September 6, 2013

Winds of change

Gujarat’s Wind Power Policy is a good example of commercially viable and internationally compatible energy policy management.

As energy security objective becomes more prominent, renewable energy policies focusing on sources such as solar and wind power, have been receiving increasing attention of the policymakers and investors. Thus, in 2012, 43 percent of new energy capacity in the United States of America was for wind power alone.

winds of change

India holds significant potential for renewable energy generation from wind, solar, biomass, small hydro, and cogeneration bagasse from sugar mills. Official estimates of renewable electricity generation potential, barring large hydro, solar thermal, and solar photovoltaic applications are around 90,000 MW of which wind power’s share alone is about 55 percent.

The installed wind power capacity, however, is only around 19,000 MW, which is about one eighth of the total power generation capacity. More than 95 percent of India’s wind energy development is concentrated in just five states: Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra, and Gujarat. While Gujarat’s share in installed wind power capacity is around one sixth of the country’s total, Tamil Nadu will continue to remain the leading state in the medium term with a share exceeding two fifths of the total.

Gujarat, however, has a much greater potential to add wind power generation capacity because of the state’s long coastline and huge tracts of land which is only marginally useful for agriculture, and where population density is low. Wind power potential critically depends on prevailing wind speeds because the power generation from a wind turbine is proportional to the cubic power of wind speed. Gujarat’s uniform wind power potential across the state is a major advantage in terms of flexibility for site selection. In particular, the coastline north of the Gulf of Kutch has the highest potential in the state and therefore represents an attractive location for wind power installations.

Although India’s annual manufacturing capacity for producing wind turbines is 9500 MW, only 3000 MW of capacity, less than a third, is actually planned to be utilised annually during the 2012-2017 period. The Global Wind Energy Council has attributed the modest level of utilisation of both India’s wind manufacturing capacity as well as its resource potential to “… lack of an appropriate regulatory framework to facilitate purchase of renewable energy from outside the host state, inadequate grid connectivity, high wheeling and open access charges in some states, and delays in acquiring land and obtaining statutory clearances.”

For enhancing the share of renewable energy and for better commercial viability, initiatives are needed to utilise this additional manufacturing capacity.

Gujarat’s new Wind Power Policy (WPP) launched in 2013 is designed to help achieve the state government’s larger goal to expand and support energy generation from renewable sources. This is to sustain Gujarat’s domestic and international competitiveness, provide productive livelihoods, and help reduce the energy import bill of the country.

Gujarat’s 2013 WPP has several positive features. These include producers investing in Wind Turbines Generators (WTGs) eligible for incentives for 25 year period, sufficiently long to make investment attractive. It also has commercially viable provisions for sale of power generated for smart metering, and access to Clean Development Mechanism (CDM) benefits.

The Union government’s Ministry of New and Renewable Energy (MNRO) is considering reintroducing incentives such as accelerated depreciation, which could reduce income tax liabilities and strengthen cash flows, and generation based incentives (GBIs). These may further enhance the commercial viability of wind power and manufactuing of WTGs. This is relevant as the estimates are that capital expenditure of INR 42-45 million is needed per MW of power generated through coal-based or gas-based projects; while wind based projects require INR 60 million per MW.

Since coastline from Maharashtra to Kerala appears less attractive for wind power, Gujarat has the opportunity to advance national interest by establishing a renewable energy corridor to trade any surplus wind power generation with neighbouring states. Because of the intermittent nature of wind power generation, investment in generation should also be complemented by comparable transmission and distribution infrastructure upgrades that allow smart metering and flexibility for consumers to use different sources of electricity. In India’s federal polity, union government also has the responsibility to ensure that its regulatory and incentive regimes provide necessary flexibility to the states, ensuring commercial viability and efficient allocation of power. As an example, making it difficult for interstate sale of wind power even in border areas is counterproductive.

Gujarat’s new Wind Energy Policy permits utilities to sell electricity generated from wind turbines to the state electricity board as well as private companies having license for electricity distribution. By way of supporting its renewable energy policy, the state has also exempted generating utilities from paying mandatory electricity duty. A string of policy measures, both in the form of inducements and forced self-discipline, have been introduced to encourage efficiency and make renewable energy generation financially viable without government support in the long run. Besides adding a credible renewable energy portfolio, the initiatives also have the potential for new businesses and job creation in the sector. To avoid the problems of displacement of people, the state is mainly focusing on the vast tracts of barren land for wind energy projects.

To conclude, Gujarat’s Wind Power Policy (WPP) is a good example of the competent, commercially viable, and internationally compatible energy policy management, while being consistent with India’s national objective of enhancing reliance on renewable sources of energy. The 2013 WPP will also help Gujarat in maintaining domestic and international competitiveness, and further its reputation as a well-governed and state with high broad-based economic growth in the Indian Union.


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