Accelerated depreciation – the tax break available when setting up a wind or other renewable energy project – is likely to end by March 2012, according to a report in Bloomberg.

This change was widely anticipated when the new Direct Tax Code was announced. However, that now appears to be delayed. The government had announced that they will make some important changes from April 2012, even if the new code is not fully implemented. Tax benefits to RE projects seems to one such change, and certainly seem to be on the way out:

The government has said it will end the incentive either on March 31 or with the introduction of a new taxation framework “whichever comes first,” Nigam [Dilip Nigam, director of wind policy at the Ministry of New and Renewable Energy] said. “In either case, it will end in April unless the government takes a special decision to surpass” the previous decision.

This is likely to affect new capacity additions in the near term, and will also change the nature of the investor. The current investor base largely comprises of small size investments (ranging from a single wind turbine of 200kw to a few megawatts of capacity) made primarily with the intent of availing tax breaks. The focus will now shift the the IPP model, where large windfarms are set-up, often with capacities of 50Mw of higher. The structure of the industry will also change from how WTG’s are priced, how wind farms are managed and how power is sold. We also expect the industry to consolidate in the future as managing small capacities becomes un-viable.

An earlier report by Bloomberg had mentioned that demand in the near term is likely to fall by 15% as a result of the tax break withdrawal.

 

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