India’s Ministry of New and Renewable Energy recently implemented a Generation Based Incentive (GBI) program for grid-interactive wind power projects, which will be implemented by the Indian Renewable Energy Development Agency (IREDA). The program encourages investments in wind power projects by participants unable to claim accelerated depreciation under the Income Tax Act, including financial institutions, trusts, public/private-sector project developers, and foreign players lacking a balance sheet in India. The GBI scheme also encourages a new brand of investors by excluding from the program all those who self-consume the electricity produced by their wind projects, thereby ruling out applicability of the program to leading domestic power utilities.

The new GBIs provide significant incentives to grid-interactive wind power generation plants of certain minimum capacity that have obtained the requisite certifications/validations, and will be in addition to the tariffs provided by various State Electricity Regulatory Commissions. Estimates predict an increased internal rate of return (IRR) of 1.5-2% on wind power projects in India as a result of the new incentive scheme.

The GBIs will be available on the following conditions:

• only to those independent power producers having a minimum installed capacity of 5MW.
• only to those independent power producers who can furnish proof that they have not claimed accelerated/enhanced depreciation benefits under the Income Tax Act.
• only prospectively, i.e. to those independent power producers whose capacities are commissioned for sale of power to the grid after the announcement of the GBI program.
• not available to those who have set up capacities for captive consumption, third party sale, merchant plants, etc.

The Ministry, through IREDA, will disburse a GBI of Rs. 0.50 per unit (kWh) directly into the designated bank accounts of eligible project developers, for a period of up to 10 years. IREDA will distribute the GBIs on a biannual basis upon receipt of certain verifications regarding grid-synchronization and commission, for so long as a State Electricity Board, power distribution company (DISCOM), or eligible power trading company continues to purchase power from a particular project. The total outlay of the program will not exceed Rs. 49.00 crore, corresponding to 0.9 billion units of electricity generation, and will be reviewed when wind power projects aggregating this amount are registered by IREDA.

The new GBI scheme levels the playing field for those investors without the strong balance sheets necessary to absorb the benefit of 80% accelerated depreciation under the Income Tax Act. Instead, the incentive is linked to the actual generation of power as opposed to the mere commission of a wind power farm. The availability of these GBIs will likely improve the standard of operations and maintenance of wind power projects, as well as expose the wind power industry in India to competitive market forces.

For further information about this topic, please contact Akin Gump.