- Odanthurai Panchayat’s community windmill project faced financial challenges, with limited revenue generated from electricity sales and irregular payments from the utility company.
- The fixed cost of the power purchase agreement (PPA) and the lack of a policy framework for decentralised wind energy hindered the profitability and direct power supply to the panchayat, claim locals. However, experts disagree with idea of renegotiating PPA.
- The absence of favourable policies, subsidies and the dominance of subsidised grid electricity in Tamil Nadu has impeded the transition to community renewable energy projects.
This is the second article in a two-part series on lessons from Odanthurai’s ambitious renewable energy experiments. Part One highlighted how Odanthurai’s renewable energy mix, offers lessons on the challenges of implementing a community initiative on renewable energy.
Odanthurai in Tamil Nadu made a pioneering move among local bodies in India when it set up its first windmill in 2006. With the windmill, the village body aimed to earn revenue by selling the power it generated. That income would be used to offset the panchayat’s electricity expenses which were growing as the village developed.
The village received adulations and continues to be admired in the media for being an early adopter of renewable energy, inspiring panchayats across the state. However, equally significant is the cautionary tale that Odanthurai’s windmill experiment has to share.
As the windmill inches towards the end of its 20-year lifespan, the journey reveals the challenges of a local level wind energy setup – one of the primary ones being the low economic viability of such a project. The panchayat has invested approximately Rs. 20 million, including interest on the associated loan. However, the revenue that has come in over the past four years is around Rs. two million – not enough to offset its electricity bill. Until 2018, all the income that came from selling the wind-generated electricity was used to repay the loan the panchayat had taken from the Central Bank of India (CBI) and on windmill maintenance, say panchayat officials and only after that have they been able to use the income to pay their bills.
Over the two decades, these increasing costs, delayed funds that in turn delayed repayment of loans, and growing maintenance are some of the reasons that have put a financial strain on the panchayat, making the windmill a liability.
Odanthurai, however, remains the rare example of such an experiment in a time when India has committed to reaching net zero emissions by 2070 and meeting half of its energy requirements using renewable energy, including wind. While wind power, as a decentralised energy source, could aid rural energy transition, there are not many working models or pilot projects for wind energy in the community sector or decentralised renewable energy, say experts.
Talking about the lack of policies towards decentralised wind energy, Anand Prabu Pathanjali, Partnerships, and Campaigns Manager, Power for All, said, “Small consumers, including the panchayats, have no legal framework anywhere in India to put a wind turbine on a location and get it credited to your account. Had there been such a thing, the panchayat wouldn’t be selling wind energy for lower costs for the past 15 years.”
Revenue way lower than expenses
While talking about the origins of the windmill project, R. Shanmugam, the former president of Odanthurai panchayat, who initiated the windmill project, said, “When the electricity cost of the panchayat reached Rs. one lakh (Rs. 0.1 million) per billing cycle, despite having implemented biomass and solar projects, we installed a 350 kilowatts (KW) windmill to meet our electricity needs.” He claimed that the windmill could produce approximately 6.75 to 7 lakh units of electricity annually.
“The installation cost of the windmill was Rs. 15.5 million. We paid Rs. four million from the panchayat’s funds and the remaining Rs. 11.5 million was borrowed as a loan from the Central Bank of India.” Apart from the revenue generated from the windmill, the panchayat has also utilised Rs. 54,91,577 from its general fund towards the loan closure.
The panchayat has paid back the loan of Rs. 16 million to the bank, including the principal amount of Rs. 11.5 million and Rs. 4.5 million in interest. The loan repayment was completed in 2018, informs G. Thangavel, the present president of Odanthurai.
While talking to Mongabay India, Thangavel shares the imbalance between the income that they are now getting after repaying the loan and their electricity expenses. The current electricity cost of the panchayat is approximately Rs. 2.85 million per year. The revenue now generated from the windmill is roughly Rs. one million per year, making it less than half of what is needed to pay off the panchayat’s electricity bill.
Read more: The wind farm paradox in southern Tamil Nadu
Windmill and Power Purchase Agreement
In 2006 the panchayat purchased one acre of land in a wind farm in Myvadi village of Tiruppur district and invested Rs. 15.5 million in the setup, which includes the land cost.
The panchayat signed a Power Purchase Agreement (PPA) with Tamil Nadu Generation and Distribution Corporation (TANGEDCO) at the fixed cost of Rs. 2.70 per unit, valid until 2026. Under this, TANGEDCO will take all the power produced from the windmill and pay Rs. 2.70 per unit to the panchayat. The panchayat also signed an Annual Maintenance Contract (AMC) for the windmill with Suzlon Global Service Limited at Rs. 87,980 annually, with a 5% increase per annum on the previous year’s rate. This AMC does not include breakdown maintenance work. The panchayat has paid Rs. 3.44 million till March 2021 for windmill maintenance to Suzlon Global Service Limited, claims the panchayat president.
“The payments from TANGEDCO have been highly irregular, leaving us with pending maintenance dues to Suzlon Global Services Limited,” he shared, explaining that the panchayat would be able to settle the dues as soon as they receive the outstanding funds from TANGEDCO.
As of now, the panchayat is due to receive Rs. 3,396,885 from TANGEDCO for the 87,11,099 units it generated from the windmill between 2006-2007 and 2023-2024 (There was an arithmetic error in the document provided by the panchayat regarding the total units and the balance amount calculation. The initial total of 82,36,051 units and Rs.21,97,403.5 was incorrect and has now been corrected to reflect the accurate total of 87,11,099 units and Rs.33,96,885.00).
Thangavel added that some of the amount is currently being paid in installments. Mongabay India has reached out via email to TANGEDCO. The copy will be updated if a response is received.
In response to inquiries about the unsettled maintenance dues, a Suzlon company manager refused to comment further on the issue despite acknowledging the irregularity of payments.
A.D. Thirumoorthy, an energy consultant and State Level Renewable Energy Committee Member, Government of Tamil Nadu, told Mongabay India, “It was a common grievance for many, not just Odanthurai, that payments from TANGEDCO were not made promptly. However, with the involvement of the central government, measures have been taken to ensure regular payments.” While Thirumoorthy pointed to options to sell energy directly to consumers on power exchange platforms, as a local body, the panchayat is not permitted to sell electricity to private companies which restricts its customer base to the government entity, said Thangavelu.
Thangavelu emphasised the limited financial gains for the panchayat, stating, “The panchayat has not generated substantial income from the windmill. If we examine our profit and loss account for 2022-23, we are left with a mere Rs. 3874.50 in our account.”
He blames the PPA terms for this. “Due to the fixed cost of Rs. 2.70 agreed upon in the PPA, valid until 2026, we have not been able to generate significant profits from the windmill (because the panchayat is obliged to sell it at the agreed rate, even though the value is much higher). “I have raised concerns with multiple officials, urging them to increase the selling price to at least Rs. 4.70 per unit. However, to date, no fruitful outcome has been achieved in this regard,” said the president.
In the last few years, distribution companies unilaterally terminating PPAs has become a controversial issue. The court has termed it a step against public interest. Speaking in this context, Ashwin Gambhir, a Fellow of Prayas (Energy Group), said, “Wind power, unlike the electricity tariff, doesn’t include major escalating costs like fuel cost and hence the wind generation cost remains constant during the agreed PPA period. Due to this, viable generation cost is based on various parameters, such as capital cost, financing cost, return of equity, etc., at the time of commissioning. Therefore, wind cost and consumer electricity tariff cannot be directly compared. Once the plant is built and commissioned, there are no major additional escalating costs. The viability at the fixed cost of PPA is independent of how your consumer tariff changes in the future.”
Thirumoorthy echoes the same, “Windmills enter into PPA based on the feeding tariff fixed by a regulatory commission depending on all input costs related to the operation of windmills that holds good for 20-25 years. Hence, the windmill’s earnings are predetermined for the lifetime of the PPA. Although power consumption is anticipated to increase, the purchasing and selling power to TANGEDCO operates independently, unaffected by changes in value.” The rate of Rs.2.70 for the panchayat was fixed as per the electricity tariff order of Tamil Nadu, 2006.
The windmill in Odanthurai will complete its 20-year lifespan in the next three years and it is estimated that the panchayat will earn approximately Rs. three million more in this period. There are also discussions in Tamil Nadu debate about repowering its old wind turbines.
Given that the cost of investment needed for the windmill is disproportionate to the revenue generated, the current president of Odanthurai panchayat has no plans to install another windmill for the panchayat.
When asked about the low return on investment on the windmill, Thirumoorthy says, “We should not view the windmill solely from an economic standpoint. In the broader perspective, it fulfills the country’s energy requirements through renewable energy.”
“The Tamil Nadu government is making an attempt to enforce mandatory repowering of windmills. In my opinion, if the windmill is healthy, it should be allowed to run. Historically, some windmills have remained operational for as long as 35-40 years, ” he adds.
Read more: After little success in past, India revisits plan to repower its ageing wind turbines
Decentralised wind suffers from policy gaps
Against several reports claiming that the panchayat uses part of the energy produced from the windmill, the panchayat’s current president categorically denies it, saying that wind power has never offset the panchayat’s electricity neither through direct powering nor via cash in its entire history. “We are paying electricity bills each month which too at Rs. 8 per unit for panchayats consumption,” he said.
Martin Scherfler, Co-Founder of Auroville Consulting, told Mongabay-India, “In India, there is currently no legal/policy framework that enables wind energy production at one location and virtually credits it to every household in the village. This is why selling electricity is a more practical approach.” Auroville Consulting is a unit of the Auroville Foundation working for renewable energy.
Pathanjali of Power for All, said, “Wind energy is still perceived as a large-scale option and hasn’t received the same government focus as solar energy. Despite the existence of small-scale wind turbines for the past 10-20 years, there is a dearth of favourable policies for smaller wind turbines, in contrast to those in place for solar or biogas. As a result, there are not many working models or pilot projects for wind energy in the community sector or decentralised renewable energy.” Power for All is a global network of 250 organisations campaigning to end energy poverty.
“Domestic consumers in Tamil Nadu prefer being connected to the grid as it is heavily subsidised, making the renewable energy costlier,” said Scherfler, adding, “Globally, particularly in Tamil Nadu, electricity utilities discourage consumers from operating their energy systems because they have made significant investments in power generation plants such as hydro and thermal power. They perceive it as a loss to their investments.”
“As long as rationalisation of tariffs is brought in the way we disperse subsidy, it’s difficult to materialise even domestic solar rooftops. The entire subsidy scheme is not well designed and fairly distributed to incentivise energy conservation or efficiency. Even the wealthiest domestic consumer receives the same subsidy as poor households. To facilitate a successful transition, policy innovations are needed to encourage consumers to prefer renewable energy sources,” added Scherfler, who holds over 10 years of experience in the field of energy.
Why do decentralised windmills still matter?
The Odanthurai panchayat has no plans to install another windmill and is, instead, focussing on installing a solar-power motor which would be cost-effective as approximately 50% of the electricity consumption is attributed to the motor of the water station of the panchayat.
Odanthurai, though, still manages to maintain its model village status in terms of renewable energy use for its multiple pioneering efforts to adopt renewables. The Ministry of Panchayati Raj officials visited the panchayat in 2021 to study its renewable energy model.
Pathanjali shared, “As India is heading towards 100% electrification, it is impossible to achieve that without renewable energy sources. And community renewable energy projects are still necessary to meet India’s Net-Zero transition goals.”
However, he highlighted another challenge saying that many mini-grid operators are not coming to rural areas as there is not much electricity consumption here which leads to reduced profits.
“In meeting India’s Net-Zero Transition goals, a mix of energy, like solar, hydro, wind, and biomass are needed. Wind energy is crucial as it would alone meet roughly 30% of the total energy needs,” stated Thirumoorthy.
Banner image: A representational image of a windmill farm in Aralvaimozhi, Kanyakumari. Photo by Gowthami Subramaniam/Mongabay.