India will discontinue a tax break for wind farms starting in April, the beginning of the financial year, potentially stalling growth in a $3 billion market dominated by turbine-supplier Suzlon Energy Ltd. (SUEL)
“Accelerated depreciation will go away in April,” Dilip Nigam, director of wind policy at the Ministry of New and Renewable Energy, said in an interview in Mumbai today.
General Electric Co., Siemens AG, and Spain’s Gamesa Corporacion Tecnologica SA (GAM) are expanding wind-turbine manufacturing capacity in India in a bid to take market share from Suzlon, India’s biggest wind-turbine maker. New installations next year may fall 15 percent, or a decline of $540 million in investment, if the federal tax break ends, Bloomberg New Energy Finance forecast in July.
Accelerated depreciation allows companies to write off investments at a faster rate, helping reduce tax liabilities. Suzlon shares rose 3.1 percent to 23.2 rupees, the highest in more than a month, as of 2:39 p.m. in Mumbai. The benchmark Sensitive Index (SENSEX) climbed 1.8 percent.
The government has said it will end the incentive either on March 31 or with the introduction of a new taxation framework “whichever comes first,” Nigam said. “In either case, it will end in April unless the government takes a special decision to surpass” the previous decision.
Demand could dip for about two years before growth resumes as the industry adjusts to changes in state incentives, Nigam said.
Renewable Energy Minister Farooq Abdullah said on Feb. 17 the accounting method has encouraged companies to erect wind projects as a way of cutting taxes rather than generating power. The ministry favors extending an alternate subsidy called generation-based incentive that rewards wind power producers for the amount of electricity produced, Nigam said.
The government may continue the generation based subsidy, which pays wind farms 500 rupees ($9.8) for every megawatt-hour fed to the grid, next financial year, Nigam said.
Suzlon supplies about half of all new wind installations in India, according to the Indian Wind Turbine Manufacturers’ Association.
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