India Announces $165 Million Funding For Solar Energy Projects In This Year’s Budget

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Parliament of India
Parliament Building in New Delhi, India

Solar energy would be high on the agenda of a government led by Narendra Modi. This notion was clear even before the first ballots were cast in the world’s largest election that concluded earlier this year. India’s 14th Prime Minister has now taken the first steps to deliver on that notion.

Finance Minister Arun Jaitley announced a range of sops for renewable energy sectors (pdf) which are expected to have a direct impact on implementation of projects, reduction of manufacturing cost of renewable energy equipment and final cost of generation of clean electricity.

Solar Energy

The largest monetary outlay was assigned for development of the largest solar power projects in the world. The finance minister announced that $83 million (₹500 crore) would be provided for development of four ultra mega solar power projects across the country. The projects, likely to achieve capacities between 2,000 MW and 4,000 MW upon their completion, would be located in Jammu & Kashmir, Gujarat, Rajasthan, and Tamil Nadu. The Ministry of New & Renewable Energy (MNRE) and the Solar Energy Corporation of India are likely to coordinate in development of these projects.

$67 million (₹400 crore) have been granted for the installation of solar-powered irrigation pump sets and water pumping stations. This might not seem as ‘high-ticket’ as the ultra mega solar power projects but can yield immense benefits to power consumers and power distribution companies across the country. When farmers switch to solar-powered irrigation pulp sets, millions of units of electricity would potentially be freed for consumption by other groups of consumers. Being an agriculture-driven economy India, has to provide billions of dollars of subsidies to the farmers — this includes free electricity. Free electricity to such a large group of consumers puts tremendous financial burden on the power distribution companies, which, in turn, are forced to recover these losses by increasing power tariffs on industrial and residential consumers.

Another $17 million (₹100 crore) was allocated for implementation of the Green Corridor project — a power transmission project dedicated for renewable energy projects. A part of this corpus would also be used for implementation of canal-top solar power projects.

Certain components used for manufacturing solar photovoltaic modules were exempted from basic customs duty as well as excise duty. Equipment imported for implementation of solar power projects have been granted a concessional basic customs duty of 5%. These steps will reduce the cost of manufacturing solar PV modules thus making domestically manufactured modules more attractive than they were earlier and reduce be cost of generation from solar power projects which in turn would reduce the feed-in tariffs offered to the project developers.

Wind Energy

Basic customs duty on some components used for manufacturing wind energy equipment like steel rings has been reduced from 10% to 5%. Additionally, raw material used in manufacturing of wind turbine generators have been exempted from the Special Additional Duty of 4%.

The wind energy sector was expecting reinstatement of the accelerated depreciation benefit (tax benefits) for developers that set up wind energy projects. Whether this benefit would be implemented or not remains an enigma. Interestingly, and possibly for the first time over the past few years, the Hindi and English text of the finance minster didn’t match. While according to the Hindi version the benefit has been reinstated, the English version has this text missing. The MNRE will now ask the finance ministry for clarification.

Other Renewable Energy

Machinery and equipment required for setting up compressed biogas plants would get a concessional basic customs duty of 5% and would also be exempted from excise duty.

National Clean Energy Fund

The fund launched in 2010 for providing low-cost finance to renewable energy projects will now receive double the revenue it used to receive every year. The tax on coal, source of the revenue, has been doubled to $1.67 (₹100) per metric ton of coal mined or imported. According to some estimates this would yield about $1 billion every year. The fund currently has about $1.3 billion in its kitty. In addition to providing finance to renewable energy projects the fund will now also provide finance to environmental projects.

Major Omissions

The budget has been welcomed by the renewable energy sector. However, a major omission would be the national wind energy mission. According to media reports, the program was to be announced in the first half of 2014. With no monetary outlay announced for this mission, the timeline of the program remains in doubt. However, the tax relief announced on some wind energy equipment may point towards better times for the sector.

Also missing was the $2.5 billion (₹14,000 crore) subsidy for clean vehicles that the ministry of heavy industry had proposed to the ministry of finance. The subsidy would be provided to car companies that manufacture or import clean cars in order to create demand for such cars.

Image Credit: KuwarOnline | CC BY-SA 3.0

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