India has muscled itself toward the top of an industry dominated by developed nations. The question now is how it will adapt to tap the rest of its vast resource .
Robin Rowshangohar, Assistant Editor
New technologies and emerging nations do not often marry well. There is often not the confidence, the will, or the incentive to take the necessary risks in order to make a new industry a success. India has broken this mould to establish itself in among the big players in the wind energy industry, but this somewhat surprising emergence has left those involved pondering what shape the market will take in the future.
In March 2005, the World Wind Energy Association declared India as the fifth largest country in terms of installed wind capacity and third in terms of capacity installed over the last 12 months (behind Spain and Germany). As well as having the greatest wind capacity in Asia, by the end of 2005 the country is also expected to overtake Denmark, home of one of the longest established wind industries in the world, to occupy fourth position, one place behind the USA.
With 45 000 MW of untapped potential, according to the Indian Wind Energy Association (INWEA), India has been blessed with a great natural platfrom from which to encourage wind energy development. A strong south west summer monsoon from May to June brings cool humid air, while a winter monsoon ensures a supply of cool dry air. In addition, from March to August, strong winds prevail over the majority of the subcontinent.
While some of the reasons behind India’s emergence are down to the natural resources and a maturing of the more established industries, to put its growth purely down to these factors would be unjust, especially when considering the scale of the projects involved.
Figure 1. In 2004 GE installed its first 1.5 MW wind turbines in India, for Nuziveedu Seeds Limited based in Karnataka Province.
“In the early 1990s, about 90 per cent of the wind turbines in India were in the 200-300 kW category” says Glen Reccani, county manager, GE Energy. It is only now that the country is beginning to see global companies bringing their megawatt class wind turbines into the market. For example, GE has installed over 3000 of its 1.5 MW wind turbines worldwide and yet they were installed in India for the first time just last year. The Indian market is one which has recently grown from 200-300 MW per year of new installations, to an 1100 MW market annually, and yet the average size of a wind farm remains at 5 MW.
Ansand Bansal, sales leader of GE Energy’s wind business, believes the practicalities of wind and the incentives offered by the federal and individual state governments have been key factors in the growth: “In this expanding economy where the demand for power outpaces the supply, wind is a major source of power due to its short cycle characteristics and its attractiveness due to depreciation benefits.”
National and state incentives
Six states currently provide around 98 per cent of the total wind capacity, of which Tamil Nadu makes up nearly 50 per cent. This is down to the favourable wind conditions in these states and the renewable incentives they offer. While the government has set the basic levels of depreciation and import duties, the state governments compete with each other for development. These incentives range from wheeling to buy back rates, but most are focussed on the commercialization of the technology and not the long term development and performance of wind energy. Jami Hossain, from INWEA, comments: “Different states have different policies. Generally the state government allows the developer to set up a wind farm at any location in the state and then to wheel the electricity generated to a developers unit. Most of the projects are captive power projects and there are very few independent power projects.”
Herein lies India’s next challenge. There is often speculation over mega scale wind projects, which would see the Indian market conform to a more familiar pattern, but so far this has remained mainly speculation. If India is to sustain growth levels of 40 per cent and make sizeable progress toward using more than seven per cent of its wind resource, it will have to turn this speculation into reality.
In February of this year, INWEA publicly called on the Indian government to introduce a performance based incentive scheme to help attract new investment to the industry. A scheme such as this would replace the existing practice of accelerated depreciation, which is often at the rate of 80-90 per cent. Arguments for the change come from many sources and range from ideas that many IPPs and foreign investors have been shut out of the market as they are unable to benefit from the depreciation, to the suggestion that some wind farms are poor performers because they have mainly been set up as tax shields.
Jake Burnyeat, of Ernst and Young’s (E&Y) Renewable Energy Group, says: “Performance based support by way of tariff or renewable portfolio standard has worked in all major markets so far and it is important, for investor confidence, that India adopts a support system that is transparent and that has been proven elsewhere.” According to Burnyeat and his colleague, Nikita Addams, India’s economy is currently evolving from a corporate tax based system toward a VAT based system, reducing the significance of tax based investment as an incentive driver and leaving it in the hands of more traditional industry drivers such as high energy prices and long term power purchase agreements.
Appetite for wind
India’s Electricity Act 2003 mandates that all State Electricity Boards unbundle their assets by 9 June 2005 and so far only two states have applied for extensions. Although this Act does not enforce privatization, it is seen by many industry spectators as the start of a process that will bring India further into the realms of the traditional wind markets, with utilities playing a larger role responding to demand, enforcing efficiency and reacting to the environmental pressures placed on large companies. GE’s Bansal agrees that it would take the involvement of utilities to take growth to the next level.
With regard to the cost effective practices of project management, he says: “It is difficult to convince customers who are not familiar with the power business to take on these responsibilities.” He continues: “If and when the utilities become involved in wind energy, some speculate that 100, 200 or 500 MW projects could be developed.”
There is no point in developing projects of this scale if there is nowhere to transmit the electricity. Much of the wind energy in India has been developed as captive generation, as the grid infrastructure is not able to handle larger loads efficiently.
However, as highlighted in the largest wind resource assessment programme, carried out by the Ministry of Non Conventional Sources of Energy, India has the same problem as many other countries pursuing wind generation: potential wind farm sites are generally located in remote areas. These sites carry the fear that if a large wind farm was to be developed without the necessary infrastructure, the electricity generated could not be exported – a fatal deterrent to investors. As well as the ongoing process of improving grid infrastructure, the federal government is currently considering a proposal that would make bulk trading of electricity from wind farms between states much easier.
There is belief within the industry that India can overcome market uncertainty, capital intensive practices and a grid infrastructure that is not as well developed as those above it at the top of the world league table (Germany, Spain, USA and Denmark). GE’s wind business has established a head office in Bangalore and three site offices as well as assembly facilities in Chennai. The Danish firm Vestas has also set up a practice in India.
If India is to build upon its current installed capacity it will find itself in competition for investment with countries who are also emerging in the wind industry. First among them are Australia and Canada where, unlike in India, utilities are readily supporting wind growth.
Addams believes that although India has comparable exploitable wind resources and a fast growing economy to drive prices up, there are some market weaknesses in comparison: “Australia and Canada are considerably smaller markets than India yet offer more investment certainty, with the national renewable energy certificates and tariff support mechanisms, respectively; grid access rules are transparent and the planning environment is generally very benign in these countries.”
Triggered by a market orientated strategy adopted in 1983 to encourage commercialization, India’s wind energy growth has been achieved without large scale projects and without mass foreign private investment.
Whether it will hold its current position at number three in the world in terms of newly installed wind capacity remains to be seen. Much more pressing is the question of whether the new model India has created, which enabled this growth, will sustain this level in the future or even take the country on to the next level. Around 20 per cent of the population is still without access to power and the small captive projects could keep momentum in the industry ticking over. But if the country is to surge forward, take advantage of its natural resources and those prepared to invest, it will have to adapt its policies at a state and national level.
The first call is to create a mechanism that will enable grid access, supported by long term bankable power purchase agreements for the power generated by the new wind farms.