Uncertainties emanating from the ongoing euro area sovereign debt crisis, the downgrade in the outlook of several advanced economies kept the international markets volatile for most of 2011-12. Higher market volatility was witnessed after the downgrade of the long term US sovereign debt in 2011. Equity markets in India witnessed a sell-off, with investor preference shifting towards perceived safe haven assets. The various policy measures were taken in response to the crisis had implications for global financial markets.
The recovery in the US is subdued, and the economic situation in the euro area, the UK and Japan is still a matter of concern. In such an uncertain environment, the RBI has done a commendable job of signalling a change in approach and reducing the repo rate and the cash reserve ratio. Union Finance Minister P Chidambaram too very recently have launched a new promotion campaign in Frankfurt to woo European investors to India as the government struggles to reverse an economic slowdown, rein in fiscal deficit and avert a possible downgrade by the rating agencies. But at the same time government is out of action for the untapped potential of the already existing avenue in the economy.
Rapid globalization & industrialization for economy trajectory and national agenda for increasing the GDP has increased the burden on India’s Infrastructure, one of the weak spots. Despite several concerted efforts to accelerate infrastructure development, India still lag behind other developing nation like China to match the impetus of economic growth & Infrastructure.
Power sector still holdup behind other infrastructure facilities like roadways & telecom. India is the fourth largest primary energy consumer, after China, USA and Russia and it accounts for more than 4.6 % of total global annual energy consumption. In the last five years, India has averaged a growth rate of 8% and the demand for energy has been putting pressure on its supply sources. India is more dependent on coal & petroleum for production of power to meet the staggering demand both at industrial & residential consumption. The expected demand of electricity is estimated to 350 GW by 2020, which can be pleased by tenfold increase in the pace of existing capacity.
The Country’s 2020 target is to derive 15% of electricity need through renewable energy sources to shift the reliant on the conventional sources. Government has started several initiatives to promote renewable source of power generation and to attract Independent Power Producers. In past decade the renewable power generation sector has witnessed a significant impulse from various developers and companies. . Areas like the resource exploration and exploitation, capacity additions, and energy sector reforms have been revolutionized.
Renewable energy source has gained momentum and have untapped potential. India has 5th largest installed capacity in the world in wind power sector with 18920 MW. The industry estimates a conservative potential of 250 GW in wind power sector in India. The growth in the wind power sector has been tremendous in the last decade. During 2011-12, the country registered the largest installation of 3196 MW of wind power. The development was due to the benefit and prospective vacant in the sector. The benefit of accelerated depreciation and availability of generation based incentive (GBI) has added a charm to the sector.
But the growth has fallen drastically due to non-extension of tax incentives and hiving the financial spurs by the government. The project developer claim accelerated depreciation to hedge tax of the already existing profit making business and a GBI of Rs 0.50 per unit of electricity generation. But the government w.e.f.31st Mar 2012 has wilted the benefit and the future of the sector is lurched to debility.
With the loss of added advantage the estimated installation during F.Y. 2012-13 will be 1700-1800 MW, facing a decline of 40% as compared to F.Y. 2011-12 installation of 3196 MW. The sudden failure in the sector has added worries to turbine manufacturer and each 1MW decline has taken off employment opportunities from 20-25 Indian. Thus adding pressure on other sector and hindering the scope of recovery in Indian economy.
GENERATION BASED INCENTIVES
The GBI of 50 paise per unit of electricity fed into the grid will be made available to the project proponent. The incentive will be for a minimum period of 4 year and a maximum period of 10 years with a cap of Rs 62 Lacs/MW. But the incentive was available only for the project that commissioned on or before 31st Mar 2012. The decrease in revenue has degraded the lucrative charm in the industry.
Accelerated depreciation is allowed to all power projects that commissioned on or before 31st Mar 2013 but the ministry has specifically excluded the wind power sector for the domain thus rolling back the incentives would be catastrophic for wind power producers and also for turbine makers who have made huge investments in building capacities in India.
A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent to one tonne of carbon dioxide. The Clean Development Mechanism (CDM) is one of the flexibility mechanisms defined in the Kyoto Protocol, that provides for emissions reduction projects which generate Certified Emission Reduction units which may be traded in emissions trading schemes India has the highest number of CDM projects registered and supplies the second highest number of Certified Emission Reduction units. Hence, India is already a strong supplier of Carbon Credits but there is very limited demand. Aggressive government involvement is required for a sustainable market so that power sector may get an additional incentive.
FUNDING IN WIND POWER SECTOR
Mercom Capital Group LLC report on funding and mergers and acquisition activity for the wind sector during calendar year 2012 reveals that venture capital funding in the sector was lower than 2011. The report states that the global wind energy sector which was looking for more clarity on policies, markets and investments came out of a very uncertain 2012 with venture capital funding amounting to nearly $315 million in 22 deals ($369 million from 14 deals in 2011). The decline in funding in wind power sector may paralyze the growth in sector. Increasing inflation and head rising interest rate on loans has added concern to project producer. Beside this loans are available in time bound manner for a maximum period of 10 years but the industry need a longer tenure of the loans.
FOREIGN DIRECT INVESTMENT (FDI)
100 % FDI through automatic route is allowed in power sector except in atomic power which is restricted for public sector. Total FDI inflow India has USD 36,504 Million during the FY 2011-12 and around 20% i.e. USD 7,678 Million is influx in power sector. FDI in power sector has witnessed a surge of 30% when compared to FY 2011-11.
Foreign direct investment (FDI) inflows into India in the first half of 2012 contracted 42.8% to $10.4 billion, according to the global investment trend monitor of the United Nations Conference on Trade and Development (UNCTAD). This negative trend in FDI Inflow is cause of concern and thus even Finance Minister is holding talk to various international organizations for the same.
Abundance of wind power available at an affordable cost has also been a factor that has added sparkle to the sector. The levelised cost of energy for 20 year is Rs 4.5 and for 10 years is Rs 6.00. The tariff has further slashed to Rs 3.51 per unit very recently but the adverse deficit is offset by the technological advancement that has upgraded the plant load factor from 15-16 percent to 50-60 percent. Thus making wind power a remarkable venture option.
The governments of India in order to protect the shrinking sector and to make a value out of it need to take aggressive corrective measure to make the sector bloom again. The untapped resources should be exploited so to pave for the various government initiatives for a self-reliant, strong and independent India i.e. Rajiv Gandhi Grameen Vidyutikaran Yojana to electrifying all villages. The government should cater to the need of the power sector, the back bone of every prosperous economy, to enlighten the lives of millions of the Indian.
Finance Minister in Budget 2013 has reintroduced Generation-based incentive for wind energy projects and 800 Crs allocated for this purpose. This initiative has abridged the shirking glory in the industry.
The wind power sector has grown hastily in recent past but still a long way to verve. Now the nation waits for the government further inventiveness to strengthen the sector and proceeds to newer level. India has been a rising star, wish the rising star to shine in the world and make very Indian proud to be part of rising India.
AUTHORED BY CA. SOURABH GUPTA
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