Boosting India's Wind Power

Article | 31 January 2009

ADB is helping Tata Power become a major player in the increasingly important sector of clean, renewable energy

With their 73-meter "stalks" and 26-meter "petals," the windmills look from afar like giant plants sprouting atop a mountain plain in a remote corner of India's Maharashtra state. From this isolated location, these steel towers with rotary blades and turbine engines are helping meet a statewide need. They feed over 100 megawatts of electricity - enough to power several thousand households - into the state grid.

Like most rural areas in energy-starved India, villages around here commonly experience power outages of up to 12 hours a day.

Without electricity, such villagers are virtually cut off from the outside world, among other deprivations.

The Tata Power Company Limited, part of the diversified Tata conglomerate, is one of the major power producers trying to reduce electricity shortages in a land where demand outstrips supply by some 20% during peak hours.

With encouragement from the state government and assistance from ADB's private sector operations, Tata Power recently raised its profile in the wind sector - and is now aggressively bidding to become a major player. The company aims to raise its wind-power capacity substantially by 2017. This is part of Tata Power's strategy to onsiderably lift its overall power capacity - it is already active in thermal and hydro power.

Though not firm, wind is a renewable and clean resource that will become increasingly important as countries strive to lower carbon emissions to mitigate climate change and meet Kyoto Protocol commitments.

Encouraging Business

But wind technology is still relatively costly and remains of doubtful attraction to some commercial enterprises. India is encouraging business to develop abundant renewable energy sources - solar, biomass and small hydro, as well as wind - as part of its goal to provide "power for all by 2012."

In the highly industrialized state of Maharashtra, the state government is adopting a stick-andcarrot approach. It requires power distributors to procure at least 6% of their input from renewable energy sources by 2010. Failing to do so attracts a stiff penalty. On the other hand, it pays well for wind-provided electricity.

In support of this clean energy program, ADB provided and syndicated a 13-year loan of Rs3.52 billion (about $73 million), or 70% of the project cost, to help Tata Power set up wind farms at two locations, Khandke in Ahmednagar district and Bramanvel in Dhulia district. "We provide long-term, fixed interest rate financing that is provided by a few institutions in India," says Takeo Koike, ADB's team leader for the project. "Since the tariff is set uniformly by the state for all wind-power projects without reflecting project-specific cost factors, Tata Power wanted to fix all the financing costs for the long run to avoid any risk of higher interest rates. This choice has been proven right in the current global market environment."

Through its carbon market initiative, a financing scheme that supports the development of clean energy, energy efficiency, and greenhouse gas abatement, ADB is helping the Khandke project qualify as a clean development mechanism project under the Kyoto Protocol with the United Nations Framework Convention on Climate Change.

To strengthen the project's financial viability, ADB is also prepared to provide upfront financing by purchasing up to 50% of Tata's anticipated certified emission reductions, says Nishant Bhardwaj, an ADB clean development mechanism consultant. Once approved, Tata expects certified emission reduction payments to form a significant amount relative to the revenue of Rs3.50 ($0.07) per kilowatthour that it currently earns in sales to Maharashtra's electricity body.

Protecting Consumers

To encourage development and protect consumers against rising electricity charges, Maharashtra has set a ceiling of 14% on returns for power development companies. "At the same time, commercial banks are unwilling to finance renewable energy projects with a return of less than 16%," notes ADB's Koike, underscoring the role of ADB's financing.

The global economic uncertainties are impacting India's economy, but less on its power sector. A huge gap exists between supply and demand, and falling demand is the least of India's problems.

Tata Power expects to benefit in time from both lessons learned and lower costs resulting from wind technology advances.

For example, the company, which is implementing wind projects on a turnkey basis through German-owned windmill manufacturer Enercon India, may replace geared turbines with gearless engines, which lose less energy and produce better yields, says a Tata Power business development officer. Also in the future, Tata may use taller windmills.

According to Tata Power, Khandke gets 70% of its generation during the 5 months of the rainy reason from May to September.

To be sure, life for India's large rural population would also improve hugely with more access to electricity. Many rural people are so used to being without power for long periods that they don't know how life would be if they had more electricity.

Laxman Gaikwad, who is from the village of Aurangabad, says nights without power can be warm when the temperature goes above 40°C. But he is uncomplaining. "We are used to this, and we adjust our lives around the power that we get," he says thankfully.