India’s Ministry of New and Renewable Energy has applied for an extension of a tax credit aimed at helping wind energy grow in the world’s third largest market.
The tax credit, known as accelerated depreciation, is set to expire at the end of the month unless Prime Minister Manmohan Singh’s cabinet approves the extension.
Of course, the Indian wind business is far from stagnant. In the last year alone, $3 billion worth of turbines were purchased from foreign manufacturers such as Vestas Wind Systems (PINK SHEETS:VWDRY), General Electric (NYSE:GE) and Gamesa. However, the domestic companies are far more dependent on accelerated depreciation.
This tax break directly benefits India’s largest turbine maker Suzlon Energy Ltd. Suzlon, more than others, is dependent on the tax break as a healthy chunk of their costumers use the accelerated depreciation-method of accounting. Should the tax break not be extended, the overall demand for turbines could plummet by 15% within the year.
Accelerated depreciation has been the cornerstone of Indian wind farm development with over 90% of farms built before 2009 claiming it. According to the Mumbai-based Ambit Capital Pvt., 25% of annual installations still claim the incentive.
In addition to accelerated depreciation, another renewable energy subsidy set to expire at the end of the month is a generation-based incentive that rewards wind farms based on how much energy they generate. As expected, the Ministry is seeking to have an extension on this incentive as well.