Request you to kindly drop in all your mails/queries to support@infraline.com or call us at
+91-120-6799125 (D); +91-120-6799100 (B)

Wind Power: Generation based incentive is a good approach but a lot more is required, Shri R V Shahi, Former Secretary, Ministry of Power

Recently in the last week of June 27, 2008 the Ministry of New and Renewable Energy has come out with a policy that the incentive to the developers of wind power projects will be based on the electricity generation and they will be paid at the rate of 50 paise per Kwhr for a period of 10 years. This scheme will be applicable to power projects of capacities of 5 MW and above and such projects will not get the benefit of accelerated rate of depreciation. This indeed is a good scheme and will incentivise developers. While we will analyse in detail the various features of the new scheme and critically evaluate its likely outcome, we need to discuss (a) the relevant role of wind power in Indian context and (b) how to further accelerate development of these projects.

Indian power sector does suffer from the disadvantage of being heavily weighted, in terms of the installed capacities, in favour of fossil fuel based electricity generation. The likely scenario, over almost next three decades, though may slightly alter the profile, the sector will still continue to be predominantly dominated by fossil fuels. This is one of the reasons that India alongwith China, both of which have massive capacity addition agenda - India even at a more accelerated rate - have become the focus of global attention, and therefore sustained pressures, from the point of view of climate change consequences. Thus, the renewed emphasis of the Government on accelerating the pace of creating additional capacities through non conventional sources of generation is not only well placed but deserves to be complimented and supported by all concerned.

India is one of the four largest power generators on wind power projects, Germany, U.S.A. and Spain being ahead of India. Share of Renewable Energy in the overall power generation profile is approximately 3% of the total generation, though the share of capacity is about 5%. As in the year 2007, in the world as a whole, the total Renewable Energy capacity was of the order of 240 GW. The sharpest rise took place during the period 2004-07 by almost 50%. Within the renewable group, in respect of electricity generation, the contribution of wind power, as in 2007, was almost 95% of the total, and the balance 5% is contributed by all other forms such as bio-mass, solar etc. The installed capacity of wind power projects, as in December 2007, was about 94,000 MW (Source - website wikipedia.org). Details are given in the Annexure.

The following top ten countries constitute about 86% of the total wind project capacity in the world:

S.No.

Country Capacity (MW)

1.

Germany 22,247

2.

U.S.A. 16,819

3.

Spain 15,145

4.

India 7,850

5.

China 5,912

6.

Denmark 3,125

7.

Italy 2,726

8.

France 2,455

9.

U.K. 2,389

10.

Portugal 2,130

Total

80,798

It is understood that China has developed an optimistic programme for massive capacity addition. European countries have been stressing on renewables and particularly on wind. In last five years (2002-07) there has been special emphasis, world over, on developing wind projects. The total capacity has increased from about 31,000 MW in 2002 to about 94,000 MW, more than three times, during this period. In India, it increased from 1,700 MW to 7,850 MW, i.e. more than 4.5 times.

While the above table highlights the contribution of different countries in terms of absolute values of capacities, the countries which are high on renewables in terms of profile of renewables as a percentage of total power include Austria (62%), Sweden (49%), Denmark (26%), Spain (19%), Italy (16%), Germany (11.5%), U.S.A. (9.2%), New Zealand (65%), Canada (59%). These are based on the reported statements given by various countries. There are some disparities about these proportions. While there are some countries which include capacities based on hydro electric projects under renewables, others do not. Different countries have prescribed the hydro projects with certain capped capacities as renewables. Depending on how different countries have defined hydro electric projects, the proportions projected differ. In India upto 2001 very small hydro projects upto 3 MW capacities were being treated under this category. In 2002 it was decided that the projects upto capacity of 25 MW would be dealt with by the Ministry of Non Conventional Energy Sources (now renamed as Ministry of New and Renewable Energy). India's position has been very clear on whether the distinctions on the basis of small or large capacities of hydro electric projects should qualify them as renewable or not. Our point of view has been that all hydro electric projects of any capacity, whether they are run of the river schemes or are based on large reservoirs (storage schemes), technology wise all of them must be treated as renewables.

Coming to wind projects, at present out of the total capacity of 11,272 MW under the non conventional sources, as much as 8,760 MW is constituted by wind power projects. The estimated potential is of the order of over 46,000 MW. Assessment of potential is a ticklish issue. It is not only in relation to wind based power capacity potential, in fact, it is equally problematic to assess accurately our water resources and therefore hydro electric project capacity potential. Similarly, estimated potential of coal production in unexplored mines (even in many cases of explored mines) has the problem of reliability. In all these cases, the studies invariably suffer from not being comprehensive and not being able to use, in all cases, reliable methods, tools and techniques and measuring instruments. In most cases they also suffer from the problem of duration of time and periods in which data have been collected in an authentic fashion. For example, in case of hydro electric projects, we claim that the potential is of the order of 1,50,000 MW. There is also a school of thought which opines that if all mini and micro potentials in various river systems and water streams throughout the country are properly assessed, the estimated potential could be significantly higher. In the case of wind also there is an apprehension that the projected potential may be an under statement.

In this context, I would also like to narrate my observations based on my recent visit to Canada in the month of May, 2008. While traveling between Toronto and Niagra by road, what I saw in various farms on both the sides of the road is really revealing. In most of these farms I saw wind masts (not very tall) fitted with small blades and I was told that they are quite sufficient to meet the electricity needs of these farms. Assessment of potentials in vast agricultural areas in our country could perhaps reveal much larger wind power potential. It is gratifying that the Ministry of New and Renewable Energy have come out with another scheme in the month of June 2008 itself with the caption "Guidelines for wind measurement by private sector". It is indeed a good initiative which tries to utilize the resources and expertise available with a large number of private sector consulting agencies to assess these potentials, keeping in view the methodology provided in these guidelines. The requirement that such studies should be carried out under the overall guidance of Center for Wind Energy Technology (C-WET) is also valid so that quality of data collection, analysis and conclusions is maintained. What is, however, being suggested is that we must go beyond well established areas of wind power potential and see whether even small potentials are properly tapped.

So far, we have concentrated, not without reasons of course, on certain States and specific areas of these States where wind power project would have the larger potentials for development. Accordingly the potentials estimated include Andhra Pradesh (9,063 MW), Gujarat (7,362 MW), Karnataka (7,161 MW), Rajasthan (6,672 MW), Madhya Pradesh (4.978 MW), Maharashtra (4,519 MW), Tamil Nadu (4,159 MW), Orissa (1,520 MW), Kerala (1,026 MW) and West Bengal (32 MW) with a total of 46,492 MW. The Ministry of New and Renewable Energy Sources have also tentatively assessed, out of the gross potential, the technical potential on the basis of possibility of grid connectivity. For all the above States put together the Technical Potential is estimated at about 15,000 MW. Following few issues need consideration in this regard:

  1. More extensive studies are required covering States which have not been covered so far. In the first instance, targeting such areas which have better and brighter prospects has, no doubt, been a correct approach. However, now we need to be comprehensive and exhaustive and attempt to estimate potentials in all the areas of the country.

  2. While we try to focus on other States and attempt at identifying better possibilities, we also need to estimate potential for micro wind turbines in county side in the States which have already been covered for larger project sites and also in States not covered so far at all.

  3. This is an exercise where large number of agencies will need to be involved. The Central Ministry and the State level Department of Renewable Energy could motivate and facilitate private expert agencies so that complete mapping of the whole country is done.

Another important area of assessment, where most likely we could establish tremendous possibilities, is the off shore wind projects. India is endowed with a very long coastline from Gujarat to Kerala in the West and from West Bengal to Tamil Nadu in the East. These possibilities have not only been explored but in a number of countries projects have been successfully implemented. Some of the currently operating off shore wind farms in the world include Denmark (165.6 MW) at Nysted, HomsREV, Denmark (160 MW), Ireland (25.2 MW), U.K. (120 MW), Netherlands (16.8 MW), total in the world 804 MW. Technical studies through Expert Consultants could definitely discover considerable potential along our sea coast.

Ever since the accelerated depreciation incentive was provided in the scheme to encourage development of wind projects, while the developers felt happy, there were critics, quite often for valid reasons, suggesting that capital cost based incentive may not necessarily fetch the desired electricity generation. Some of the project developers were really not genuine ones, did give such critics the bad examples of over spending without commensurate power into the grid. These were, however, the examples of early phase of wind projects and such cases were few. I would say that, by and large, the depreciation based incentive has worked. We needed such business groups or companies as do have surplus fund, have options to invest these funds elsewhere but they needed to be motivated and incentivised to choose wind power projects. Let us not forget that there were - and even now they continue to be - many problems and hurdles in developing wind projects. Such companies have had the advantage of counting depreciation benefits to manage their taxation issues, did get motivated and projects did get developed. Even now therefore, the motivational force of that scheme continues and it must not be abandoned. We need all such organizations which are financially sound, generate surpluses and need to be inspired to invest in wind projects for the benefit of proper tax management. At the same time, there may be investors who do not have such issues of getting depreciation benefits and decide to invest in wind projects. Accelerated depreciation may not be a relevant incentive for them to take up such projects. The country needs both the types of investors and developers. The provision that both the benefits i.e. 50 paise per Kwhr of generated electricity and at the same time accelerated depreciation will not be available is the right approach. But, both the schemes, independent of each other continue to be relevant and therefore must remain operational.

Other than the issue of establishing comprehensively the complete potential, the most important issue that immediately needs to be attended to is the grid connectivity. I recall, Government of Rajasthan at the level of Chief Minister making a suggestion in the Power Ministry that if Power Grid Corporation of India agreed to develop an appropriate transmission system in the western part of Rajasthan covering large desert areas, tremendous potential of wind power through a network of wind farms could be harnessed. This is a valid suggestion. No individual developer 5 MW, 10 MW or even 100 MW could be expected to create such transmission networks which get connected to the State and then to the National grid. A solution to this has got to be found out if we wish to harness these potentials. Long term funding of 30 to 35 years, and an approach of phased development of transmission system, to which individual developers get connected either through a sub transmission system or through different tie lines, could be an option which would need to be technically examined. If wind power has to be encouraged, proper regulatory intervention for an appropriate commercial dispensation will need to be evolved and notified so that this major hurdle of inadequacies of transmission network is properly addressed. Two actions are suggested - (a) Ministry of New and Renewable Energy and Ministry of Power may coordinate with Central Electricity Authority and Central Transmission Utility to evolve transmission plans for Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Tamil Nadu and other States where we have the concentration of wind power potential and which are at present quite isolated and away from grid connectivity. If it is required that it cannot become, right from the beginning, commercially viable, still it is worth doing in the larger interest of Renewable Energy and climate change concerns, and therefore part of the finance as grant fund by Planning Commission may need to be considered, (b) Forum of Regulators presided over by the Chairman of the CERC need to deliberate as to how to handle the issue of high transmission charges in the beginning, so that gradually capacities get developed eventually to smoothen the tariff aligned to the cost of transmission.

In the initial phase of wind farm developments, since the unit rating was in the range of 100 to 200 KW, and it is only in last 5 years that unit rating of these machines are now in the range of 1 MW to 2 MW, it has become important that the old wind farms are upgraded in terms of taller towers, large blades and enhanced capacities. Technical upgradation in manufacturing has opened up opportunities to create larger generating capacities in the same wind zones. Implementation of this approach, however, has technical, commercial, legal and regulatory ramifications. It is not to say that since these complexities are involved, it is difficult to proceed. On the other hand, the suggestion is that both the concerned Governmental agencies and Regulatory institutions should sit together, discuss with the existing developers, facilitate financing and formulate a course of action for a phased, but time bound, action programme to augment the installed capacities of the existing wind farms.

Studies have shown that in almost all cases of wind farms we could also use the same land for developing solar power generation systems. Invariably these wind farms are located in hilly terrains like Karnataka or in deserts like Rajasthan and Gujarat, in Kutch areas of Gujarat and in costal areas. Almost all these locations will lend themselves to possibilities of setting up of huge networks of photo voltaic based power generation facilities. If the local transmission systems have been developed with required capacities the same can cope up with the power generation from solar systems, if not, in a modular way, the transmission systems could be upgraded.

The two incentive schemes viz. Accelerated Depreciation and Generation Based Incentive, no doubt, would emerge as good motivators for developers. However, another possible source, and perhaps more powerful source, could be the large power generators who have huge fossil fuel based generation capacities. The time has come that we communicate with them that in the next 5 years they should create power generation capacities based on Renewable Energy to the extent of atleast 10% of their power generation through conventional sources. This approach could even mitigate the problem of somewhat higher cost of generation through such non conventional sources. Regulatory approach could permit them to pool 10% of non conventional power with their 90% of power through conventional sources for the purpose of arriving at a weighted average tariff. This dispensation would not only take care of their obligation towards global warming issues but will also adequately address the problem of high cost of non conventional power.

There is considerable amount of confusion across various States on regulatory decisions relating to wind power. The Power Purchase Agreements take time, the buying utilities do not have clarity about their obligations on how much they must procure through these sources and about the wheeling charges if power has to be sold to other consumers. Experiences have shown that power is being traded quite often at rates varying between Rs. 5 to Rs. 8 per unit. If wind power is also allowed to be traded, investors might get enthused for developing these projects. It appears that fossil fuel based thermal plants on merchant basis are emerging as better options for developers and the wind projects in which the Government wants the developers to be incentivised is becoming less attractive in view of their obligation for long term PPA. An option to have PPA or to have merchant capacity, with State grid agreeing to wheel power, might be a better option in the interest of developing wind projects.

The experience of Ultra Mega Project provides a good benchmark as to how to mitigate preconstruction risks in a coordinated manner, encourage developers and facilitate development of projects. At present normally it is the wind turbine manufacturers who have assumed the role of identifying land, acquiring land and working out all the initial exercises to develop these projects. Obviously, they load all these costs with profit on the project cost and charge the developers. It is not to suggest that this approach is not working or is not a healthy arrangement. What is being suggested is that a Government sponsored nodal agency could perhaps work out these initial preparations and pass them on to developers at required costs. This exercise needs to be done on an extensive basis covering all the possible potential areas of wind farms.

Finally, Ministry of New and Renewable Energy (MNRE) may consider creating an implementing corporation which could plan and implement renewable projects on build, own and operate basis. In other words, we need an organization of the type of NTPC or NHPC under the jurisdiction of MNRE. We do have a company viz. IREDA under this Ministry. But, this organization has, by and large, remained a funding institution. No doubt, private sector response and interest in these projects have been positive, yet considering the size of the task and magnitude of opportunities, a large and strong public sector organization will be extremely useful.