World Bank/GEF India Alternative Energy Project
Stockholm Environment Institute--Boston, 11 Arlington St., Boston, MA 02116
Keywords: India, wind, solar, tax policy, capacity building, joint ventures
A multilateral development project helped catalyse important technology transfers and market changes for wind power and solar photovoltaic systems in India. Tax incentives, capacity building, and new market delivery mechanisms promoted private-sector activity. In just a few years, 968 MW of wind farms were installed and operating in India, almost all commercial and privately operated. The wind industry jumped from three companies to 26, many of them joint ventures. Technology development and exports accelerated and costs declined.
The India Alternate Energy project was started in 1991 by the World Bank and Global Environment Facility (GEF) to promote commercialisation of wind power and solar PV technologies in India. The project was designed to support existing government policies to promote wind power through special tax incentives.
The project was designed to pioneer financing and market delivery mechanisms based on private-sector intermediaries and suitable incentive schemes and policies for small independent power producers. Markets for these technologies were catalysed through large-scale demonstration, increased consumer confidence, and enhanced willingness to pay. The project strengthened the capabilities of the India Renewable Energy Development Agency (IREDA) to promote and finance private-sector investments, and channelled financing through that agency. One component of the project directly financed wind farm installations by private-sector developers, with a target of 85MW to be financed through the GEF and the International Development Association (IDA), and with co-financing from the Danish government and from other resources mobilised by IREDA. A second component provided a marketing campaign, credit facilities, and subsidies to rural consumers for purchasing solar PV systems. The project targeted 2.5 to 3.0 MWp of solar PV. The project also supported policies that encourage small-scale independent power producers to invest in wind farms and mini-hydro installations.
By 1998, over 270 MW of wind power had been financed by IREDA and commissioned, including 41 MW commissioned with GEF and IDA financing and 10 MW commissioned with Danish funds. Only 0.3 MWp of PV had been commissioned, but an additional 1.0 MWp was being prepared. In parallel with these direct project impacts, a total of 968 MW of wind farms were installed and operating, of which 917 MW were commercial and privately operated. Highly favourable investment tax policies strongly influenced these commercial installations. New suppliers entered the wind power and solar PV markets. Before the project there were three major companies involved in the wind industry, but by 1998 as many as 26 companies were engaged in the wind turbine manufacturing industry, many with foreign partners. High-technology wind turbine designs up to 600-kW with variable speed operation were produced by 14 companies. Domestic production of blades began, and exports of blades and synchronous generators to Europe was underway. Wind turbine exports to other countries also began. The installed costs of wind turbines in India declined. Domestic production capacity for solar modules went from 3 MWp in 1991 to 8 MWp by 1996, and the number of companies involved in the PV industry went from 16 in 1991 to more than 70 in 1998.
The World Bank/GEF project indirectly helped catalyse these market changes and technology transfers by helping to raise awareness among investors and banking institutions on the viability of wind power technology and lobbying for lower import tariffs for both wind and solar PV systems. Many more financial institutions decided to offer financing for wind farms, and a wind-power loan portfolio among commercial banking institutions emerged (this was a key project goal). The number of Indian consultants capable of developing wind power investment projects increased dramatically, in part because of GEF-supported training and networking activities for consultants, technicians and private firms (a roster of consultants was available from IREDA for reference by investors). Promotional efforts and numerous business meetings organised by IREDA increased awareness of various PV applications among potential users.
Investment tax credits appear to be a powerful stimulus to technology transfer and market development, and have had a huge impact in a very short time. However, the sustainability and viability of the markets and joint ventures is uncertain if the credits are removed.
There have been problems in extending credit to potential rural PV consumers. Evidence suggests that financial institutions perceive rural consumers as unwilling to repay loans and therefore have not extended credit. Also, the lack of infrastructure for after-sales support and service has emerged as an additional difficulty in rural markets.
Martinot, E., 1998: Monitoring and Evaluation of Market Development in World Bank/GEF Climate-Change Projects: Framework and Guidelines. World Bank Environment Department Paper, Washington, DC.
India Renewable Energy Development Agency
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