Viability gap funding likely for wind power

Budget 2017 could provide some relief to the wind power sector, which could lose key incentives

The Union Budget is likely to introduce viability gap funding and an incentive scheme for power distribution companies procuring wind power.
 
If announced, these will be major reliefs for the wind power sector, which could lose key incentives by the end of this financial year. The previous Union Budget had capped accelerated depreciation at 40 per cent from April 2017. It was 80 per cent earlier. Also, the generation-based incentive of 50 paise per unit will cease from March 31, 2017.
 
Of the 28,279.40 megawatts (Mw) of wind power in the country, around 70 per cent is built on accelerated depreciation. Eighty per cent of a project’s cost is paid back if commissioned before September 30. The rest of the capacity has been set up by independent power projects, the share of which has increased over the years. Most of these projects receive a generation-based incentive of 50 paise per unit.

 

“As the generation-based incentive will expire, the government is discussing a new  incentive for procurers of wind power. The idea is to pay distribution companies the difference between their procurement cost and the viable tariff,” an official said.
 
As bids for solar power projects spiral down to below Rs 5 per unit, states are reluctant to pay more for wind power. Close to 11,000 Mw, or 40 per cent of the total wind power capacity, face delayed payments from states and have cut generation during the peak season this year.
 
States with the highest investments such as Madhya Pradesh, Maharashtra, Gujarat and Rajasthan, are not signing new power-purchase agreements, leaving investors in limbo. Suzlon Energy, US major Enercon, Spanish firm Gamesa and ReNew Power are facing rough weather.

 
Till April 2012, wind power enjoyed both accelerated depreciation and generation-based incentives. Accelerated depreciation was available to the industry between 2003 and 2012, when it was withdrawn. Generation-based incentives, announced in 2011, were discontinued in 2012 and reintroduced in 2013.
 
For over a year in 2012, when the sector received no financial assistance, wind energy capacity addition fell to 1,700 Mw, half of what was added a year before. During 2013-14, capacity addition was 1,950 Mw. This financial year,  1,700 Mw capacity has been added against a target of 2,400 Mw. India is the fifth-largest wind power producer in the world.