Major wind project acquisition gets cancelled following an APERC order

A recent order of Andhra Pradesh Electricity Regulatory Commission (APERC) was stayed by the Andhra Pradesh High Court related to the reduced tariff of electricity supplied by the wind projects that received Generation-based Incentive (GBI) from the center.

A recently proposed acquisition between Greenko and Orange went into shambles due to the significant order. The central government had devised the GBI scheme only to encourage investments in the wind sector by providing an additional incentive of 0.50 for every unit of energy actually generated by a generator over and above the tariff granted by the regulator.

The  APERC order in question was challenged by Orange renewables and  HERO group and requested suspension of the order at a primary level. Apparently, APERC does not have the jurisdiction to alter its own order.

The APERC had passed the order modifying its earlier tariff orders on the ground that it had earlier failed to give effect to its regulations that require incentives to be deducted from the tariff. “Prima facie, the 1st respondent- Commission has no jurisdiction to exercise the power of review in the manner it did,” the court said in its order.

Andhra Pradesh has approximately 2,000 MW wind capacity installed and the order had an impact of more than INR 2,000 Cr, for the wind generators in the state who had factored in the GBI while working ou their finances for the projects.

As of now, the Greenko-Orange deal has been called off to the delay of payments related to GBI. Wind generators have been denied GBI in Andhra Pradesh for over two years now and this development might bring some clarity for them.

 

 

India slips to eighth spot in RE attractive index

India’s overall ranking slipped from previously fourth position to eighth position recently in the world renewable energy attractive index as per Ernst & Young survey. This survey was for first quarter of 2013. The reason for such a decline in overall ranking of India is the antagonistic policy regime, weak enforcement of RPO and high cost of finance.

However India is said to be a “Hot Spot” as it aims to double its renewable energy capacity and is only next to Belgium in terms of priority this sector receives. The wind energy sector after with-drawl of Accelerated depreciation has evidently enervated the sector. All recent wind energy related developments can be assessed in our previous blogs – Blog1Blog2.

In a similar development with regards to wind energy generation MNRE inks to resume a break for depreciation on wind farms and boost a subsidy for alternative generation, though the same is pending for cabinet approval. The proposal is also put up for increasing the amount of GBI. For detailed article on this development by Bloomberg Click Here.

Relevant media article click here.

IWPA knocks GoI to reinstate Accelerated Depreciation

Indian wind power association (IWPA) has issued a press release urging Government of India to restore the benefits of Accelerated Depreciation (AD) to wind power producers, which was surprisingly withdrawn in April 2012. IWPA on behalf of small and medium industries have asserted that prior to April 2012, these industries have been setting up wind power mainly for self consumption using AD. Now that the same has been withdrawn MSME segment has submitted its inability to invest in clean energy.

In the press release, IWPA has quoted a study by CRISIL which says that annual wind mill additions in India have come down by 50 % and Govt. of India is loosing more in upfront annual tax collections.

The MSME industry has also said that the introduction of GBI by Govt. of India is not going to help the cause as the very purpose of self consumption stands defeated.

For the official press release click here.

Hike in GBI for wind power projects

According to Bloomberg’s article, the wind farms in India will receive a hike in their subsidy ( from 50p to 80p for per unit of the electricity generated). Under the Operational Guidelines for implementation of “Generation Based Incentive (GBI)” for Grid connected wind power projects,which was announced by Indian Renewable Energy Development Agency (IREDA) in May 2010, the GBI scheme was applicable till 31st March 2012. After Accelerated Depreciation was withdrawn REC mechanism was the only source which could provide benefits to wind farm owners. But at the present situation of the REC market, raising the GBI will enable the investors to rethink about their plans to re-enter into wind power sector.

Dilip Nigam, Director for Wind Policy,The Ministry of New and Renewable Energy said that the subsidy was previously only available to the first 4,000 megawatts of completed wind projects which will be expanded to allow as much as 15,000 megawatts of wind-farm capacity to claim the subsidy before March 31, 2018.

The new scheme is expected to be announced by the end of December. Lets see how much will it blow the wind sector.

 

Accelerated Depreciation Benefit for Wind Projects Withdrawn

Recently the Central Government withdrew Accelerated Depreciation (AD) benefit for wind projects. This was widely anticipated (we had covered it earlier here), but there were some uncertainties (see Economic Times article of a few days back which said the benefit will be extended).

 

AD played a key role in building the vast wind base that India has developed – India has more than 16,000 MW of wind mills, one of the largest in the world. However, it also led to inefficiencies and small scale projects.

 

Several factors have led to the removal of AD benefit:

  • The wind sector already has scale. The market has been steadily moving towards an Independent Power Producer (IPP) model for some time. IPP based projects do not get AD benefit – instead they avail Generation Based Incentives (GBI). However, investments based on AD remained significant (according a Bloomberg article AD based investments accounted for 70% of total in 2011).
  • The removal of AD was a part of the larger cleanup of the Direct Tax Code.
  • Small scale investments led to inefficiencies and sub-optimal asset utilization. For example, many companies own a single or few wind turbines, often no more that a few hundred kilowatts in capacities. In contrast, IPP often aim to develop several hundred megawatts.

 

This change will change the industry structure significantly. At present, companies selling WTGs sold the whole package – land, approvals, WTG (ofcourse), erection and commissioning and day-to-day management of the wind farm. This catered primarily to the small investor who was in it for the AD benefit. IPPs tend to work differently, preferring to select different vendors for each task and often managing the asset very proactively.

 

Under the AD benefit, companies could claim 80% depreciation in the first year itself. With the benefit gone, they will be eligible for 15% (the rate in the Income Tax act for Plant and Machinery). They are also likely to be eligible for a further 20% available to power equipments. Thus, the total depreciation benefit will be 35%. In other words, a significant asset like the WTG can be depreciated in 3 years – not a small benefit at all in absolute terms.

 

Its important to note that AD benefit will continue for Solar projects. It will be interesting to watch the solar industry now, and at least some of the investment that would have traditionally gone into wind may now shift to Solar. A critical factor in that would be the emergence of a Suzlon-equivalent in the Solar space – a company that can package the whole thing for the small investor.

 

Interestingly, GBI also had a sunset date of March 31, 2012 (Word file). It is yet to be withdrawn or extended. However, the market expects the benefit to be extended mainly because it caters to IPPs.

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