Tax incentives for Wind Farms in India

Filed under: Green Economics, Green Energy, Greening India by Suhit Anantula — 11
Comments
August 26, 2007

The Hindustan Times reports of the tax breaks for companies and individuals for investing in
green energy, especially Wind Farms.

WORRIED ABOUT your taxes? Take a look at one way how companies and high net worth
individuals are reducing theirs – by buying windmills. The income-tax laws allow 80 per cent of
the cost of the windmill to be set off against taxable income.

Private sector wind energy players have woken up to this opportunity and are offering
investments in wind farms that they set up. In a shared wind farm, other companies can own
anything from a single wind turbine to the entire farm. The electricity generated is sold to the
state electricity board where the wind farm is situated. If an owner of a windmill wants to use the
power he can draw it back from the board at a different point.

Mehta says the electricity being generated will begin to bring in revenues from the second year.
If the owner can show itself as a power sector operator, it can gain more benefits under Section
80 (i)(a), under which income from power generation can get a tax holiday for 10 years. Now
other companies like Enercon India and Vestas RRB have followed Suzlon with their own wind
farms. In fact, wind energy is not the only form of green energy that enjoys that benefit, but this
has become commercially viable. This benefit is also allowed for, among others, investments in
biogas and solar energy too. Sun farms any one?

The interesting thing is that wind farms are commercially viable now, atleast in India and hence,
the investments in them. However, the article was written from the angle of “ways to pay less
tax, legally” style. The bigger picture is whether the tax break is driving an investment in wind
farms.

11 Comments:

BIMLESH N. SHAH

August 27, 2007 at 4:00 pm

The Tax Incentive under the Income Tax Act benefit the manufacturer only as capex
prices are adjusted by them in such a way that under the present interest regime a wind
 mill owner will get the same IRR as it was getting two or three years back, when the
prices of wind farms were atleat 20% lower than now.
Add the preferential tariff, banking and wheeling charges, Development cost of
evacuation borne by the Utility as compared to price of a thermal power plant @ Rs. 1.20
or less per kWh,the cost of this uncertain green power/energy capacity having a PLF of
25% or less is prohibitively high.

Reply

purslane

August 27, 2007 at 10:52 pm

Wind energy is not economically viable without substantial subsidies, including tax
breaks. That might be tolerable if we were all benefiting from such use of our money. But
we aren’t.

Reply

manish

August 29, 2007 at 3:57 pm

it is not only the tax break that is pushing wind business in India. carbon credits have
become a major incentive.
regardinng genration from caol based plants, the tariff ma be low but they don’t reflect
they hidden cost(environmental, wastage etc.), a comparison of levelized tariff from both
the sources will show that power from wind is cheaper.

Reply

Suhit Anantula

August 30, 2007 at 10:13 am

 Interesting that we have three different analysis of the same situation.

I am not the expert here but was wondering if anybody else can make some suggestions.

Reply

purslane

September 2, 2007 at 7:33 am

One still has to ask what we get from wind “farms”. They don’t appear to reduce the use
of other fuels, so what is there purpose?

Reply

Harsh

September 4, 2007 at 5:16 pm

With the current boom in the Indian economy, power requirements are ever-increasing.
The demand has to be met by some power source – fossil-fuel based plants, nuclear
plants, imports, or environment-friendly options.

Promoting wind farms will reduce dependency on power import and prevent further
pollution.

Reply

purslane

September 5, 2007 at 10:43 am

Wind does not provide power on demand, so it won’t help.

 Reply

rajendra kharul

September 6, 2007 at 2:53 pm

Though it is true that presently the wind power business is driven by tax incentives, from
promotion of any new technology this is the practice all over the world. To compete with
conventional fuel sources, one need to take into account the subsidies which are provided
to conventional power sources also, we are furgetting that Conventional power do have
some subsidies in direct indirect form which are susbstantial. These subsidies along with
the externalities of conventional power if factored into cost of generation ( in real sense)
the wind power is mcuh competative TODAY also…
As per GOI reports, Coal (WHICH IS producing 65% power in India) will be available
for about 35 year Only from now…in that case shifting our power generation to
renewables will not be possible within 2/3 years..IMPORTED COAL is NOT A
ADVISABLE OPTION in view of secutity point. ONE MUST UNDERSTAND TO
BUILD UP ANY ALTERNATIVE POWER SOURCE IT TAKES DECADES TO
COME THAT SOURCE to MAINSTREAM…IT CAN NOT BE BUILD
OVERNIGHT…. HENCE PROMOTING WIND/RENEWABLE POWER WITH ALL
POSSIBLE WAYS AND MEANS IS JUSTIFIED TODAY!

Reply

David

July 29, 2009 at 4:18 pm

Nice post. Looks like wind power is really starting to get some serious consideration in
Australia now.

Reply

madan
 August 2, 2009 at 4:05 am

what is the subsidy percentage in India for the total cost of the wind pwer project.

Madan

Reply

AJIT SINGH RATHORE

February 17, 2010 at 7:43 pm

This whole idea of Wind Mill farming is really very interesting and i would like to get
into this business as i have a farm land which really idea for this kind of farming. i really
need guidness in starting this farming.