Coal Tax To Fund India’s 750 MW Solar Power Capacity Addition Plan In 2013

The Indian government is set to repose millions of dollars in financial support for solar power project developers from the coal tax corpus it has accumulated over the last few years. Project developers looking to set up projects under the second phase of the Jawaharlal Nehru National Solar Mission will receive financial assistance over capital cost expenditure.

According to the guidelines recently released by the government, the project developers will receive financial assistance of up to Rs 2.5 crore per MW ($0.45 million per MW) or about 30% of the total capital investment required for a solar photovoltaic project.

The 750 MW solar PV capacity will be allocated under the Viability Gap Funding scheme, wherein the government shall support the project developers to a certain extent to set up the projects.

This capital cost assistance will come from the Clean Energy Fund formed from the one dollar per tonne tax on coal used in the country. India’s annual coal consumption is over 600 million tonnes which translates into over $540 million in annual revenue for the Clean Energy Fund. A major portion of this revenue is expected to be utilized for building a massive transmission network suitable for carrying the power generated by renewable energy projects.

The government also aims to tackle the issue of imported solar PV equipment during the second phase of the national solar mission.

During the first phase, project developers were allowed to use imported solar PV equipment only if they chose to use thin-film solar PV technology. As a result, a large number of project developers chose the thin-film technology which also made them eligible for low-cost debt from institutions like the US Export-Import Bank, the International Finance Corporation, and the Asian Development Bank.

The Indian government had planned to ban imports of thin-film solar PV equipment as well during the second phase but is facing confrontation with the US which supplied a bulk of the equipment during the first phase. To tackle this issue, the government has now decided to allow import of thin-film solar PV technology but with restrictions. Only a part of the 750 MW capacity planned for auction this year will be based on imported solar power equipment.

The Indian government plans to add about 3,600 MW through federal policies by March 2017. About 6,000 MW is expected to be added through state policies. A significant part of the capacity to be added in the states will be registered under the federal Renewable Energy Certificate scheme.