The solar industry stakeholders have a long wish list for the Union Budget 2024, which will be presented on February 1, 2024. Stakeholders hope Finance Minister Nirmala Sitharaman will announce tax and duty waivers for solar equipment to boost domestic solar manufacturing.

Mercom spoke to a cross-section of industry stakeholders to understand their expectations from the budget.

In the first nine months of 2023, India installed 5.6 GW of solar power capacity, marking a ~47% year-over-year (YoY) decrease from 10.5 GW. Utility-scale solar project installations totaled 4.2 GW, a 54% YoY decline. The numbers were reported in Mercom India Research’s recently published Q3 2023 India Solar Market Update.

Cumulative solar capacity, including rooftop installations, exceeded 69 GW by September 2023.

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.

“Rationalizing the GST on solar projects is essential. The current GST rate of 13.8% is quite high and inversely affects return on investment. It should be reduced to make solar investment more attractive. Finally, ensuring easy access to working capital finance for EPCs is important, as it plays a key role in building quality solar assets in the country,” said Manjesh Nayak, CFO and Co-Founder of Oorjan Cleantech.

“A reduction in GST for wind turbines and solar modules, from 12% to 5%, has the potential to bolster the renewable energy sector significantly. A lower tax on these critical components could contribute to cost reduction, enhancing the economic viability of renewable energy projects,” said Neerav Nanavaty, CEO at BluPine Energy.

“Additionally, the inclusion of electricity within the GST framework would be a significant move. This adjustment can streamline tax processes, alleviate complexities, and potentially impact the overall tax burden on electricity. Given the current scenario where financing for renewable energy operates at commercial rates, a decrease in interest rates or the provision of subsidized rates could stimulate further development in this sector,” he added.

SK Gupta, Director and CFO, AmpIn Energy Transition, opined there is a clear need for realignment of tax and duty structure to help propel the renewable growth story. “GST rates on cells and modules should be reduced to 5%. Considering the current mismatch between the growing demand of cells and modules in the country and their operating domestic capacity, custom duty on cells may be continued for another year but at a lower rate of 5%.” He also called for closer integration between solar, wind, and battery solutions to make the round-the-clock energy dream a reality, especially for the C&I sector. “This will need cost optimization of wind and battery solutions through a mix of GST and import duty rationalization, extension of PLI programs to these segments, and promoting in-house R&D efforts.”

According to Vineet Mittal, Chairperson of Avaada Group, Section 115BAB of the Income Tax Act must be extended up to 2030 to enable the setting up of new manufacturing units for solar modules, electrolyzers, and green hydrogen production. “To boost the sector and achieve desired targets, GST should be kept nil, initially, on green hydrogen and its derivatives, whereas 5% GST should be reinstated on solar power generating system and its related parts.”

Domestic manufacturing expectations 

Previous budgets aimed to incentivize domestic manufacturing, and this year’s budget will likely continue to do so. One main challenge to address is the reliance on solar module imports.

Said Nayak of Oorjan Cleantech, “The deferral of ALMM, a drop in the cost of imported cells and modules, higher financing opportunities, and increased consumer awareness have fueled recent growth in the rooftop solar segment. However, to meet our targets, there is still much to be done. As of December 31, 2023, the total installed renewable energy capacity (primarily solar and wind, excluding hydro) is only 31% of the total installed power capacity. Furthermore, the installed rooftop solar capacity has reached 11 GW, which is just a quarter of the March 2022 target of 40 GW.”

Nayak said the removal or reduction of Basic Customs Duty (BCD) on imported modules could further reduce prices and stimulate demand. A tax incentive, such as a rebate or deduction for domestic users, would boost residential solar adoption. Providing incentives to DISCOMs for exceeding rooftop solar targets would also have a positive impact.

Gupta of AmpIn hoped the government would further increase the size of priority capital investment in the sector by allocating much larger financial resources at a competitive cost, encouraging the industry to go into core backward integration in wafers, ingots, and silicon to optimize the solar value chain by higher allocation of PLI-based funds to promote it.

Innovative Financing

Stakeholders also want the government to announce innovative financing models to ease the financial burdens on manufacturers and developers.

“We expect substantial investments in R&D, subsidies, and workforce development to drive down costs and boost competitiveness. Lower interest rates, dedicated green bonds, and innovative financing models are needed to ease financial burdens on manufacturers and developers. Simplified land acquisition, expedited clearances, and attractive tariffs are required to create a thriving investor climate. Mandatory rooftop solar installations, consumer subsidies, and export incentives for domestic equipment will unlock domestic demand and align with India’s Aatmanirbhar Bharat goals,” said Gyanesh Chaudhary, Chairman and Managing Director, Vikram Solar .

“Financial incentives such as tax credits, grants, and subsidies should be enhanced to make renewable energy solutions more economically viable for consumers and businesses alike. This can significantly reduce the initial investment barriers and accelerate the uptake of solar, wind, and other clean energy technologies,” said Vaibhav Roongta, Chief Business Officer at Rays Power Infra .

The solar industry hopes for a much better 2024 than the previous year and anticipates that the budget will assist in addressing the present challenges and sustaining the sector’s momentum.