India has taken rapid strides towards achieving its goal of adding significant renewable capacities to its grid. We are expected add a record 5000 MW by the end of this year alone, one among those is stated as the World’s largest -684 MW plant in Tamil Nadu and India is expected to be among the biggest solar markets in the coming year and is expected to lead the capacity addition charts only next to US and China.
This happened despite no significant budget announcement to the sector last year, in a not so favourable global economic climate and driven largely by utility scale procurement from state owned firmscombined with a market driven up-tick in consumption in the commercial and industrial segment. A small part of the rush in adding capacities could be attributed to the impending reduction on the accelerated deprecation benefit to 40%. That said the growth in Solar is phenomenal and we do not expect it to slow down in the near-term.
The general rhetoric at the time of budget would be to say that we need the Government to do this and that. We have our own wishlist but I wouldn’t be surprised if the Government does nothing at all because if it ain’t broke then why fix it.It is perfectly alright not to do anything at all but here are a few things that the Government should avoid the temptation to do:
- Including the sector in GST –With electricity duty and tax on sale/consumption not being subsumed in GST,there will be no off-set available and will lead to a cascading effect. GST could impact the price of delivered energy by 10-15% and will have a direct impact on buying decision of a C&I consumer and willingness to pay for the state utilities. It would be best if the inputs used in generation will be zero rated or at worst put them in the lowest tax bracket possible and minimise the impact.
- Reduction in Accelerated Depreciation benefits – It is a well recorded fact that AD is one of the key contributorstowards capacity addition seen in the sector. We have seen that with wind and we are seeing with Solar. Continuation of incentive of 80% could sway those early majority segment of consumers on the technology adoption curve.
- Discontinuing the 80 IA benefits – Section 80 IA of the IT Act provides 10-year tax holidays and the sector has been availing this for some time now. To make sure the growth seen today is sustained in the solar or renewables in general, an extension of 80 IA tax benefit for a minimum of 3 years is the best way forward.
While the above steps will ensure the momentum does not wane, the Government will have to do some more to add wind in the sails, especially to achieve 40 GW from Rooftop. Rooftop solar has great advantages compared to utility scale projects with its ability to decentralise generation, change consumption patterns, shift loads, save infrastructure costs and these are the reasons why it will need greater focus and an aggressive push.
In this context here are a few things that we wish the Government would do:
- Introduce direct tax benefits for installing solar – Instead of capital subsidies a better approach would be to provide direct tax benefits to individuals who have invested in solar projects either in the form of credits or exemptions. Sample this for what kind of impact it can possibly have – US solar installations have seen a growth rate of 76% (CAGR) since the introduction of ITC in 2006, today over 1 million homes are solar powered.
- Provide access to low cost finance: Interest subvention for both industries as well as individual consumersinvesting in Solar can go a long way in improving the adoption rates more importantly among the residential segment of consumers.
Few other aspects that should be prioritised include:
- Energy storage and Off-grid: Storage will play a huge role going forward for integration of solar or renewables into the grid. Allocations should be announced to further the research in the space and encourage more installations with storage facilities at utility scale as well as for off-grid projects through subsidies and low cost financing measures.
- Energy Efficiency: Every unit of energy saved is as good as a unit generated. Government should expand the scope and coverage of PAT scheme to bring a larger set of consumers (additional sectors) into the fold and incentivize them to adopt energy conservation measures. Government should promote low cost project based financing for EE projects both to direct end users and ESCO companies to increase the investments in new technologies in the space.
Lastly we wish the Government would make a statement of intent to improve ease of doing business in the solar sector. For example bringing out a uniform framework for net-metering or gross-metering across the states or standardizing the approval and clearance processes or bring out an approach to reinvigorate green certificate markets or introduce measures to provide smaller businesses direct access to more foreign capital at cheaper rates.