced that it is, so too are the regulators, but then issues remain.
Despite this, the wind power sector is at the crossroads — sceptics say that it has been there for quite some time — and unless the Government acts fast, it will face a lot of turbulence. The industry players are themselves to blame for the fact that the two main fiscal policy instruments — generation-based incentive (GBI) and accelerated depreciation — are not available to them. The more aggressive among them felt that the GBI alone was enough and hence the industry was a divided house.
This is also a reflection of the changing dynamics within the industry. The old order is changing. Recent entrants into the sector, who, are more aggressive, are increasingly calling the shots. The ones who are more nimble and aggressive, ones who bring in the latest technology and constantly listen to what the customers want and adapt quickly to the way of doing business in India, will emerge market leaders.
Significantly, the wind power manufacturing industry in India is nearly 25 years old. Over this period, technology has changed, the turbines have evolved, their designs are sleeker and their capacities are much higher than in the initial years. They are taller and the blades sweep a much wider area — the tallest wind turbine is almost 100 m high and the maximum rotor diameter is about 100 m. This, combined with the advanced electronics, makes it possible to generate more electricity at the same wind speeds. The turbines are also more efficient now, with plant load factor in the 25-27 per cent range, compared with the 15-20 per cent range earlier.
For sheer range of turbines — from rooftop ones to those that require a large area to instal, from 55 kW to 2.1 MW — the Indian wind power market is an exciting place to be in. Against those who invested in wind turbines for their own captive requirements, the industry is now largely being driven by independent power producers. IPPs in the wind power sector have helped project financing evolve and banks started looking at renewable energy projects on a non-recourse basis, till funding dried up due to a host of external factors.
Wind energy has, against all odds, exceeded the targets set for it under the 10’th and 11’th Plan periods. Much of the credit for this should go to the turbine manufacturers. A sub-group appointed by the Ministry of New and Renewable Energy has fixed a reference target of 15,000 MW for the 12’th Plan period and an aspirational target of 25,000 MW. The hurdle to achieving this will be the poor transmission infrastructure that prevents evacuation of the electricity generated.
Also, against the long-accepted wind power potential of 49,500 MW — assessed at 50 m hub height and when the machines were not so technologically advanced — the country’s potential has been assessed at more than 102,000 MW, assuming a hub height of 80 m and two per cent land availability. This is what some of the leading turbine manufacturers have been saying for long. The ministry has tied up with Lawrence Berkeley Lab to estimate wind potential and grid integration issues.
In the early 1990s, the cost was Rs 4 crore a MW and it is now Rs 6-6.5 crore a MW. Steel prices then were Rs 81 a kg and the dollar was Rs 17. Therefore, argue industry veterans, it does not make sense to talk in terms of cost per MW and instead the focus should be on cost per kWh. There are some in the industry who talk of consolidation; there are more than 15 manufacturers with an estimated manufacturing capacity of 9,500 MW and a few more expected to begin making turbines here. However, investors complain that the cost of turbines is still high and manufacturers should localise more to bring them down.
Investors still have major payment problems with a number of States, especially Tamil Nadu, because of which too installations have suffered. Grid connectivity is yet another issue the wind power industry has to contend with, which too acts as a dampener against capacity addition.
The wind industry has been trying to convince the Government to not only restore GBI, but also increase it from 50 paise a unit to 70-80 paise to make the scheme attractive for investors. It will be eagerly looking forward to the 2013-14 Budget, for a revamping of the GBI scheme and also for accelerated depreciation to be restored. Till both these happen, it will be troubled times for the wind power industry.