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Emergence of wind IPPs has revived investment rationale for sector
Despite policy and regulatory uncertainties, tight credit situation and cautious market sentiment, wind energy remained a preferred investment proposition of renewable investors in India through 2011.
Of the total investment of $10.2 billion in renewable energy, $4.6 billion was invested in wind energy. India had the third-most new installations in 2011, behind China and the US. Overall the country added a record 2,827 MW against 2,140 MW in 2010. An additional 2,500-3,200 MW of new wind power installation is expected in 2012.
While venture capital and private equity companies made a strong comeback with about $400 million investment, asset financing at $3.8 billion topped wind energy investment in India, despite higher lending rates.
As for the investment themes within the sector, wind IPPs (independent power producers) remained the buzzword for the investor community; for example, Mytrah Energy India received funding from PTC, IDFC and others, INOX Group got funding from IFC etc. Secondly, wind equipment manufacturers with attributes like strong order books and sales diversification could also attract investment e.g. Regen Powertech from TVS Capital and Summit FVCI, Azure Power from Deutsche Investitions and others.
The emergence of wind IPPs on the Indian energy landscape has resuscitated the investment rationale for the sector and it could primarily be ascribed to the policy and regulatory environment over the last decade. Notably, the sector has undergone a paradigm shift from non-specialist organisations entering the space to reap benefits of tax legislation to specialised wind developers who base their strategies on improved incentive structures and better asset economics, thus, making it a strong investment case.
On the policy/regulations front, although the Accelerated Depreciation policy has been withdrawn, Generation-based Incentives (GBI) and State Feed-in-Tariffs have taken precedence as the primary policy instruments to enhance generational efficiencies. Furthermore, the introduction of domestic carbon certificates, or renewable energy certificates (RECs), have provided wind IPPs an option of selling power to state utilities at subsidised tariff. Policy initiatives i.e. implementation of open access to third parties (intra/inter-state), concessional wheeling charges and introduction of zonal tariffs (Maharashtra has already introduced) are expected to facilitate creation of an efficient wind power market.
Favourable incentive structures have led to the adoption of different business/revenue models e.g. preferential tariff model, REC model and captive model, by the wind energy developers in order to maximise revenue/returns.
However, to sustain the growth momentum at the last five years' CAGR of 19%, the wind energy sector would require a level of preparedness at the central/state government level with respect to creating appropriate financial structures, sufficient grid/evacuation infrastructure, implementation of open access and clarity around applicable charges by concerned agencies in the case of inter-state/intra-state transmission and announcement of zonal tariffs.
For next three-five years, owing to factors like scalability, cost effectiveness, strong wind potential and inherent strengths in the manufacturing segment, wind energy is expected to present compelling growth opportunities in the form of project-based opportunities and value chain enablers.
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