ICRA has come out with its release on Wind Energy Project. The research firm says, end of Accelerated Depreciation benefit to impact wind based capacity addition in near term, but long term drivers remain intact.

For wind energy projects, the tax benefit available in the form of accelerated depreciation (AD) has been discontinued with effect from April 1, 2012. While this is in line with the earlier provisions  announced in December 2009 for the Generation-based Incentive (GBI) framework by the Ministry of New & Renewable Energy (MNRE), Government of India, there were expectations of further extension of this benefit at least till March 31 2013, given the delays in the implementation of the proposed Direct Tax Code (DTC). While this benefit has been ended, there is still lack of clarity over the continuation and amount of GBI benefit applicable (for capacities commissioned after March 31, 2012).

ICRA estimates that the overall domestic wind-based capacity addition during FY2012 increased to about 3,000 MW (against 2,350 MW in the previous FY), driven mainly by growing demand from the independent power producer (IPP) segment. While the share of consumers availing themselves of the AD benefit (mainly retail consumers, financial investors or captive consumers) declined gradually to 40-45% in FY2012 from the earlier 70-75%, the same still remains sizeable. In ICRA's opinion, discontinuation of the AD benefit is likely to result in a decline in capacity addition by 800-1,000 MW in the near term, which in turn, would keep capacity addition for FY2013 lower than that achieved in FY2012. With the expected fall in demand for wind based capacity, wind turbine manufacturers may also face some pricing pressure in the domestic market.

Notwithstanding this, the long-term demand drivers for wind energy remain intact. In the long run, wind-based capacity addition would continue to be driven by the IPP segment, given the progress in the implementation of the renewable energy certificate (REC) framework, besides other factors. These factors include the preference of many IPPs for the REC route, the renewable purchase obligation (RPO) norms  being put in place in most States, and the increasing cost-competitiveness of wind energy versus conventional sources.