Financial Daily from THE HINDU group of publications
Tuesday, Aug 30, 2005
Financial Daily from THE HINDU group of publications Tuesday, Aug 30, 2005 |
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Opinion
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Non-conventional Energy Corporate - Interview `Policy is the key to wind power' — Mr Ramesh Kymal, MD, NEG Micon (India) and Chairman, Indian Wind Turbine Manufacturers Assn N. Ramakrishnan
POLICY. This is the single most important issue to help grow the renewable energy sector, particularly wind power, says Mr Ramesh Kymal, Managing Director, NEG Micon (India) Pvt Ltd, a leading Chennai-based manufacturer of wind turbines. A mechanical engineer, Mr Kymal, who is Chairman of the Indian Wind Turbine Manufacturers Association, has been involved in the wind energy sector for more than a decade. He thinks India should adopt the Western model of according a preferential treatment to wind energy, including mandating power utilities to purchase a percentage of their total requirement from wind energy producers. Mr Kymal spoke to Business Line on the industry, its dynamics and economics, at his Chennai office.
Excerpts from the interview: What are the issues affecting wind power? We don't have a proper policy for renewables. Some of the best wind sites lie on so-called forest land. There may be no forest there; not even a blade of grass. Where there is good wind, nothing grows. To get any forest clearance is tough and expensive. You have to go to the Centre and run around in circles. We are putting up something that is environment friendly. Even if there is a forest, it is not going to spoil anything. We are not spewing smoke or making noise. We just need a footprint and that's it. Then we have pollution-free power. The moment you go to the utilities and talk about wind power, they say that you have to give it at the same price as conventional power. This is so unfair because conventional power has so many hidden subsidies, which we don't get. Even if we were to prove to them that we are viable commercially, they still want to compare us with their generating stations, which were set up 25 years ago, are completely depreciated and probably get coal at controlled prices. If it is a hydro plant, they talk of getting power at 80 paise per kWh (kilowatt hour). But in a year, how many kilowatt hours does it generate; three months in a year — rest of the year it is dry... It is completely lopsided. Wind turbines can be put up in a few months. They can be put up in small modules and in the rural areas too. We give employment there. We employ roughly 30 people per MW in the rural areas. We need some priority sector lending for this. What do you think the Centre can do? We have suggested many things. It should take the following steps: Impose a green cess for every unit of conventional power used; have a mandatory minimum that every utility should buy from renewables; priority sector lending; permit foreign direct investment because that money is much cheaper; and make the power purchase agreements bankable. We have to pay import duty on equipment, which can be 20 per cent. Conventional power producers get it duty-free, if equipment is 100 MW and above in size. Cost will straightaway come down by 10-20 per cent if there is no import duty, to Rs 4 crore a MW. That makes it even more viable. By introducing Customs duty, you are preventing the latest technology from coming in. This is a new field and much R&D has happened in the last four-five years. India has been in this business from 1987. We have a separate Ministry for Non-Conventional Energy Sources. China got into this just four years ago. It is already talking of installing 20,000 MW in five years. We are talking of 10,000 MW installation by 2007. Have you talked to the banks about lending to the sector? Look at it from the banks' point of view. They are obliged to give so much to the farm sector and so much to some other sector and with what is left they would go for the safest investment possible. It is not reckoned to be safe that way because wind is wind. Banks are not obliged to fund wind power today. They do it for us because we have a strong balance-sheet. If they start doing project financing, it will make a whole lot of difference. Are they questioning your track record? Probably yes. And the track record... ... was not good the first few years. When we came into the business, it was so incentive-driven that people put up turbines wherever they liked, even if there was no wind, and got all the incentives. They were not really interested in running the turbines. The right turbines did not come to India at that time. It is only in the last four-five years that the industry has built a good track record. Suppose a corporate wants to invest in a wind farm, what are the economics? If he buys our 1.65 MW turbine, it will cost around Rs 10 crore and he will get an annual generation of around 55 lakh units. At Rs 2.70 a unit, that would fetch about Rs 1.50 crore a year, assuming it is Tamil Nadu and you are selling to the grid. But if you want to use all the power yourself, it would be worth a lot more. Even at Rs 2.70 it makes a lot of sense, because you will get your money back in seven years. Can the per MW cost be brought down to, say, Rs 3 crore? Take the case of the telecom sector where volumes have driven down prices, both of handsets and calls... Rs 3 crore may be a little difficult. Volumes will bring costs down to a point. There is a difference between us and the telecom sector: A turbine is a mechanical equipment, not an electronic one. We are trying to reduce the number of moving parts. Technology is helping. Straightaway I can tell you that prices will come down, if quantities go up and indigenisation goes up. If the Customs duty is lowered, that will help. By how much I cannot hazard a guess. I did an exercise. I set a target of Rs 3.5 crore (for one MW). I worked it out this way: Who is going to be my customer? The utilities. Assume that they will give me only Rs 2.50 (a unit). And, I have the best technology — that is, the 1.65 MW turbine. And, I worked backwards. What is going to be my capital cost to meet that price with all the contingencies? I arrived at Rs 3.6 crore or so. Is it achievable? Theoretically yes. But the moment I started doing it, steel prices went up 40 per cent; copper prices went up 70 per cent... These are matters not in my control, which I could do nothing about, in spite of my upgrading the scale and all that. That is why I said it is difficult to hazard a guess. Theoretically, it is indeed possible to bring it down to Rs 3 crore. You say the Centre has very little role... It is a question of will. Take our roads... Like the cess on petrol and diesel that helped highway projects, I am suggesting a green cess of 5 paise per kWh. You won't even feel it. Maharashtra levies a green cess, of 4 paise per kWh, which raises Rs 110 crore every year. That is to be kept in a separate fund for financing renewable energy projects. But, then, wind power also gets tax holidays and what not... We get deferment. It is 80 per cent depreciation. It is excise duty free... the final product. But every input I have to pay for, including steel. Sometimes I feel it is better to have excise duty, then I can set off for inputs. Today, I buy steel and am paying 16 per cent excise duty. It is not really excise duty-free. What about incentives in the West? They get a more favourable tariff. There, every utility is mandated to buy so much of wind power and they are mandated to pay so much more than conventional power, regardless of whether the consumer is paying for it or not. In some places, the consumer himself wants to pay more for green power. In this sector the disadvantage is that because the capital cost is high vis-à-vis the plant load factor, you have a negative cash flow in the first few years. If we can take care of that... I have even suggested a two-tier interest rate. The first five-six years, have a lower rate, and after the seventh year, after the repayment has been done, you can charge higher interest. Alternatively, I have suggested a higher tariff in the first six years to be reduced after the sixth or seventh year.
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