In the recently announced budget for FY 2019-2020, there is a very slight increase in the budgetary allocation of funds for the solar energy sector when compared to the allocation in the previous fiscal.
Overall, a budgetary allocation of ₹123.5 billion (~$1.80 billion) has been made to the Ministry of New and Renewable Energy (MNRE). However, there has been no increase in the targets set for solar PV or renewable energy in general.
Apart from providing central financial assistance (CFA) for grid-connected solar projects and the subsidies for rooftop solar projects, the budget doesn’t offer much in terms of grants. This doesn’t mean the government has decided to look the other way.
Mercom previously reported that a budgetary outlay of ₹10.35 billion (~$150 million) had been set for the power system development fund. In her maiden speech as the finance minister, Nirmala Sitharaman had said that the government is examining the performance of the UDAY program and it will be further improved. The center wants to work with the state governments to remove barriers like cross subsidy surcharges, undesirable duties on open access sales or captive generation for industrial and other bulk power consumers. Besides these structural reforms, considerable reforms are also needed in tariff policy. A package of power sector tariff and structural reforms will soon be announced, Sitharaman had said in her budget speech.
The government wants to focus on strengthening the key areas of concern that hamper the growth of solar, like the development of strong power systems, re-evaluating distribution companies’ financial health, recalibrating the UDAY program, and focusing on the development of green energy corridor.
When contacted, a government official expressed his opinion on the budget saying, “Judging by the cover, it is easy to write off this budget in mere terms of funds. You must read between the lines. The government is trying to reform the sector. In one term, the government has understood the issues that have troubled the renewable energy sector, especially solar, and now with this budget, the process of remedy has begun.”
Elaborating further, the government official said, “DISCOMs are not able to pay on time, projects are ready to evacuate power but are stranded due to a lack of grid availability, and the grid itself is not ready to handle the huge influx of power from renewable energy sources. The need of the hour was to sort out these problems, and this budget has focused on that.”
Before the announcement of the new budget, the government had started taking corrective measures. For instance, in February 2019, the Ministry of Power had established a committee to recommend solutions for payment delays by DISCOMs.
The official also added, “Focus has been placed on solar manufacturing. If modules cost less, the project developers can source cheaper modules within the country, leading to the lesser project cost. Moreover, in the past few years, it has been observed that the tariff for solar has stabilized below the ₹3 (~$0.0437)/kWh mark and the developers are actively bidding as has been evident from the participation in the recent auctions across India. The government has already mandated a payment security mechanism for solar PV projects. What more support do they need?”
Highlighting the positives of this year’s budget, the official further asked, “Tell me, if the DISCOMs pay on time, don’t curtail, and there’s ample grid availability, will the sector need much more support?”
In the current budget, the investment allocation for Indian Renewable Energy Development Agency (IREDA) has been set at ₹120.536 billion (~$1.76 billion), which is ₹14.96 billion (~$0.218 billion) more than the previous allocation of ₹105.58 billion (~$1.5389 billion). Currently, IREDA is the only specific domestic financer of solar PV projects in the country.
Project financing has been a persistent problem for Indian developers. The increase in the allocation of funds for IREDA could mean more financing opportunities for them. This would also boost the morale of banks that do not appear sure about lending to solar projects, which they consider to be associated with high risks.
Saumy is a senior staff reporter with MercomIndia.com covering business and energy news since 2016. Prior to Mercom, Saumy was a copy editor at Thomson Reuters. Saumy earned his Bachelors Degree in Journalism & Mass Communication from the Manipal Institute of Communication at Manipal University. More articles from Saumy Prateek.