NEG Micon demands generation-based incentives

Generation, and not investment-based, incentives would propel the windmill industry in India, claims Mr. Torben B Madsen, president NEG Micon, Denmark. The Danish company is a global player in the wind turbine industry with a turnover of Euro 800 billion. It has a wholly owned subsidiary in India called Asian Wind Turbine Pvt Ltd based in the southern city of Chennai.

Advocating generation-based tax incentives for windmill owners he says, "In countries like Denmark and USA there is a power purchase agreement (PPA) spelling the rate at which power will be purchased from windmill owners and tax incentives are benchmarked against generation."

This sounds interesting in the Indian context. Nowhere in the world a windmill is termed as a ‘depreciation machine’ except in India. And the windmill manufacturers flourish thanks to the 100 per cent depreciation and sales tax benefits rather than due to the efficient performance of their product.

The plant load factor (PLF) of a windmill is just a tad over 20 per cent. And the irony of the situation is that some machines even draw power from the electricity grid (reactive power) instead of generating the same. Further, even in terms of cost its is on the higher side. The cost to set up 1MW wind energy capacity is slightly higher than conventional energy generation mode.

However Mr. Ramesh Kymal, managing director, Asian Wind Turbine argues, "Shorn of tax incentives and with a pay back period of 7 years, a windmill is a viable investment provided the cost of funds is cheap and third party sale of power is allowed as in other countries."

According to him, technological improvements has not only reduced the generation cost and reactive power but has also increased the life span of a windmill to 20 years and the PLF. "The PLF of our windmills hovers around 28 - 30 per cent, the highest in the industry," he claims.

"We install our windmills after studying in detail the wind pattern and the topography to optimise efficiency," claims Mr. Saibaba Vutukuri the company's marketing director.

On the likely impact on the fortunes of windmill manufacturers if the tax incentive basis is changed, Mr. Kymal opines, "initially there will be a dip in sales for all the windmill manufacturers. We are not saying that incentives should be scrapped. We demand a change in basis of tax incentives, from investment to generation."

While agreeing with the logic of relating power generation with that of tax incentives Mr.N. Ramani, managing director, Wescare (India) Ltd, Chennai, a wind energy farm developer adds a rider, "there cannot be uniform policy throughout India as conditions - wind speed or wind turbine capacity - varies from place to place."

What he says is true. With several manufacturers in the field selling wind turbines of varied capacities (250 kW, 500 kW, 600 kW and 750 kW) a uniform production benchmark will not be acceptable atleast for sometime. The benchmarks for various capacity wind turbines are to be fixed before introducing generation based incentive schemes, he voices. Wind turbines with higher capacity like 750 kW have a better performance record than turbines of lower capacities.

Talking of current global trends Mr. Madsen says that Europe is now looking at off shore windmills as land is becoming scarce and also due to stable wind conditions at sea.

"Atleast 1,400 MW of wind power is estimated to be generated by off shore installations in Europe by 2004," he adds. However cost wise offshore turbines will be costlier by 10 per cent and erection and foundation costs will be four times higher when compared to putting up a windmill on shore.

The other trend is the preference for higher capacity 2MW turbines. According to him the demand for wind turbines continues to be upbeat. The year 1999 itself saw a massive 4,000 MW addition of wind energy capacity and taking the total global installed capacity of 13,900 MW.

Meanwhile Asian Wind Turbine is now executing projects totaling around 30 MW in various parts of the country. "Our aim is not to capture market share at any cost. Our emphasis is on quality and efficiency and market share will follow these two," says Mr. Kymal.

Started in 1997 when Micon decided to have its own subsidiary and canceling its tie up with NEPC Ltd, Asian Wind Turbine has been focussing on servicing the existing wind turbines. According to Mr. Vutukuri there are around 1,300 Micon turbines in India and Asian Wind Turbine is servicing around 300 of them under annual maintenance contracts.

The Rs. 17 crore turnover Asian Wind Turbine specializing in 750 kW turbines is hoping to break even this fiscal clocking a turnover that would be between Rs. 80 to Rs.100 crore. The company also expects sizeable orders for component supplies to its Danish parent's various markets.