More than $100 billion investment is needed to support India’s renewable energy goals over the next 3-4 years. A major portion of this money comes in from international markets.
Every segment of the society, particularly the middle class, has huge expectations from the upcoming Budget for the year 2018-19 as the finance ministry is contemplating raising the personal tax exemption limits and tweaking the tax slabs. Last year saw the implementation of the Goods and Services Tax (GST) which has had varying impact on different industries. This will also be the last regular Budget of the NDA government.
2017 saw a rise in the contribution of renewables to India’s energy sector. As of October 2017, wind energy dominates with 33 Gigawatt (GW) of installed operational capacity, followed by 15.5 GW of solar, 4.4 GW of small hydro and 8 GW of bio-power. The total adds up to 61 GW. While significant progress has been made, a lot needs to be done to meet the government’s ambitious 175 GW renewable energy capacity target for 2022.
Here is a look at the key matters related to the solar sector, and the industry’s expectations from Budget 2018.
The immediate issue at hand is the lack of clarity on duties on solar module imports. A proposed 70 per cent duty will hurt demand from end-customers by increasing solar system costs by around 40 per cent. On the other hand, record low tariffs, supported by import of low cost modules from China, will affect domestic manufacturing. According to an MNRE report, India’s module manufacturing installed capacity stands at about 2.8 GW, which is only 51 per cent of the total capacity addition in the country in 2017 of 5.5 GW. Data clearly shows that domestic manufacturing capacity is inadequate to meet the growing demand from developers. The government needs to find a way forward to bridge this gap and ensure all stakeholders’ interests are protected in a meaningful way. The existing7.5 per cent duty on module imports seems to be an effective mechanism to achieve the much required balance between domestic manufacturers and imports.
On the subsidy front, currently, several customer segments are still being incentivized with capital subsidies. Given the current cost of solar systems, this form of incentivization is un-necessary and is an avoidable and inefficient form of government expenditure. Changing this incentive structure to one where individuals can claim tax benefits for installing solar systems is a far more efficient approach.
More than $100 billion investment is needed to support India’s renewable energy goals over the next 3-4 years. A major portion of this money comes in from international markets. In large scale projects, the recent spate of contract cancellations, payment delays and attempts to re-negotiate agreed upon tariffs by utilities sends a wrong message to international investors. Enforcing contracts is going to play a crucial role in ensuring long-term flow of capital into India for renewable energy projects.
As for the non-renewable energy segment, GST has brought down the tax on coal from 11.69 per cent to 5 per cent. This seems like a futile and sub-optimal approach to support a segment that is on the decline. It might be more efficient to utilize funds generation from additional taxation to support other areas, e.g., energy storage technology, energy efficiency etc.
Lastly, for startups, at a policy level, the range of instruments that international investors can use to fund start-ups is currently restricted. This has a negative impact on growth. Companies are left with no choice but to either forgo the investment or explore setting-up holding companies outside India. This creates tax complications at the time of investment rounds and exit/buyouts. Hence, any move that can further open up options in investment instruments will be welcome.
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About Saurabh Marda
Saurabh Marda is the Founder and MD at Freyr Energy. He has previously held senior management positions at companies in the environment and renewable sector including US-based SunPower, Nuevo Power Inc, Solaria Corporation, MWH Global and Duron Energy. Saurabh has also worked as a management consultant at Marakon, USA.
Source: energy.economictimes.indiatimes
