Wind energy sector in India: A cost–benefit analysis of incentive policies

Abstract

While framing policies for the wind energy sector, it is important to incorporate concerns of the stakeholders. This especially holds true for the wind energy sector in India, which is driven by private participation, representing 99% of the wind investment. Policies that reduce the cost of generation are generally viewed as more suitable than others. This paper analyses various types of policies that could be used in the wind energy sector to boost the confidence of the investor and help the sector regain the growth it experienced at the end of 1996. Policies are viewed in terms of lower cost of generation, which is beneficial for the investor, as well as cost–benefit ratios that indicate the viability of a particular policy for the government. Studies assessing the perspectives of the investor are limited, and it is hoped that this analysis will add value to the existing literature. Policies that have an exemption of two to three years from income tax or MAT (minimum alternate tax) are found to be more conducive for investors than the policies that focus mainly on lower interests and longer repayment periods. Introducing a preferential pricing policy to allow wind energy to compete with coal-based power is also beneficial. The main result of this study is that policies dealing with multiple components or subsidies ought to be the focus of the government to induce more investment in the wind energy sector and achieve renewable energy targets. Beginning with an introduction to the wind energy sector in India, the paper moves on to the policies used for the promotion of wind power in various countries and in the Indian context; costs and benefits are assessed in this paper; and finally an evaluation of the results is carried out.