In 2005-06 demand for electricity in India exceeded supply by an estimated 8.3% in terms of total requirements. The Center estimates that installed generation capacity needs to reach 200,000 mw by 2012. The country added 1,253 mw of wind power in 2005 taking cumulative installation to 4,253mw.
When investments were made by few people in wind mills way back in 2001 friends thought that the money was lost. They were surprised what one can do with the power it generates and how does anybody can make money out of it. There were others with a few lakhs of rupees to spare getting into the game in cities where wind speed was optimal for the wind mill almost about 350 days in a year. In large part, their interests were fuelled by firm Suzion Energy. It is now responsible for 50% of the 5,000 mw of wind generated power in the country.
The company works in much the same way that a real estate developer would. It starts out by identifying a plot of land, and takes on an average three years to get approvals and develop it. Having done that, it woos people with funds to spare to buy a wind mill on the plot. Once an investor agrees to buy one, the company draws up power purchase agreements (PPA) with the state electricity board (SEB). The investor receives the revenues from the SEB. The investments are risk free and expenses are negligible. On its part, the company makes money by building the mills and charging 1% of total investment every year to maintain and operate the windmill.
From an investors perspective Itâ€™s a totally risk free long-term investment. Incidentally other businesses say like textiles or hardware generate identical returns as that from the windmill and are currently in the region of 12-16%.
The windmill on its part generates nearly 15 lakh units of power each year. That gives the investor an annual income of Rs.52 lakh. After deducting the interest payable, Rs. 60,000 in annual insurance and Rs. 15,000 to the SEB as its charges, he is left with a tax free Rs 25 lakh on an investment of Rs 2 crores. Add to this depreciation benefits that he can claim and it becomes fairly obvious why the investor is on a good wicket.
Making life easier is the fact that government rules require SEBs to buy 10% of its annual power requirements from wind generated sources. The craze to buy wind mills is expected to get a further fillip with companies in the sector attempting to set up windmill co-operatives. These cooperatives will be easier to handle when the productive tax credit (PTC) system is introduced in the country.
Under this system, a wind mill owner gets further incentives for each unit of power generated. The proposal is pending approval by the ministry of non-conventional energy sources. In the PTC system, tax credits are linked to actual power produced. Tax authorities like that because this eliminates the possibility of anybody availing benefits by overstating the power they actually generated.