India's NTPC to Invest $1.2 Billion in Two 500-Megawatt Wind Power Projects

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Researched by Industrial Info Resources (Sugar Land, Texas)--NTPC Limited (BSE:532555) (New Delhi), one of India's largest power generation companies, has announced plans to invest about $1.2 billion to set up two wind power projects in the states of Maharashtra and Karnataka. Each power plant will have a capacity of 500 megawatts (MW), though the project sites have not been announced yet. R.S. Sharma, Chairman and Managing Director of NTPC, said the company is preparing the feasibility reports for the projects. The company plans to finance the projects in a debt-to-equity ration of 30:70 and hopes to commission the Karnataka project during the ongoing Eleventh Five-Year Plan period, 2007-12.

In January 2009, it was reported that NTPC signed a memorandum of understanding with Karnataka Power Corporation Limited (Bangalore, Karnataka) to set up a 500-MW wind power project that would be spread across three locations. The generated power would be fed to the state grid. NTPC would invest about $804 million in the project while Karnataka Power would provide land. The three identified sites are in Bailhongal in the Belgaum district, Guledgudda in the Haveri district, and Kappathagudda in the Gadag district. Each site will have at least 250 wind turbines.

India's Income Tax Act of 1961 offers depreciation benefits of up to 80% of the investment made during the first year of operations and tax breaks for up to 10 years to companies developing wind power projects. Sharma has, however, clarified that although NTPC would benefit from the act, the company's reason for developing the two wind power projects was not to merely take advantage of that provision. He said NTPC is keen on developing its renewable energy portfolio.

In August 2008, NTPC signed a memorandum with four overseas companies to set up a joint-venture entity that would develop renewable energy projects with a capacity of about 500 MW within the next couple of years. The joint-venture partners include NTPC with a 40% stake and Asian Development Bank (Manila, Philippines) with a 20% stake. The remaining stake of 40% rests with Brookfield Renewable Power Incorporated (Toronto, Ontario), GE Energy Financial Services (Stamford, Connecticut), and Kyushu Electric Power Company Incorporated (Fukuoka, Japan). The aim of the joint venture is to initially develop underutilized potential locations as well as greenfield locations in India before exploring options in other countries around India. Sharma has said that although the joint-venture agreement stipulates a renewable power capacity of 500 MW, the joint venture would not be limited by the statement. It would first explore wind power before venturing into other areas such as solar power.

Developing wind power capacity is relatively more expensive than developing conventional power projects, such as those based on coal or gas. While wind-based power projects require a capital investment of about $1.4 million per MW of power generated, coal or gas-based projects require about $898 million per MW of power generated. The value of a wind-based power project remains unclear, as the tariff of wind energy is likely to increase in the near future. Although 500-MW projects are quite small compared with NTPC's total installed power capacity of 30,144 MW, the increased tariff will still enable the company to claim tax benefits.

India's current renewable power generation capacity is 13,878.58 MW, of which wind power contributes about 7,844 MW. The country's total power generation capacity is 147,000 MW. India's ongoing Eleventh Five-Year Plan aims to increase the nation's renewable power generation capacity to 15,000 MW, with wind power contributing 10,500 MW to the overall renewable energy mix.

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