Good news may be around the corner for the wind power industry as a proposal for incentives to the industry will be considered by the Union Cabinet on Friday.
It will consider a proposal to restore two key incentives the industry — the ‘generation-based incentive’ and the ‘accelerated depreciation’ benefit. These were withdrawn from last fiscal year (2012-13) and consequently, wind power installations in the year fell to 1,700 MW from 3,200 MW in the previous year.
The Union Finance MinisterP. Chidambaram promised to “re-introduce the generation-based incentive” for wind energy projects and provided Rs 800 crore for that purpose. The generation-based incentive pays a specified amount of money per unit of electricity produced. Five months down the line and after half the best of the wind season gone, the promise is yet to be redeemed.
However, since the Finance Minister himself has promised the incentive, the industry is hopeful of favourable news on that front.
The incentive helps companies that are in the business of generating electricity. However, there is another large class of wind investors who are in other businesses (such as textiles) and want to set up wind energy projects for self-consumption of electricity. For these investors, it is the ‘accelerated depreciation’ benefit that makes the project viable. Accelerated depreciation allows them to write-off 80 per cent of the cost of the machine as depreciation, thus helping them save tax.
It is learnt that the Finance Ministry feels that the accelerated depreciation only helps save taxes and does little for electricity generation.
Leaders of the industry feel that accelerated depreciation (AD) is very necessary as the saved tax actually funds the equity portion of the wind energy project. Without AD, there would be no funds to invest. Besides, AD is only a deferment of revenue for the Government, because depreciation is claimed in the first year, rather than over several years. Also, when investments happen, the wind turbine manufacturing activity would pick up and the Government will earn revenues from excise duty, and other spin-offs.