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Tax-saving benefit given to wind industry may hurt solar sector
July, 23rd 2014

The restoration of the tax-saving ‘accelerated depreciation’ benefit for the wind industry comes at a time when profit-making enterprises are being coaxed to put up solar projects to save on taxes. (The ‘AD benefit’ allows a company to write down 80 per cent of the cost of the machinery as depreciation, thus lowering profits on which tax is calculated.)

In States such as Tamil Nadu a number of “AD customers” have cropped up for the solar industry. Only on Wednesday, three textile manufacturers near Karur in Tamil Nadu announced that they had put up a 10 MW solar plant. Thangavel Balachandran of one of the companies – Aravind-A Traders – told Business Line that the project would not be viable without the ‘accelerated depreciation’ benefit.

But now that that AD has been given to those who put up wind power projects too, it moves a part –though not all – of the business from ‘solar’ to ‘wind’.

Wind gives more bang for the buck than solar. A megawatt of solar capacity would cost about Rs. 7 crore, slightly higher than a wind project of the same size. However, while solar would generate 1.5 million kWhr a year, wind could give between 2 million and 2.4 million, depending on the location.

Of course, solar power gets paid more, but the gap between the prices of wind and solar based electricity is falling.

Also, investors who debate between wind and solar to save current taxes are likely to opt for the former because the solar industry is full of expectations of fall in prices. Moreover, solar is still a new kid on the block and as such wind is more bankable.

“With the flight of ‘AD capital’, solar sector will suffer,” says Vishal Pandya, Director of REConnect, a consultancy that operates in the renewable energy area. However, solar has an advantage – it is highly modular. One could put up a solar plant for only as much money as he has to invest, or to save tax.

It is possible to put up a 50 or 100 kW solar plant; a wind turbine of a corresponding size, if available, will not make economic sense.

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