Budget boosts renewables, but niggles remain

36931392 - solar power for electric renewable energy from the sun, solar farm

India’s federal budget for the year starting April 1 retained the government’s emphasis on renewable energy by allocating INR 33.61 billion (USD 0.5 billion), a majority of which will be spent by the Ministry of New and Renewable Energy (MNRE), and announcing a slew of measures that includes setting up an additional 20 GW of solar capacity, paring import and factory gate levies for components used in biogas, solar and wind power generation, and using solar energy to power 7,000 railway stations.

The INR 33.61 billion allocated to solar electricity was followed by INR 4.08 billion for wind, in an indication that the government will continue to give priority to sun power. A sum of INR 1.35 billion has been earmarked for small hydro and INR 760 million for bio-power.

However, the budget speech by Finance Minister Arun Jaitley in Parliament on February 1 was silent on some important issues such as risk mitigation of high capital expenditure in setting up renewable energy plants and rationalising service tax for wind power producers.

In two and a half years, the country has added 14.30 GW of grid-connected renewable energy, which includes 5.8 GW from solar power, 7.04 GW from wind, 0.53 from small hydro and 0.93 from biomass, MNRE said in a statement in December.

Big plans

The government has proposed to take up the second phase of solar park development for an additional 20 GW capacity. It also announced its intention to provide electricity to every Indian village by May 2018, which is expected to provide an additional boost to the renewables sector. The budget allocates INR 48.14 billion in 2017-18 under the Deendayal Upadhyaya Gram Jyoti Yojana, the government’s rural electrification programme.

“We anticipate some indirect impact for solar with the government’s ambition of 100% electrification of villages and we hope this will have a solar component,” said Ashish Khanna, Executive Director and Chief Executive Officer, Tata Power Solar.

“With a special mention about the drive towards 100% electrification, the renewable industry was hopeful that there would be an announcement to support the achievement of the government’s renewable energy target of 175 GW,” said Tulsi Tanti, Chairman and Managing Director of Suzlon Group, India’s largest wind turbine maker.

India has made quick progress in the renewable energy sector in recent years. It intends to generate as much as 56.5% of its electricity from non-fossil fuel sources by 2027, the government estimated in its energy plan. This puts India far ahead of its Paris commitment of meeting 40% of its energy needs from non-fossil fuel electricity sources by 2030. See: Renewables sprint ahead of Paris pledge

Fast progress

In two and a half years, the country has added 14.30 GW of grid-connected renewable energy, which includes 5.8 GW from solar power, 7.04 GW from wind, 0.53 from small hydro and 0.93 from biomass, MNRE said in a statement in December. This acceleration has been fed by declining tariffs in renewable power, making it competitive with conventional energy costs. “Through honest and transparent bidding, we have been able to bring down cost of renewable energy,” Jaitley said in his budget speech on February 1.

“The budget does focus on a few areas for the solar sector and demonstrates the government’s commitment to being a frontrunner in renewables,” said Khanna. “The proposed solarisation of 7,000 railway stations is a positive step and will boost the demand for infrastructure going green. Also, the announcement of 20 GW for the second phase of the National Solar Mission and focus on pushing the solar projects is very heartening.”

“The solarisation of 7,000 railway stations is a welcome initiative and is a huge opportunity in itself,” said Sunil Jain, Chief Executive Officer & Executive Director, Hero Future Energies. “In addition, I see huge potential in solarising unmanned railway crossings.”

“The budget has been specifically made to improve renewable energy projects with certain initiatives for the solar industry and there have been quite a few reduction of duties on specific items along with the promotion of renewable energy,” said Ritesh Pothan, Managing Director, Natural Group, an India focused renewable energy advisory.

The budget ignored the biofuel industry’s request for the exemption of central excise, which is at par with diesel, and to introduce a policy that makes it mandatory for companies to use a certain percentage of bio-diesel.

No windfall

However, the wind power sector was disappointed by the budget for 2017-18. In the run up to the budget, the industry had demanded that the generation-based incentives given to India’s wind power producers, which end on March 31, should be extended. The budget did not make any mention of this issue.

“The government has completely overlooked the wind energy division. This sector is in a developing phase and needs attention from the government as we are facing various issues,” said Sarvesh Kumar, Chairman, Indian Wind Turbine Manufacturers Association (IWTMA), an industry lobby group. “The service tax could have been rationalised and at least some state level reforms and policies should have been introduced that could have helped us in our road plan for the goal of achieving 60 GW by 2022.”

The Finance Minister said MNRE would get a budget allocation of INR 54.73 billion in 2017-18. It was INR 50.36 billion in 2016-17. Despite this increased allocation, not all sections of the renewables industry are happy, particularly those with business interests in biofuel.

“This budget has stuck to the knitting and not taken any steps that can be termed momentous for the biofuel industry,” said Latha Chandradeep, Co-Founder and Vice-President, Vayugrid, which builds bio-energy supply chains.

The budget ignored the biofuel industry’s request for the exemption of central excise, which is at par with diesel, and to introduce a policy that makes it mandatory for companies to use a certain percentage of bio-diesel, Chandradeep said. “It is indeed very disheartening, all the more because this is one industry with immense potential to create jobs. Feedstock supply chains in rural India and on barren lands present the most ideal way to create sustainable jobs and income. Needless to say, the value chain itself has the potential to create semi-skilled and skilled jobs.”

Risk mitigation

Arunabha Ghosh, Chief Executive Officer of the Council on Energy, Environment and Water (CEEW), a New Delhi-based think tank, also expressed unhappiness at the budgetary measures. “While total budgetary outlay to renewable energy marginally increased, there is little to celebrate,” he wrote in an article in Mint, a business newspaper. “This budget is unlikely to catalyse action, attract private investment or underwrite risks.”

Ghosh was critical of the government’s indifferent approach to mitigating financial risk in renewable energy, a sector where capital costs are high and payback periods are long. “CEEW research shows that 70% of the costs embedded in already low solar tariffs owe to return on equity and debt servicing,” he said. “But no budgetary support was extended to any agency to address risks.”

(This article was originally published at India Climate Dialogue)