It is rightly said that energy security is vital for a country’s economic development. In India, different sources of energy are being used – coal, oil, gas, water, lignite, solar, wind and urban waste. Going by statistics, the total installed capacity as at 31 December 2016 was 310 GW, out of which 14% (43 GW) was through hydro, 70% (215 GW) through thermal, 2% (5 GW) through nuclear and 15% (45 GW) through renewable sources. Contrary to past records, India is likely to be power surplus for 2016-17. So which all factors could have contributed to this? Efficient production and distribution, both it seems. Conventional sources – Progress With respect to conventional sources of energy, especially coal, the supplies have improved significantly due to improved dispatch and availability of better quality of coal, resulting in marked decline in import. In a major fillip to the petroleum and hydrocarbon sector, series of reforms were introduced through the Hydrocarbon Exploration Licensing Policy (HELP): Uniform licensing system for all hydrocarbons, revenue sharing model in place of cost sharing, Open Acreage Licensing Policy, Marketing and Pricing freedom for new gas production, among other measures. Unconventional sources – Progress With respect to renewable energy, the last two years have witnessed highest ever solar power and wind power capacity addition.
In order to achieve the target 175 GW renewable energy generation by 2022, Indian government has unveiled a plethora of measures. Rooftop solar has been included as part of housing loans and made mandatory for development of smart cities. Incentives, such as viability gap funding, concessional finance, etc. have been put in place. Future targets What the Modi Government has achieved in the energy space till now is definitely worthy of applause. Further, the long term goals of reducing import of oil and gas by 10%, from 77% to 67% by 2022, and commitment to reduce carbon footprint by 30-35% by 2030 are aggressive goals.
Many policy decisions and fiscal incentives may need to be considered to deal with the issues of financing and inadequate infrastructure, amongst other challenges facing the sector. Means to achieve targets The use of natural gas is to be promoted to reduce carbon footprints, however, despite the potential to produce 20 million CUM of gas by 2020, India is one of the top importers of gas today. Concerns on prospectivity, insufficient upstream data, inadequate transmission and distribution are hindering domestic gas production. In order to technological advancements and innovative R&D techniques could enable infrastructure development at a cheaper cost and aid in more successful discoveries.
If R&D incentives like subsidies for capital investment, tax incentives, etc. could be provided in this space, foreign technology participants as well as Indian companies could be eager to participate. To give impetus to infrastructure, tax incentives presently available for cross country pipelines should be extended to intra city and intra state pipelines also. Distribution system should be incentivised. More capital could be infused for schemes like UDAY which have helped in revival of the power distribution system and brought down operational losses, making us closer to the dream of realising affordable 24*7 power.
Tax holidays for all forms of energy generation businesses should be re-introduced. Accelerated depreciated to be increased from the current 40%. Even state governments could support in their pursuit of attracting investments by waiving off transmission and wheeling charges, providing exemptions on electricity duty, providing project sites for setup of plants post all approvals could be some incentives. Moreover, considering the indirect tax policy standpoint, crude oil, natural gas, aviation fuel, diesel, petrol and electricity have been excluded from the GST ambit.
Two major areas where this could impact could be the credit availability and increased compliances. While some products manufactured using crude oil or natural gas could be subjected to GST resulting in minimal input GST, there could be non-creditable tax costs paid on procurement of plant, machinery or services with respect to these 5 products, where output GST may not be available.
Moreover, compliances with respect to both new and GST regime may need to be carried out, making it onerous for businesses. The exclusion of electricity could push up power generation costs, severely impacting players in the cost sensitive renewable energy segment. Moreover, excise duty and VAT exemptions on equipment and solar panels could be replaced by an 18% GST rate, having an adverse impact on the sector. On a policy level, inclusion of these items or providing similar exemptions under GST could be considered. To conclude, we are on the right path to achieve energy security, if adequate policy measures are aggressively implemented to achieve the goals set.