The Indian power sector today is going through an exciting and a fundamental transformation with developments and challenges unfolding at the same time. As a nation, we have made great strides in the last four years bringing power to farthest corners of the country. India’s installed capacity has increased by 80 percent from 173 GW to 310 GW (as on December 2016) thereby making power shortages which were earlier a norm, now just a part of the past. India now has the capacity and has expressed the desire to transform the lives of its citizens by working to meet its target of 175 GW target by 2022, making India a global leader in the use of renewable energy. For this to materialise, it is critical that the government look at working towards a growth-oriented Budget and at formulating policies which facilitate access to capital for the sector and at the same time concentrate on policies which aim to move us up on the ease of doing business index.
The initial push towards renewables was provided by the wind sector which has achieved 28.5 GW capacity (as on November 30, 2016). Despite this impressive achievement, it will require a great effort on the part of the government and the power producers to reach the earmarked target of 60 GW. Expectations from Budget As we set the tone for 2017, the industry expects the government to take a more holistic view of its needs from not only a regulatory standpoint but also from a financial standpoint. This will be important going forward to ensure that renewable energy becomes mainstream and moves from largely being a B2B to a B2C resource. To start with, India’s renewable energy ambition will benefit from some clarity on the usage of funds allocated to the National Clean Energy Fund (NCEF). The NCEF proceeds garnered through cess on coal have reached almost Rs 25000 crore, while projects financed via the fund amount to only about Rs 10,000 crore. The Government should therefore look at making provisions for an additional Rs 10,000 crore wherein an amount of Rs 1000 crore can be specifically allocated for the Green Energy Corridor and at least Rs 100 crore investment for energy storage technology.
The upcoming Union Budget of 2017 should also look at providing definitive answers for delayed payments that continue to plague the industry, particularly in the wind sector. An allocation of Rs 1500 crore should be kept towards the creation of a payment security mechanism to protect the industry from delayed payments and defaults by different buyers of renewable power. The proposed provision for payment security fund by SECI for solar projects should be fully operationalised. We are finally at the cusp of biggest financial reform in India’s history with the possibility of the GST being enforced in the coming year. With that possibility in mind, the government should look at creating exemptions for infrastructure and renewable power generation companies or investments made by a holding company in its subsidiary. While the GST is expected to have a positive impact on the Indian economy, the government must ensure that concerns of the renewable energy sector are adequately addressed in the new legislation. Thus far, the sector has been enjoying several tax and duty benefits under the current regime on the input side, and it is, therefore, imperative that these in particular solar modules are kept zero-rated.
This will help lower the overall cost and, therefore, increase the willingness to adopt and use solar power to meet our energy needs. Banks and financial institutions should look at earmarking a portion of funds for renewable energy projects and provide longer tenure financing equivalent to the duration of the PPA. The industry at the moment, needs incentives and provisions such as Generation Based Incentive, tax breaks under Sec 80 (IA) and Accelerated Depreciation (AD) to continue till 2022. The Union Budget 2017 is likely to bring the enterprises entitled to claim 80IA deduction under the provisions of MAT. India’s growth story can receive a massive fillip if the government allows companies to offset losses against profits from different entities of the same group by incorporating a new chapter in the IT Act.
This decision will enable infrastructure companies gain access to better funding as taxation will be applied at the group level rather than at the entity level. Lastly, the Budget should also be a place for the government to look at reduction in direct taxes. For an industry whose reason of existence is aligned with government’s policy objective to reduce the reliance on fossils; taxes prove to be a massive stumbling block to growth. A favourable Budget will not only help with upward momentum of industry but will also catalyse the transformation of the country from a consumer to prosumer of energy. There is no denying the fact that renewable energy is the way forward. Therefore, it is imperative to keep a long term perspective when looking at formulating policy and regulations for industry going forward. The Union Budget of 2017 can serve as a benchmark while framing policies for the renewable energy industry.