This paper analyses the legal and financial aspects of investing in Wind Energy Projects in Kerala, India. Although the paper focuses on Kerala State, it can provide a basis for a framework to analyze the viability of wind energy projects in other States of India also. The paper starts with an overview of the wind energy sector in India and the scope for investors in the sector. It then outlines the various policies at the central government level, which forms the basis of State level regulations. The second section of the paper analyses the Kerala State level policies and administrative frameworks applicable for an Independent Power Producer (IPP) in the wind sector. The third section critically analyses the Kerala Model Power Purchase Agreement (PPA) and summarizes risk allocation depicted by the PPA. The fourth section of this paper considers a hypothetical wind energy project in Kerala using standard figures assumed in the PPA and related policies and conducts an investment appraisal. The paper concludes with a summary of findings from the legal and financial analysis.
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Renewable energy (RE) is a growing area in India’s power sector. “India has an RE target of 10% (of total power supply) or 10,000 MW during 2003 to 2012”. “The estimated potential of RE in India is estimated to be 80,000 MW”. As of 2006, “5.5% (6050 MW) of installed power capacity in India is from RE”. As of January 31, 2007, Indian RE installation rose to 9373 MW”. This translates to a growth of more than 50% in a year.” By 2022, India is expected to have installed RE of 54,003 MW”. By the tremendous growth rate already proved in the recent years, the target for 2022 looks achievable for India’s RE sector.
When it comes to RE from wind, “India is ranked fourth worldwide in terms of installed wind capacity and is set to advance markedly on its installed capacity figure”. The wind capacity figures as of 2005 released by the Global Wind Energy Council are Germany (18,428 MW), Spain (10,027 MW), the USA (9,149 MW) and India (4,430 MW). “The cumulative installed capacity of grid-interactive wind power projects up to 31 March 2006 was 5382 MW. During 2006-07, 888 MW have been installed (up to 31 December 2006) and as per trends it is likely that a total of 1700 MW would be added during the year”. This translates to a growth of more than 20% in a year. “By 2022, India is expected to have installed RE from wind energy of 40,000 MW”. This target for wind energy also looks achievable by considering the achievements and growth shown by the industry in the recent years.
From the above figures and trends, it is clear that the wind energy sector which boasts around 75% of the total RE projections is the biggest RE investment opportunity in India compared to other sources of RE.