Despite massive investments, India lagging behind in wind energy

New Delhi, August 6, 2008: To all appearances, the wind energy sector in India is booming – but it could very well be nothing but an optical illusion. Despite rising installed capacity and huge investments, India does not manage to generate enough power from wind because of lower than average plant load factors (PLF).

This has been reported in its latest expose by Down To Earth magazine, a New Delhi-based science and environment fortnightly, published with assistance from the Centre for Science and Environment (CSE).

A promise gone awry
“We know that wind energy can and must play a critical role in securing our future needs,” says Sunita Narain, director, CSE. Over the past few years, the Government of India has given incentives to promote wind energy. Today, the country has over 8,700 megawatt (MW) of installed capacity. The country has also set a target to add another 10,000 MW in the 11th plan.

“But our review of wind energy in the country finds that there is an urgent need to reassess the current policies and incentive structures, so that the business of wind gets serious about generating power, and not just installing wind farms and reaping benefits from fiscal incentives,” says Narain.

The Down To Earth study has found that shockingly, wind energy -- while accounting for 6 per cent of the total installed power capacity in the country -- only contributes 1.6 of the country’s power generated! On an average, across the country, the PLF of wind energy has increased marginally from 13.5 per cent in 2003-04 to 15 per cent, but there are states like Gujarat and Andhra Pradesh, where wind energy is functioning at a PLF of less than 10 per cent.

Maharashtra, ironically has more than tripled its wind capacity in the past few years, but has actually decreased in terms of its PLF. Today, in this energy-starved state, wind energy functions at a PLF of 11.7 per cent – a pathetically low figure compared to other states like Tamil Nadu and Karnataka, and certainly to global averages of 25-30 per cent.

Shadowy business
This analysis, based on data from the Union ministry of new and renewable energy (MNRE), clearly shows that this investment in capital will be infructuous unless policies change. “In the current scheme, which gives an accelerated depreciation benefit of 80 per cent and other tax incentives for installation of the plants, wind energy has become the business of cash-rich investors, who take advantage of tax benefits, and are not serious about generation of power,” says Narain. It is no wonder then, reports the magazine, that hotel companies, spinning mills and even film stars have invested in wind energy.

Down To Earth says the problem has been made even more pernicious because of the ‘closed nature’ of the business: the few companies who make wind turbines, monopolise the business of setting up the wind farms and then charge for a farm’s operation and maintenance as well. As a result of this, there is no information on the cost of the capital infrastructure. Whereas in other parts of the world the cost of capital (which is the key determinant of the cost of power) has gone down because of economies of scale, in India it has climbed upwards -- from Rs 4 crore per MW a few years ago to Rs 6 crore per MW today.

There is also little information about the cost of operation and maintenance or the expected efficiencies of a plant and how this can be increased. “The current business is not geared to generation of power and increasing efficiencies and reducing costs. This is clearly not good if we want wind energy to play an important role in our future energy security,” says Chandra Bhushan, associate director, CSE and head of the Centre’s industry unit.

Re-regulate to re-energise the sector
“The Indian wind energy sector needs to be re-energised, and for that to happen, policy needs to change and get real,” says Chandra Bhushan.

To begin with, the Down To Earth report suggests, the key need is to move towards a generation-based system of incentives (instead of an investment-based one) by increasing the tariff paid to generate wind. The ministry has recently introduced a scheme which will give an additional Rs 0.50 per unit (kwh) over and above the tariffs fixed by the state boards to companies who do not take advantage of the current fiscal incentives. “But this step is too little, too inadequate and too hesitant to change the business as it operates currently,” remarks Chandra Bhushan.

Secondly, changes are required in the CDM rules so that programmatic CDM can be used to pay a premium for green power. The current rules ask for additionality in justifying why a wind project needs CDM benefits. The magazine’s analysis shows that registered wind CDM projects add up to a capacity of roughly 1,302 MW. But if all projects in various stages of the CDM pipeline get registered, they would add up to 4,150 MW, which is roughly half of India’s current installed capacity. The report also indicates that CDM can be used to pay for wind energy through a sectoral programme.

In India, under the renewable portfolio standard (RPS), utilities have to purchase a certain proportion of their energy from green sources like wind. This can be a powerful tool to promote green energy, as producers can get premium rates and a market – but it is not due to a variety of reasons: lack of information on RPS use in different states, lack of penalty provisions if utilities do not meet the compulsory green quota, and even low or non-existent green energy quotas set by some states. The magazine, therefore, stresses on “using the RPS to build an India-wide market for green energy”.

Finally, the report also suggests providing benefits to local people. While wind power generation needs land, rarely does it give back something in return to the communities who live in the vicinity of the wind farm. Local people, suggest the reporters, could be helped by rent or sharing from the lease of the land. “If not done democratically, the push for wind energy can well become just another alienating ‘infrastructure’ programme… It will be so understood, and so resisted, as just another brown -- not green -- energy programme,” says Down To Earth.

For more details, please contact: