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Reduction of accelerated depreciation to negatively impact rooftop solar

Reduction of accelerated depreciation to negatively impact rooftop solar


The year 2016 has been an impactful year for the solar industry and the industry is really coming into its own. India has emerged as the 4th largest solar market globally, and is growing substantially as compared to other larger markets. We already have enough visibility into 2017 to know that the fast growth is unlikely to slow anytime soon. Perhaps for the first time, the central government’s solar target of 100 GW by 2022 is beginning to look at least conceivable, if still very ambitious.

The most ambitious part of this 100 GW target is the 40 GW proscribed for rooftop solar. In 2016, rooftop solar has particularly emerged as a significant segment of the solar market, with over 1000 MW installed. The build-own-operate or ‘opex’ segment is increasing its share, and has seen fast growth in the corporate as well as the government rooftop segments.

The year 2017 will undoubtedly see rapid growth as well, with many projects already in the pipeline, and large tenders already released by SECI for educational institutions for 500 MW, and government building rooftops for 1000 MW. Even if those full capacities are not installed, they will significantly increase volumes in those segments, making an acceleration of growth likely, with continued organic growth in the commercial and industrial rooftop segments.

However, there are some possible changes in the upcoming budget which would dampen growth in the solar industry, particularly when taken in combination with the impact of GST, which will add to the indirect taxes applicable to solar projects.

One change which would have an especially negative impact on rooftop solar would be the reduction of accelerated depreciation, which the Finance Ministry had announced last year. As the utility scale solar industry has matured, accelerated depreciation has become less important as a driver in that segment. However, for rooftop projects, it remains an important driver.

When accelerated depreciation was suddenly removed for wind projects a few years ago, the industry saw an immediate contraction, leading the government to re-instate it a year later. While the announced reduction would be more gradual, it would certainly have a negative impact, and it is hard to see India achieving the 40 GW rooftop target in the absence of this support.

Rooftop solar has many benefits for individual consumers and for the country as a whole. Unlike utility-scale plants, rooftop solar has negligible transmission losses, and does not require additional infrastructure to be built. Utility-scale wind and solar projects are indirectly subsidised by concessional rates for use of grid infrastructure compared to conventional power. But rooftop solar does not receive any such support, despite its greater benefits to the transmission grid.

If fully accelerated, depreciation could be retained at least for rooftop solar projects, this would keep the sector on its current growth track and make the country’s goals achievable.

CleanMax Solar’s Andrew Hines A second impact anticipated is the removal of the income tax holiday (Section 80-IA) for power generators. Again, this change is not aimed at the solar industry specifically, but it will negatively impact it. By our calculation, this change alone will increase solar tariffs to consumers by close to 5%.

In utility-scale solar, it is relatively straightforward for the central and state governments to achieve their goals. They can simply call for a tender of the desired capacity, and the industry will bid competitive to build the projects. Even harnessing government building rooftops can be driven through the same tender route.

However, harnessing commercial and industrial rooftops requires a more indirect approach, through tax incentives and other supports. To simultaneously remove these supports and expect an acceleration of growth in the sector is unrealistic. Solar will continue its growth regardless of these policies, but the cumulative impact of these changes would be material, and would work in the opposite direction of the government’s stated goals in this area.

Anand Gupta Editor - EQ Int'l Media Network


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