The Indian government has announced significant incentives for the renewable energy sector in its Union Budget for financial year 2013–14. The Finance Minister of India, Mr P Chidambaram, specifically offered incentives for wind energy and waste-to-energy projects. The incentives are expected to rekindle growth in India’s renewable energy sector, which is currently suffering from a downturn.
India remains on track to achieve 30,000 MW installed renewable energy capacity by 2017. It currently has an installed capacity of 26,920 MW. However, it is struggling to achieve the target set for financial year 2012–13. Against a target of 4,125 MW of grid-connected capacity, the country has been able to achieve only 2,005 MW with only two months left to add the remaining 2,120 MW of capacity.
Renewable Energy Sector Struggling
The country has not faired well in either the solar energy sector or the wind energy sector. It had set a target to add 800 MW of grid-connected solar power capacity in 2012–13 but has been able to add only 295.3 MW in 10 months. However, India plans to add about 4,400 MW of grid-connected solar power capacity across several states.
The wind energy capacity addition target for 2012–13 was set at 2,500 MW, but only 1,200 MW of capacity has been added in the first 10 months. The wind energy sector remained the most favored among all renewable energy technologies in India for the last several years, with developers being able to secure financing for projects based on a proven technology. However, two crucial incentives for the wind energy sector were repealed in April 2012. The government failed to extend the Generation-based Incentive and the Accelerated Depreciation benefits to the wind energy project developers. As a result, the capacity addition in this sector fell significantly.
Incentives Reintroduced For Wind Energy
The government has now reintroduced the Generation-based Incentive for the wind energy sector. The Finance Minister announced a financial package worth $145.5 million for this purpose. The tax incentives called Accelerated Depreciation, however, remain suspended. The project developers had been calling upon the government to reinstate both the incentives. Investments in the wind energy sector are now expected to rise again in 2013-14.
Cheaper Finance For Renewable Energy Projects
India’s Finance Minister has also announced that the government will tap the National Clean Energy Fund to provide funding to renewable energy projects at low interest rates. The National Clean Energy Fund has been formed from the revenue generated from the coal tax. The government levies a tax of about $1 per tonne of coal mined or imported into India. If the country fulfills its projected coal demand in 2017, the National Clean Energy Fund will see an addition of about $890 million per year.
So far, the Indian project developers have been seeking funds from international financial banks like IMF and the US Export-Import Bank. With this announcement, yet another source of cheaper loans is available to the Indian project developers.
To the surprise of quite a few, the Finance Minister categorically mentioned incentives for waste-to-energy projects in cities across the country. The technology remains in a nascent state with less than 100 MW capacity installed by January 2013. The Ministry of New & Renewable Energy had set a target to install 20 MW of waste-to-power projects in urban and industrial sectors in 2012–13, but only 6.4 MW capacity had been added by January 2013. The government has announced that it will provide financial support to city authorities that intend to set up such projects
No Announcements For Solar Energy Sector
The biggest surprise was the complete absence of any incentives for the solar energy sector. With the country planning to launch the second phase of the ambitious National Solar Mission, incentives even bigger than those announced for the wind energy sector were expected. Over the past few years, the government has announced small incentives like reduction of duties on imported solar modules or equipment used for setting up solar thermal power plants, or other financial incentives for off-grid solar power solutions.
The absence of incentives for the solar energy sector may be justified by the drastic fall in the capital cost associated with setting up solar power projects over the last 3–4 years. Additionally, India is currently in a trade tussle with the US and other countries like China over anti-dumping issues related to solar modules. Therefore, the Finance Minister may have restrained himself from offering such targeted incentives to the industry.
So, while the 2013–14 Budget may have been disappointing for India’s renewable energy sector, compared to the budgets presented over the last few years, the incentives announced may just be enough to pull the sector back on a high trajectory growth rate. Almost certainly, the cheaper loans and the Generation-based Incentives would attract investors and project developers to set up more projects than had been implemented in 2012–13.