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windmills turning

Link the generationbased incentive to local sourcing of machinery. A. Shaikmohideen

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At a time when every country in the world is trying to get its nose into renewable energy, what with concerns over environment and fossil-fuel geopolitics, Indias contribution seems to be practically nothing more than mouthing shibboleths. A good instance of this is the regression in the wind-power sector last year, India added 3,100 MW of wind power capacity, but this year, going by the record of the first half, some 1,500 MW seems optimistic. While there are many reasons for this, such as grid problems in the windiest State (Tamil Nadu), difficulties in acquiring land and the slowdown in the Indian economy, the most disturbing factor can be attributed directly to the Union Government red tape.

From time to time, Minister for New and Renewable Energy Farooq Abdullah has been saying in public that a generationbased incentive scheme would be brought. The scheme pays a fixed sum for a unit of electricity generated. A similar earlier scheme expired in March this year. The Ministry is now believed to have recommended 81 paise for a kWh and the proposal in favour of the scheme is currently under the active consideration of the Ministry of Finance.

It has been under active consideration for months now. Fair enough. No fair-minded, person would expect the Finance Ministry to blindly sign on a proposal that involves considerable outflow of money from the Government, especially at a time when it is grappling with a recalcitrant fiscal deficit. But the avoidable uncertainty around it is killing the industry. It is not the absence or quantum of the incentive that is hurting the industry. If the Government says no generation-based incentive, the industry would no doubt sulk a bit but would still lick its wounds and get on with business. Some investment proposals may get rolled back, but the industry will not grind to a halt. Investors will put up projects even if the Government says, We are working on a generation-based incentive. We dont know if we will be able to bring it, but if we do, it will be available to all who put up wind projects from, say, April 1, 2012. But no investor would want to risk looking foolish by putting up a project today and losing all the benefits, if the Government brought in the scheme tomorrow and made it applicable prospectively. So, all it takes for the Government to stop the slowdown in the wind sector is a simple promise: if and when the incentive is brought back, it will be applied retrospectively.

But in the absence of any such assurance, the industry is forced to pull back its investments and wait. According to an estimate of an industry association, the wind sector could lose Rs 13,000 crore in investments this year. This, at a time when the entire country is

more power-starved than ever, when the Government ought to be pulling all levers to ginger up economic activity. As the Finance Ministry chews on the Renewable Energy Ministrys proposal, it might as well take note of a suggestion that has begun to float around: rather than fix the generation-based incentive, it can be graded and linked to how much machinery is sourced locally. Say, 80 paise a unit for everybody, but 90 paise if you buy a wind turbine that is 80 per cent local made and Re 1 if you choose one that has above 90 per cent local make. Today, almost all wind-turbine manufacturers bring essential components from China. The incentive is essentially an incentive for power producers, but by tweaking it a bit it could be made into a tool to help manufacturers, too.
(This article was published on November 19, 2012)

Keywords: Perspective, enewable energy, environment, fossil-fuel geopolitics, wind energy, wind-power sector