The solar sector has a long wish list for the Union Budget 2023, which will be presented in a few days. Stakeholders look forward to Finance Minister Nirmala Sitharaman announcing tax and duty waivers for solar equipment, extending the Production Linked Incentive (PLI) program to the MSME sector, solar manufacturing to be considered under priority sector lending, and lifting duties on the import of machinery.

After one of the best years for the solar sector in terms of installations, stakeholders exude optimism about 2023, despite higher prices and supply challenges.

India installed a record 10 GW of new solar capacity during the first nine months of 2022, an increase of 35% year-over-year, according to Mercom India Research’s Q3 2022 India Solar Market Update report.

India’s cumulative installed solar capacity now stands at 60 GW.

A target of 500 GW of renewables has been set for 2030, out of which solar accounts for 280 GW.

Mercom spoke to a cross-section of industry stakeholders to understand what they expect from the Budget.

Sumant Sinha, Chairman and CEO of ReNew Power, said that given the rising global demand for solar panels, the industry expects domestic manufacturing to be given a push that is strong enough to establish India as a global exporter.

“We expect initiatives to reduce the cost of financing and a reduction in taxes and duties for battery energy storage systems, to support the growth of the solar power industry in India.”

PLI program: Fast-tracking the manufacturing segment

In Budget 2022, the finance minister said the response to the PLI program had been good. To facilitate domestic manufacturing, the government had announced it would allocate an additional ₹195 billion (~$2.61 billion) for the program.

Gautam Mohanka, Managing Director of Gautam Solar, a solar module manufacturer, said, “The industry expects the government to extend the PLI program to the MSME sector. In the Union Budget this year, we also look forward to a significant reduction in the interest rates for the industry.”

Favorable tax structure

As the industry tries to cope with the increased goods and services tax (GST) costs, they hope for a favorable tax structure to help make the sector more competitive and self-sufficient.

“In Budget 2023, we look forward to receiving strong support in duty waivers and indirect tax benefits on components like wafers, cells, steel, and other commodities to ease supply-side constraints. This support will encourage investors and developers to invest significantly to meet the  500 GW renewables target at rates cheaper than fossil fuels,” said Srinivasan Viswanathan, Chief Executive Officer of Vibrant Energy, an open access developer.

“The solar value chain, especially the backward integration (starting from polysilicon to module), is a highly capital-intensive play with a long gestation period. It would help the industry if this could be considered for priority sector lending by the banking sector to further our ‘Aatmanirbhar Bharat’ mission,” commented Rahul Bhutiani, Head of Sales and Marketing at Adani Solar, the solar manufacturing arm of Adani Group.

Bhutiani pointed out that solar modules attract a GST of 12%, while on raw materials and balance of materials (BoM) items, the GST is 18%. This inverted duty structure requires a very efficient and structured refund mechanism to be in place for fair play.

Manjesh Nayak, Co-founder, and CFO of Oorjan Cleantech, a rooftop installer, said that a tax incentive in the form of a rebate to domestic users would boost residential rooftop solar adoption. Rolling out incentives to DISCOMs for achieving rooftop solar targets would also be a positive.

“Rationalizing GST on solar projects is a must. The current GST incidence at 13.8% is very high and negatively impacts return on investments. This could be reduced to make solar investments more attractive. Lastly, easy working capital finance for EPCs is necessary since they are crucial to building quality solar assets in the country,” he added.

The industry is under pressure due to the high cost of project financing, resulting in a strain on project economies.

“Project import routes for all projects in the renewable industry should be allowed with a 5% duty. The government should look at removing the Basic Customs Duty (BCD) restrictions on imports of modules for the next 12-18 months to help improve the availability of high-quality modules at competitive prices. The government should also support the renewable industry by lowering interest rates for project financing up to 3-5% in line with international levels,” Surendra Kumar Gupta, CFO at Amp Energy, a solar developer, said.

Sharad Pungalia, Chief Commercial Officer at Amplus Solar, a distributed energy company, said, “We expect higher capital allocation toward upgrading the transmission and storage network to maintain grid stability and balance.”

Pungalia added that the government should reduce GST and BCD on components used in renewable energy generation.

He also called for focused measures like a loan guarantee plan to minimize credit risk and make residential rooftops more attractive.

More expected for the domestic manufacturing segment 

The previous budget aimed to incentivize domestic manufacturing, and this year’s budget will likely continue to do so. One of the main challenges to be addressed is the reliance on imports for solar modules in India.

“It is crucial to address the demand and supply gap in the solar hardware industry, mainly due to the low manufacturing capacity at home. As a viable solution to this, it would be necessary for this budget to reduce the current import duties. This can be gradually increased over the coming years while decreasing the production-linked incentives as domestic manufacturing scales up,” Nayak said.

Stakeholders believe that the renewable sector in the country needs all the support from the government in Budget 2023 to ensure the availability of modules and project financing at competitive rates.

Harsh Jain, Director at Citizen Solar, a solar module manufacturer, and EPC service provider, wants the government to bring back duty concessions for the import of machinery. “This would act as a motivation for the industry to go in for capacity enhancement.”

He pointed out a difference in BCD rates for solar cells and modules and how reducing them would help. “The BCD on solar cells should be waived, and for modules, it should be only 10-15%. The government should also look into duty waivers for the import of raw materials for module manufacturing. Earlier the provision was there, but it was removed in the last budget.”

Bharat Bhut, Co-founder and Director of Goldi Solar, called for the stability of policies to facilitate technology innovation and scaling up production capacity to meet the vision of ‘Make In India.’

“Additionally, incentives to promote solar exports will help India increase its share in the booming global solar markets,” he said.

The solar industry hopes 2023 to be even better than the previous year. It expects the Budget to help the sector overcome the current challenges and carry forward the momentum.