The corporate craze for windpower projects has reached a crescendo. Companies from a wide spectrum of industries are rushing to promote wind energy projects to reap attractive tax benefits and shore up their bottomline. Such projects also enable companies to add wings to their cultivated image of social and environmental consciousness.
If there is one business that cuts across diverse sectors ranging from oil exploration to consumer electronics, it is wind energy. And this business is driven more by tax incentives and less by its intrinsic value.
That windpower generation is now big-ticket business was confirmed last month by two notable announcements by Suzlon Energy Limited (SEL), which enjoys the largest marketshare of 42.8 percent in the country.
The company stated that it had agreed to buy Belgian multinational Eve Holdings bv, which manufactures wind turbine generator gearboxes. The deal valued the Belgian multinational at 465 million euros (Rs 2,501.6 crore).
Suzlon also announced commencement of work on its Chinese wind turbine generating plant through a subsidiary named Suzlon Energy (Tianjin) Ltd. Such endeavours would obviously strengthen Suzlon’s capability to bag contracts for setting up and operating wind farms across the globe.
Even the domestic market is loaded with mouth-watering opportunities.
The Oil and Natural Gas Corporation (ONGC), for instance, wants to dole out a contract for setting up and operating two projects with aggregate capacity of 100mw to windmill makers through competitive bidding. It has estimated value of these two projects of 50mw each in Gujarat and Karnataka at Rs 500 crore.
The contractor would have to do the entire job on turnkey basis, right from identifying and acquiring land for the projects. The icing on the cake to the selected contractor would come in the form of a 20-year job to operate and maintain (O&M) the wind farms.
Like ONGC, Hindustan Petroleum Corporation Limited (HPCL) wants to act as a mere investor in wind energy. The latter intends to select a contractor through competitive bidding that would set up a 25 mw project on turnkey basis, right from locating land for the project to operating the farm in either Karnataka or Maharashtra. It will also offer a 20-year O&M as incentive to the selected wind farm contactor.
In January 2006, an obscure company named jn Investments & Trading Company Limited got the government’s approval to build a 46.4mw wind farm on a 96.79 hectare area in the Tumkur and Chitradurga districts of Karnataka.
A wind farm is currently eligible for 80 percent accelerated depreciation and a 10-year income tax holiday
In the same month, another firm, Logaer Machines (India) Limited, bagged government approval to build a 31.2mw wind farm on 70 hectares of forest land in Tumkur.
Deepak Fertilisers & Petrochemicals Limited last month decided to set up a 10mw project. In January, consumer electronics major Salora International decided to amend its business charter to enter wind energy and other areas of renewable energy.
Vishal Exports Overseas Limited is already blazing ahead in the business. It has already issued contracts for setting up two wind farms of 35mw each in Tamil Nadu and Karnataka. It is in the process of identifying a site for a 30mw project, to fulfil its goal of installing 100mw of windpower generation capacity during 2006-07.
Textile companies, automobile companies, cement, sugar companies, chemicals companies and several other companies have wind farms. Some of them report them as a separate business segment in their financial results, other companies club them with their residual projects under the segment ‘others’.
It is thus difficult to identify the wind farm-owning companies. It is this collective zeal to reap tax benefits from setting up of wind power projects that has catapulted the country in the global wind sweepstakes. With an installed base of over 3,000mw, India has the fifth largest capacity base in the world after Germany, Spain, the United States and Denmark.
Forecasts by reliable global consultants show that the installed capacity can touch 5,300mw during 2005-09. The cumulative installed capacity is expected to grow to 8,300mw in 2009.
Though the tax incentives given by the Central government have been moderated over the years, they are tempting enough for any company to jump onto the wind bandwagon.
A wind farm is currently eligible for 80 percent accelerated depreciation and a 10-year income tax holiday. The windmill manufacturers enjoy excise and customs duty concessions on components.
Till February 22, 2005, a textile mill could avail of soft loans for wind turbine generators under the textiles ministry-administered Technology Upgradation Fund. It is not clear whether this facility has been restored under pressure from textile mills.
The industry admits that it has grown with the government’s generosity. As put by SEL in its public offer document in September 2005, “The decrease or elimination of government initiatives and incentives relating to renewable energy sources, and in particular to wind energy, may have a material adverse effect on the demand for wind power.”
Indowind Energy Limited (IEL), a focussed windpower generating company from Tamil Nadu, says: “Our financial performance could be affected if these benefits are withdrawn.” The states also have been very supportive of windpower projects initiated by the corporate sector. Certain states such as Tamil Nadu and Rajasthan have laid down wind power policy that offer state tax benefits.
Tamil Nadu buys wind-generated electricity at the rate of Rs 2.70/unit. According to the Tamil Nadu Energy Department’s policy note for 2005-06, “The investors of the windmills can avail of wheeling facilities by which the power generated from windmills can be used in other places in the state on payment of 5 percent as wheeling charges to tneb (Tamil Nadu Electricity Board). Further, they can avail banking facilities for their power generated during a few months for using it throughout the financial year on payment of additional charge of 5 percent to tneb.”
Other state governments have also in place policies and procedures that are broadly patterned on the guidelines for wind power issued by the ministry of non-conventional energy sources.
Moreover, the ministry and other government bodies have been funding activities such as wind monitoring and identification of suitable sites for locating wind farms.
This reduces the cost of expenditure on project planning that the companies incur before taking the final investment decision. Technological advances over the last 15 years have also contributed in fuelling the growth of wind turbine makers.
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