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India May Find Answer to Energy Problems Blowin' in the Wind

Posted on: Monday, 28 January 2008, 06:00 CST

India's search for energy security extends beyond oil and coal to alternative sources such as nuclear power and wind generation. But while its highly publicised deal to get nuclear technology from American has been mired in political controversy, wind power is quietly making an impact on the country's energy mix.

The government launched India's wind energy programme in the early 1980s, but growth in the sector has taken off only recently. A key stimulus came almost accidentally from a private entrepreneur who was trying to find a solution to the erratic power supply that plagued his polyester manufacturing operations. After setting up a couple of wind turbines in the mid-1990s, he saw a huge business opening to supply alternative power to a country facing a severe energy deficit. Tulsi Tanti then shut his textile firm to focus solely on producing wind turbines and his company Suzlon Energy now has a 50% share of the domestic market. It is also the world's fifth- largest manufacturer of wind turbines, with a 7.7% global market share.

Suzlon's clients have been enticed into setting up wind farms due to favourable government fiscal policies, including an accelerated 80% depreciation for wind projects in the first year of installation, a 10-year income tax holiday and other customs, excise and sales tax exemptions. The state-sponsored Indian Renewable Energy Development Agency also provides soft loans for such projects. The Electricity Act of 2003 provided a further impetus, obliging states to fix a minimum percentage of renewable energy utilities must buy and setting preferential tariffs for the purchase.

These factors have turned India into the world's fourth-largest wind power market with generation capacity rising from just 41 megawatts (MW) in 1992 to 7,660 MW in September 2007 - the majority of which is from private sector industrial projects. Suzlon's Tanti estimates that these regulatory initiatives will help wind generation contribute a minimum 10% of additional energy produced over the next 10 years.

India's government is targeting additional wind power capacity of 10,500 MW in the five years to 2012 after a target for the previous five-year period was exceeded 2.5 times with an increase in capacity of 5,426 MW. According to the government, India's wind energy potential is around 45,000 MW although non-governmental sources put it at 65,000 MW-100,000 MW. But wind energy currently accounts for less than 1m tonnes of oil equivalent (MTOE) or just under 6% of India's energy mix. Even if those ambitious targets for wind were realised, the expansion of the power sector as a whole would keep wind's overall share quite low.

Still, the combination of recent rapid growth and future potential - as well as the emergence of globally competitive Indian wind turbine makers - make this a lucrative sector to invest in. It is the fastest growing renewable energy form, accounting for almost 70% of alternative power fed into India's electricity grid. It is also the cheapest to generate at a cost of 2-3 rupees per kilowatt- hour (though the thermal power to be produced at India's 4,000 MW ultra-mega power projects will be even cheaper).

An increasing emphasis on renewable energy across the world, amid coal shortages, the sharp rise in global crude prices to around $100/ barrel and climate change concerns, should see the wind sector continue to grow. Domestic growth will get a stimulus from the 10 Indian states that have declared Renewable Portfolio Standards, making it mandatory for utilities to procure a minimum amount of renewable energy every year. And overseas, Indian wind turbine manufacturers will be able to tap into the market assured by similar renewable energy targets in America, the European Union and China (for example, Chinese laws stipulate that 20% of energy production must come from such sources by 2020).

India exported wind turbines worth $250m (Pounds 128m, E172m) in 2006-07 and another $25m worth of wind turbine blades. Suzlon's domestic order book as of late October 2007 accounted for just 12% of its revenue compared with 38% of its total sales in January 2006. Apart from America, Suzlon's biggest market, the company is targeting Europe, China, Brazil and Australia. In the past two years, Suzlon acquired Belgium-based Hansen Transmissions, the world's second-largest wind gearbox maker, and bought a 33.6% stake in German wind turbine producer REpower. That gives it a stronger foothold in Europe, where most of the global incremental capacity addition is taking place.

Suzlon is facing tougher competition at home with the world's biggest wind turbine makers having built production facilities, including Germany's Enercon, Denmark's Vestas and GE Wind Energy. Among the domestic companies, Anil Ambani-owned Reliance Power, which just completed India's biggest initial public offering to date, plans to invest further in wind energy. Vestas RRB India, Elecon Engineering and the Sterling Infotech Group are among the local companies that have tied up with foreign wind equipment makers.

Lack of land to construct wind farms and infrastructure bottlenecks afflicting the broader economy could constrain future growth. Companies are trying to overcome these problems by constructing access roads, building power evacuation lines to transfer wind power and connect wind farms to electricity grids. But for all the problems ahead, India's wind power revolution is far more advanced than the West realises.

Source: Sunday Business; London (UK)

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