The document provides an overview of the Indian wind energy sector, including: - India has an installed wind energy capacity of 25.1 GW as of 2015, ranking it 4th globally. - Key incentives for wind energy provided by the central and state governments include accelerated depreciation, generation-based incentives, income tax holidays, and state-level feed-in tariffs. - Over the next 3 years, wind energy capacity additions of 8-9 GW are expected, driven by the restoration of incentives and a healthy project pipeline for equipment manufacturers. States like Rajasthan, Madhya Pradesh, Andhra Pradesh and Karnataka are expected to see major additions.

1. Synopsis on Indian Wind Energy Sector
Swaraj Kumar Dhar
MDI,Gurgaon
Oorza Club

2. Outline
• Wind Energy in Global Scenario
• What are the incentives provided by the central and state
governments for power generation through wind energy?
• What is the expected capacity addition and investment
opportunity in wind power sector ?
• What are the major risks to wind power development?
• What is the tariff required for healthy equity IRRs ?
• Project Economics of Wind Industry:
• What is the tariff required for healthy equity IRRs ?
• Is REC route attractive?
• What is the global and Indian scenario on the development
of offshore wind farms?

3. Wind Energy in Global Scenario
• India added nearly 2.6 GW capacity in 2015 and accounted for 4 per cent of the global
capacity addition. India ranks fifth globally in terms of cumulative installed capacity with
an installed base of 25.1 GW at the end of 2015.
• During the year, India surpassed Spain to become the fourth largest in terms of
cumulative wind capacity.

4. Capacity Addition in India

5. Incentives provided by the Central government:
• Ministry of New and Renewable Energy has budgeted Rs 1 billion for disbursements through
Indian Renewable Energy Development Agency Ltd, which would be utilised to provide cheap
loans to renewable energy projects.
• In the Union Budget 2014-15, the accelerated depreciation was reinstated, with effect from
August 2014. With acceleraed depreciation, the project developer can claim 80 percent
depreciation on the wind assets in the first year of installation. The accelerated depreciation
benefit is valid till the end of the 12th Five Year Plan (2012-2017). However, the halving of
accelerated depreciation on renewable energy assets to 40% from FY18 would adversely
impact wind power capacity additions as it would reduce equity IRR for new installations at
existing tariffs.
• In the Union budget 2013-14, generation-based incentive (GBI) was reinstated for wind
energy projects and an amount of Rs.8 billion had been allocated for this purpose. GBI is
available at Rs. 0.5 per unit for a maximum period of 10 years subject to a cap of Rs.10 million
per MW. This scheme is also applicable till the end of the 12th Five Year Plan (2012-2017).
• Ten-year income tax holiday under 80 IA of Income Tax Act.
• Concessional customs import duty on specified parts and components.
• Excise duty relief.

6. Incentives provided by state governments
• Growth in domestic wind power has also been driven by financial incentives
and favorable state policies in the form of assured power off-take and
preferential feed-in-tariffs.
• Maharashtra and Rajasthan are the only state to have issued zone wise
feed-in-tariffs in accordance with CERC guidelines

8. Renewable Purchase Obligations (RPOs)
• The National Action Plan on Climate Change (NAPCC) has stipulated that 7 per cent of the total
power requirement is to be procured from renewable energy sources in 2011-12.
• This is set to increase by 1 per cent every year to reach 15 per cent by 2020. Of this total
obligation, 0.25 per cent is to be procured from solar power in 2011-12, which will increase
to 8 per cent by 2022.
• In keeping with the central mandate, all states have set their Renewable Purchase Obligation
(RPO) targets for the next two to three years depending on the extent of renewable energy
potential in the respective state.
• RPOs have been implemented throughout the country to drive the demand for renewable
energy. Under RPO, state discoms, captive consumers and open access users are required to
purchase certain percentage of power from renewable sources.
• SERC's across the country have specified RPO's for their respective states. Wind power is
expected to cater to a major chunk of the non-solar obligations due to its scalability and huge
unexploited potential.

9. State Wise RPO

10. Renewable Energy Certificates (RECs)
• Renewable energy sources are not evenly distributed across the country. States like
Rajasthan, Tamil Nadu and Gujarat have high potential for renewable energy sources
as compared to states like Delhi where it is not very significant. This limits the state
from setting higher RPOs. In order to enable states that do not have sufficient
renewable energy potential to meet their RPOs, Renewable Energy Certificate (REC)
mechanism was introduced. RECs mechanism facilitates trading of renewable
energy. RECs are exchange traded, environmental commodities that represent 1 MWh
of renewable energy generated. RECs are currently eligible for trading on the Indian
Energy Exchange (IEX) and Power Exchange of India Limited (PXIL).
• With the implementation of the REC mechanism, a generator has the option to
choose between two revenue models
• Sign a PPA with the state and receive a preferential tariff;
• Sell the renewable energy to the state at the state's average power purchase cost
(APPC) and receive his upside by trading RECs on the exchange. The generator can
also sell power to any other licensee or open access user at a mutually agreed
price or on a merchant basis. The price band at which non-solar RECs can be traded
on the exchange is set at Rs. 1500-3300 per REC

12. Characteristics of the REC market
• Under this mechanism, states with low renewable energy potential can satisfy their RPO by
purchasing RECs on the exchange.
• Buyers- Buyers in the REC market are 'obligated entities' that include distribution
companies(discoms), open access users and captive consumers.
• Sellers- Entities who can sell RECs on the exchange are renewable energy generators who do
not enter into PPA with state discoms at preferential tariffs.

13. Characteristics of REC Trading

14. 8-9 GW capacities likely to be added over next 3 years
• CRISIL research expects wind power capacity additions of 8-9 GW over the
next three years (2016-18) as compared to 7 GW over the last three years
(2013-15). The rise in capacity additions will be driven by various factors as
summarized below:

16. • Generation based incentive (GBI): GBI of Rs. 0.50 paise per unit (which expired in
2011-12) was restored from Nov 2013 and is applicable for entire 12th five year plan.
As per our analysis, GBI increases equity IRR by 130-150 bps, thus improving
attractiveness of states even where preferential tariffs are below Rs. 4.9 per unit (a
level required for equity IRR of 16 per cent).
• Accelerated depreciation: Accelerated depreciation (AD), which allows 80 per cent
depreciation in the first year of operations, has been the key driver for wind power
capacities until it expired in 2011-12. In fact, the share of AD in total installed
capacity in 2014-15 is estimated at 50-55 per cent. With AD benefit being restored in
2014-15, capacity additions in 2014-15 increased 10 percent y-o-y.
• As per Crisil analysis, AD reduces the cost of generation by about Rs. 1.1 per unit to
Rs. 3.8-4 per unit. In comparison, states such as Maharashtra, Rajasthan, Andhra
Pradesh and Madhya Pradesh offer preferential tariffs ranging from Rs.3.9 to Rs. 5.9
per unit, which makes wind power very attractive for developers.
• Healthy order book pipeline of equipment manufacturers: Leading equipment
manufacturers such as Suzlon and INOX wind (which together have a market share of
about 40-45 per cent) have a healthy order pipeline aggregating close to 2.5 GW at
the end of Q1 FY 2016.
• High industrial tariffs: In states such as Maharashtra, Karnataka, Tamil Nadu and
West Bengal where industrial tariffs are high in the range of Rs. 6-6.5 per unit, wind
power is an attractive option since generation costs are about Rs. 4.5-4.7 per unit.
• Increased investments in augmenting the transmission infrastructure: States such as
Tamil Nadu and Rajasthan are strengthening their evacuation infrastructure, to
support capacity additions over the long term

17. Rajasthan, Madhya Pradesh, Andhra Pradesh and Karnataka to
drive additions;
Tamil Nadu, Maharashtra and Gujarat to lag
• States such as Rajasthan, Madhya Pradesh, Andhra Pradesh and Karnataka are expect to drive up the
capacity additions in the wind energy sector mainly led by the favorable feed in tariffs (FITs) of Rs
4.5 - 5.9 per unit (as compared to ~Rs 5/unit required to achieve equity IRR of 16 per cent). Further,
states like Andhra Pradesh and Karnataka have the high wind density sites (PLFs are in the range of
25-30 per cent) which will spur the investments in the sector. These states also provide incentives
such as wheeling and banking of power for open access and captive consumers and there is no cap
on the capacity additions for captive power use.
• States such as Maharashtra, Tamil Nadu and Gujarat are expected to lag in the capacity additions
mainly on account of states achieving their RPO targets. Further in Tamil Nadu state, the capacity
additions are restricted on account of poor health of discoms and major transmission constraints,
which are expected to ease not sooner than 2017-18.

18. Tariff of Rs 4.9-5.1/unit required for equity IRR of ~16 per cent
• Given CRISIL Research's assumption of capital cost of Rs. 72-74 million/ MW (based on the
interactions with the Industry players), a tariff of Rs 4.9-5.1 / unit necessary for Independent
Power Producers (not availing A.D benefits) to earn the equity IRRs of 15-17. The plant load factor
of 27 percent (higher PLFs achieved by more than 100 m hub height wind turbine) is considered,
while the debt to equity ratio of 70:30 and borrowing cost of 11.5-12 percent is considered for
arriving at the tariffs required.
• Further player setting off entire depreciation against other business in the first year can earn
similar equity IRRs with ~Rs. 1.1per unit lesser tariffs

19. 8-9 GW capacities likely to be added over next 3 years with investments of ~Rs 600
billion-Crisil
Capacity Vs Investment

20. Key Initiatives taken by the central government to boost capacity
additions
• In order to boost wind based capacity additions, the central government is in the process of formulating
certain policies and initiatives which are as discussed below. However, we believe that the impact of
each of these steps is expected to have an influence on the market only over the medium-term.
• Introduction of Renewable Energy Act
• The central government has released the draft Renewable Energy Act in July 2015 to address various
issues limiting the growth potential of renewable energy sector.
• The Act is in the consultation stage and would be proposed in the parliament once other amendments
and legislations (Under National Tariff Policy 2006 and Electricity Act 2003) to facilitate the
implementation of the Act are also identified and implemented.
• The Act aims to boost demand for renewable energy by creating a mandatory national level RPO targets
with provision for penalties on DISCOMs/states in case of non/under compliance.
• In addition, it envisages timely provisioning of infrastructure, payment security mechanisms and other
steps to improve operations for developers.
• However, CRISIL Research believes that improvement in the financial health of distribution companies
and strict enforcement will be key to the successful implementation of the Act.
• The Centre could potentially use some of it's levers in terms of deducting states share from devolution
of funds or reduction of allocations under various schemes such as IPDS, DDUGY, R-APDRP,UDAY etc.

21. Highlights of the Renewable Energy Act, & its implications

22. Key challenges required to be addressed to achieve strong sustainable growth

23. CERC Approved tariff for FY 2015 -16

24. List of state wise tariffs applicable for wind energy installations

25. List of state wise Incentives offered

27. Offshore Wind
• Offshore wind energy is promising for countries with high population and limited land
availability.
• Countries such as Denmark, United Kingdom, Netherlands and Sweden have made
significant progress in this area.
• The worlds first offshore wind farm was set up in Denmark in 1991 with an installed capacity
of 5 MW. In India, the offshore wind industry is still at a nascent stage

28. Offshore Wind Installed capacity

29. Offshore wind farms in India– yet to take off
• India has a coastline of over 7,000 km, which can be exploited for the development of offshore wind
farms.
• However, the entire stretch is not suitable due to reasons such as inconsistent wind density, climatic
conditions, etc.
• Under the National Wind Monitoring Programme, winds have been measured at 54 locations on the
coastline.
• There are a few sites along the coasts of Kerala and Karnataka, which are suitable for offshore wind
farms but wind density is poor in the first hundred metres.
• Further, Gujarat’s coastline is prone to cyclones. Therefore, growth is stunted despite modest potential
for development of offshore wind farms.
• Similarly, the eastern coastline too has reasonable potential but is more prone to climatic vagaries,
which prevents development of offshore wind farms.
• However, India’s southern tip, starting from Kanyakumari up to Rameshwaram, has the potential to
become the offshore wind hub of India. Wind density of 603 Watt/m2 at 50 metres above ground level
has been observed at Rameshwaram; wind density of 370 Watt/m2 at 30 metres above ground level has
been noticed at Kanyakumari. However, this data needs to be rechecked for a longer period before
commercially exploiting any potential site.
• In addition, huge unexploited onshore wind potential has also restricted the development of offshore
wind power development in India. Out of the total onshore potential of around 48.5 GW, only 10.2 GW
has been explored, leaving nearly 79 per cent of the gross onshore potential unexplored. The following
table depicts state-wise gross potential and installed capacity:

30. Advantages of offshore wind farms
• Offshore wind farms offer various advantages over onshore wind farms. However, globally, technology
for offshore wind farms, is at a nascent stage, with few farms being operational at present. This has
resulted in lower offshore capacity addition compared to onshore wind power capacity addition.
Improvement in technology; better performance by offshore wind farms and scarcity of land for
onshore windmills will boost growth of offshore wind farms.
• Advantages
• Winds blowing over the sea are stronger and stable compared to winds blowing over land, resulting in
higher power generation.
• Wind turbines with higher capacity can be installed, as it is easier to transport large turbine
components by sea.
• More space is available for installing wind farms compared to onshore where land acquisition poses a
problem.
• Noise of turbine movement is mitigated due to distance between the turbine and shore.
• Disadvantages
• Offshore wind farms are expensive to build, as extra cost is required for support structure,
transportation of turbines on the sea and undersea cables.
• Higher maintenance cost, due to corrosion of towers, requires more repairs and maintenance expense.
Operation and maintenance expense for onshore wind farms ranges between 1.0-1.5 per cent while for
offshore, the same is between 2.0-2.5 per cent
• Offshore wind turbines may hinder movement of ships.
• They are exposed to climatic vagaries like cyclones, which may affect their performance

31. Economics of offshore wind farms
• The economics of offshore wind farms is dependent on the cost
incurred on foundation and power distribution system.
• Generally, offshore wind farms are larger in size than onshore wind
farms thereby reducing per unit cost for support structures, grid
connection and installation procedures.
• Their setup cost is almost two times the cost of setting up onshore
wind farms. Incremental cost is due to the construction of turbine
support structure, transportation cost of wind turbines to the site
and undersea cables for power transmission.
• Cost of setting up 1 MW offshore wind farm ranges between Rs
100- 120 million.
• However, this is likely to increase where turbines are installed
below 20-30 metres, as extra cost for foundation has to be
incurred.

32. Breakup of capital cost for offshore and onshore wind farms: