Wind power the hot investment for India’s growth industries


Tulsi Tanti enjoyed what can only be described as a windfall in September last year when he sold a minority of shares in his company, Suzlon Energy, which makes wind turbines, on the Indian stockmarket, reported The Economist (20 June 2006, p.74).

Electricity India’s biggest bottleneck: He was in the right business – alternative energy – in the right market, at the right time. Of all the infrastructural bottlenecks impeding India’s growth, a shortage of electricity may be the most crippling. And in the three years ending in April, India’s stockmarket had outperformed the overall emerging-market index by 45 per cent. The issue was 46 times oversubscribed.

Growth hub: His company is only 11 years old. It is now based in the state of Maharashtra, in Pune, a manufacturing hub that, because of its wealth of colleges, has also become a magnet for the information-technology and outsourcing industries.

Power costs limit potential: But its origins are in a neighbouring state, Gujarat, where Mr Tanti started in the textiles business. He found prospects stunted, and identified the main difficulty: the cost and unavailability of power, which accounts for a particularly high proportion of operating expenses in that industry.

Wind evangelist: In 1990 he invested in two windmills, saw the potential and became an evangelist for wind power. Having formed Suzlon in 1995, he gradually quit textiles. He now counts 260 mills as customers.

Power rationing commonplace: In Pune, too, electricity is in short supply and expensive. Last year, in the sweltering summer months, it was without power for three hours most days. As elsewhere, industrial consumers have to pay high tariffs while in the countryside power is subsidised (and, when an election looms, often free).

Wind farms sell back to grid: Wind power, as Mr Tanti tells it, is the answer. In India a firm wanting to invest in wind power does not need to build captive windmills. Rather, it can buy a generator to be installed on a shared farm, which delivers electricity to the local state-electricity board. If the buyer delivers to the board enough electricity to cover all his own needs, he is spared scheduled power cuts.

Good economics: Even if it is only part of his electricity needs, he is able to recover the capital cost in a few years, and hedge his power costs for 20 (the life of a wind turbine) at a fraction of the normal industrial tariff.

Not to mention the tax: Another "key driver" is tax. Rahul Bajaj, chairman of Bajaj Auto, which makes motorbikes and three-wheelers, and is Suzlon’s biggest customer, says wind power would not be viable without the tax benefits it brings. Most important is an accelerated depreciation allowance of 80 per cent in the year of installation.

Tendulkar knows a good thing: That may help explain why Aishwarya Rao, a film star, and Sachin Tendulkar, India’s most famous cricketer, have invested in wind power.

The Economist, 20/6/2006, p. 74

Source: Erisk Net  

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