On February 1st, the NDA government will present its 2020 budget. Considering the present state of the economy and the renewable industry, the upcoming budget can be a great opportunity to help restore confidence in the solar industry stakeholders.
The solar installations in the calendar year (CY) 2019 declined year-over-year according to preliminary estimates from Mercom India Research, due to multiple reasons such as inconsistent policy implementation, tariff caps, payment delays, curtailment, liquidity crisis, a sluggish economy among others.
Similarly, the wind energy sector has struggled with low tariffs, infrastructure constraints, and several duties and tariffs.
“We are running out of time. Now is the time to send a strong signal to the markets through a supportive budget and appropriate fund allocation for the renewable sector. This budget will indicate if the government is serious about its goal for 175 GW of renewable energy installations by 2020,” said Raj Prabhu, CEO of Mercom Capital Group.
In 2019, the Union Budget had an outlay of ₹9.20 billion (~$130 million) for wind power, ₹30.05 billion (~$440 million) for solar (both grid-connected and off-grid) and ₹5 billion (~$73 million) for green energy corridor.
Mercom reached out to the industry stakeholders to get a sense of what the solar sector expects from the upcoming budget.
“The industry expects some clarity on the Goods and Services Tax (GST) for solar projects. There should be an incentive for developing next-generation solar panel manufacturing technology in India as well as investing in storage and hybrid projects. We must wield more advantage of the technological edge that India can provide and power for neighboring countries like Bhutan, should be treated fully so that these hybrid project supports grid stability and acts like pump storage,” Ashish Khanna, managing director of Tata Power Solar told Mercom.
Further, he said that another important aspect is policy initiatives so that payments against renewable power supplied to the state distribution companies can be secured as per timelines specified by the agreement.
Khanna said, “In my view, renewables will be India’s next IT, provided the government incentivizes the industry through a policy framework. We expect to see the budget give impetus to funding, investment, and incentivize technology for manufacturing and further proliferation of renewable energy across the nation.”
According to Rajiv Srivastava, MD & CEO, IEX, the power exchanges have been playing a transformative role in achieving the government’s vision of ‘ Affordable power for all on a 24X7 basis’. Exchanges deliver a competitive advantage to all stakeholders through their process of efficient price discovery. He informed that the organization has a two-fold expectation from the Union Budget.
“The first aspect that deserves attention is the implementation of open access in its true sense. Central and state governments should work towards eliminating Cross Subsidy Surcharge (CSS), Additional Surcharge (AS) as well as other non-tariff hurdles impeding open access of electricity. This will bring immense benefits to all kinds of industries and should be rolled out at the earliest.
Another expectation is to rationalize policy and regulatory framework to reduce dependence on long-term power purchase contracts and move towards flexible and competitive contracts offered through various market-based mechanisms. This will potentially facilitate the sectoral transformation to the highest order efficiency and viability. These steps would bring significant benefits to the economy – industry as well as end-consumers. Round the clock access to competitively priced energy will boost industry profitability, which will manifest in increased investments and job creation.”
Meanwhile, some solar developers feel that the government should also focus on implementing the amendments in the Electricity Act of 2003 with a focus on accelerating open access policies, privatization of the distribution companies and separating content and carriage, to address many of the challenges and inefficiencies prevalent within the power distribution sector.
Nikunj Ghodawat, chief financial officer, CleanMax, said, “This will eventually reduce the energy cost burden on the end consumer and improve the financial health of the DISCOMs.” According to Ghodawat, renewable business, like any other infrastructure business, is capital-intensive, and the availability of funds at competitive prices is an important ingredient for growth.
“While the Reserve Bank of India has brought down the repo rates periodically, it hasn’t been translated to the banks passing on the benefit to the end customer. Add to this, the tight lending environment on liquidity front—there are a handful of financial institutions doing fresh project finance. This needs to change soon to uplift investment and confidence in the industry. Additionally, the removal of capping in the priority-sector lending limit for rooftop solar projects will ensure higher credit financing and give a much-needed boost to the sector,” he added.
There are several hurdles to overcome, including regulatory and policy inconsistencies, changes in duties, and payment delays by distribution companies (DISCOMs), among others.
“Last year has been full of challenges for the solar industry, and we hope that this year’s budget will provide the much-needed impetus to the solar industry. There is a need for bringing in structural changes to the electricity sector in India recognizing the rise of renewable sources and decentralized power generation resources. There is a need for free market forces driven by the renewable sector to co-exist with the legacy electricity system. The consumers deserve to break away from the monopoly being enjoyed by incumbent utilities and the budget can provide strong policy statements to this effect,” opined Sanjeev Aggarwal, CEO of Amplus Solar.
“Allocation of appropriate funds for the proposed subsidy for NITI Aayog’s Giga factory manufacturing plan and to boost ‘Make In India’ and energy storage revolution the government must allocate appropriate funds for its execution,” he added.
Support for battery energy storage technologies is crucial if India wants to become energy independent and stabilize the grid. The development of electric vehicles is essential for India to reduce air pollution and decrease oil imports.
“Indian National Labs and research institutions have shown interest in developing lithium-ion and other advanced technologies like flow batteries, sodium-based batteries, zinc-air, and metal-air batteries. To encourage scientific research and innovation in energy storage technologies, the central government should allocate appropriate funds for research in India through various government programs,” said Dr. Rahul Walawalkar, president, India Energy Storage Alliance (IESA).
He added that the income tax deduction up to ₹250,000 (~$3,503) on the interest of a loan taken to purchase electric vehicles was provided to the buyers in 2019, boosting the sector. “Government might take initiatives to provide similar tax benefits for the consumers for rooftop solar systems with storage. Rooftop solar and energy storage can fast-track behind the meter adoption of advanced energy storage technologies,” he added.
The renewable sector witnessed several setbacks in 2019 due to various reasons – liquidity crunch due to bank’s reluctance in lending to the sector, delayed payments by distribution companies, and attempts by the Andhra Pradesh government to re-open already signed PPAs. Fund flows for developing new projects has slowed down.
“It is imperative that effective structured finance mechanisms and capital market tools can be developed to ensure capital recycling to facilitate successful scaling up of projects. One such tool is the securitization of a pool of assets backed by the government guarantee,” said Prashant Sinha, Chief Risk Officer, L&T Infrastructure Finance Ltd.
According to him, there needs to be a provision of credit enhancement through sovereign equivalent guarantee and availability of a put option. A dedicated government fund needs to be provisioned in Budget 2020 to meet these requirements.
Bharat Bhut, director of Goldi Solar said, “In this year’s budget, our expectation from the government is to formulate incentives for promotion of domestic manufacturing in the heavily import-dependent solar industry. Local manufacturers need to be safeguarded through duties on imported products, so as to make domestic products more cost-effective. It is our hope that this will give a significant boost to the “Make in India” vision of the government.”
He also opined that while the government has made major policy and regulatory interventions in order to promote solar power development, what is expected in this budget is the stability of policies. “Various regulatory uncertainties that are impacting investor confidence need to be addressed urgently. In addition, we expect the government to ensure better synchronization between the DISCOMs and solar companies to ensure a win-win situation for all stakeholders,” said Bhut.
Domestic manufacturers have expressed concerns over the safeguard duty ending in 2020. The duty, which was imposed on imports to promote domestic manufacturing, is set to end in July 2020. Further, changes in policy and regulatory bottlenecks are also weighing down on the solar industry.
“The country needs to consider investing in building solar manufacturing as it stands to solve the country’s employment, energy, and economic issues. Additionally, new policies supporting manufacturing, solar export, land acquisition, and simplification of bureaucratic hurdles have to be introduced to support green energy growth in India, ” said Neha Agrawal, head of corporate strategy, Vikram Solar.
Meanwhile, the Solar Association of India, a non-profit organization, suggests that a robust captive renewable policy should be framed, and reasonable exemptions must be budgeted towards the payments on account of high open access charges, cross-subsidy charges, additional surcharge, and transmission charges to make renewable including solar energy more viable.
Tony Randhawa, the general secretary of the Solar Association, said, “Many sectors like cement and other core sectors are willing to invest in renewables, But the additional high charges make it unviable as compared to thermal. There should be more clarity on the tariff and import duties on solar modules as they are creating some confusion at the working level.”
Voicing its opinion, the association said that the solar industry expects clarity and rethinking on GST for solar projects.
With 1.37 billion people, India’s current share of global primary energy demand at 6% is estimated to grow to 11% by 2040 – this makes India’s demand for energy the fastest growing amongst all the major economies. Renewable sources will play the primary role in helping the country meet this exponentially increasing demand for electricity, Randhawa explained.
“Budget 2020 should ideally outline measures to help achieve the government’s 175 GW renewables target for 2022. Regulatory stability and certainty are imperative to the growth of the sector. The health of DISCOMs must be addressed – the market expects an announcement of a scheme to address aggregate technical and commercial (AT&C) losses, smart-metering, tariff gaps, and ending the state monopoly of DISCOMs. The need to accelerate solar and storage solutions is also crucial and India will benefit from working towards this,” said Saif Dhorajiwala, co-founder of Fourth Partner Energy.
Yogesh Mudras, the managing director of Informa Markets in India, believes that the industry witnessed newsworthy developments in terms of installation of capacity, but the renewable energy sector grew at a much-reduced pace last year.
“Slowing economy, high taxation, low tariffs, coupled with negative investor sentiments, has contributed to slower growth. In the upcoming budget, we are expecting the government to address the cross-subsidy and transmission charges as these hinder the development making renewable energy more expensive. Not only this but for the overall development of renewable energy infrastructure, the government should also provide exemptions to the Indian cement sector as they play a crucial role in boosting the renewable sector,” he added.
Mukesh Mishra, the manager of Hanwha Chemical and Q CELLS, said that the rooftop projects are seriously behind the target.
“We think there have been serious issues in the implementation of rooftop projects, and DISCOMs are very much responsible due to bad net metering policy and slow response. RPO should be planned to increase from the current 10% to 20%. Also, DISCOMS should be levied heavy penalty if they fail to comply with these targets. This will be a major boost,” he said.
Many believe that the government should look into providing lower repo rates, lower interest rates, and provide long-term financing options and ensure their implementation in all private and public banks.
Harshal Akhouri, director of Strolar, said that the government could reintroduce the Freight Equalization Policy which was enforced by the Government of India in 1952 and remained in force until 1993. Emphasizing on the weighted tax deduction back to 200% on research and development (R&D), he said, “The government should re-introduce weighted tax deduction of 200% for in-house R&D which was reduced to 100%. The government could also layout simplification and time effective measures for Intellectual Property Right (IPR) and patent application which normally takes three years in India.”
Renewable energy is one of the fastest growing industries in India and is part of the solution to improve the economy by bringing in new investments and creating jobs. The onus is on the government to provide the right impetus.
Image credit: Nikhil B/Wikimedia Commons [CC BY-SA]
Anjana is a news editor at Mercom India. Before joining Mercom, she held roles of senior editor, district correspondent, and sub-editor for The Times of India, Biospectrum and The Sunday Guardian. Before that, she worked at the Deccan Herald and the Asianlite as chief sub-editor and news editor. She has also contributed to The Quint, Hindustan Times, The New Indian Express, Reader’s Digest (UK edition), IndiaSe (Singapore-based magazine) and Asiaville. Anjana holds a Master’s degree in Geography from North Bengal University, and a diploma in mass communication and journalism from Guru Ghasidas University, Bhopal.