New Delhi: In a radical makeover, the commerce ministry has proposed mandatory norms for making special economic zones (SEZs) green, including guaranteeing zero waste generation, a move that could raise initial capital expenditure by promoters and developers although it could lower operating costs in the medium to long term.
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Once implemented, the green norms that have been questioned by some developers, will provide the first big thrust to the use of renewable sources of energy and will extend fiscal incentives to mitigate some of the consequent increase in project costs.
The ministry has sought public comments on the proposed norms by 10 August.
An SEZ is an enclave aimed at increasing investment and exports. Companies based in SEZs are eligible for tax and other incentives.
To date, India has formally approved 578 proposals for such zones out of which 323 SEZs have been notified, in addition to the seven Central government SEZs and 12 state as well as private sector SEZs set up prior to the enactment of the SEZ Act, 2005. Notification is a pre-requisite for companies located in the SEZs to claim tax and other incentives. A little over one-third of all notified SEZs are currently operational.
SEZs in India have seen investment of Rs1.08 trillion so far. Total exports from SEZs during 2008-09 were Rs99,689 crore, a 50% increase over the previous year.
Going green: A file photo of fields in Raigad, Maharashtra, where an SEZ has been proposed. SEZs have seen investments of Rs1.08 trillion. Hemant Padalkar / Hindustan Times
According to the draft green guidelines, each SEZ has to install a solar power system to generate a minimum of 50kW of power per ha. However, the ministry says the aim should be much higher. “For this purpose, developers will have flexibility to use 10% of non-processing area for any authorized operation beyond the limits prescribed for it,” it said.
“Normally, 1MW of solar power generation requires two to two-and-a-half hectares. That’s the thumb rule. Two things can be done. Where land space is available, grid-connected solar thermal power plants can be built and roof space is good for solar photovoltaics. SEZs will have huge roof space available,” said a senior government official, who did not want to be identified. The official added that while the cost of solar power would initially be high, this would be comparable to that of other sources of power by 2017-20.
Currently, the capital cost of each megawatt of solar energy generated through photovoltaics is Rs18-20 crore. It is Rs14-15 crore for solar thermal plants that convert light into heat and then use that energy to generate electricity. This is almost four times the capital cost of energy generated through coal (Rs4.5 crore per MW) and gas (Rs4 crore).
The proposed guidelines also mandate “zero” waste from each zone, require that 75% of the open area be landscaped to reduce the so-called heat island effect, and insist on electrically-driven transportation facilities within the zones.
“This (the green norms) is something that was proposed by the renewable energy ministry a year-and-a-half back,” said the same government official.
The guidelines also say that all buildings in SEZs will have to be energy efficient and comply with the energy conservation building code (ECBC), which defines key parameters for energy-efficient buildings.
Although no one is questioning the guidelines, some developers are asking questions about whether the targets mentioned in them can be achieved.
“Mandating use of renewable energy is not workable at all. That much of energy cannot be generated using solar or wind power,” said Suryanarayana, general manager of the Andhra Pradesh Industrial Infrastructure Corp. Ltd (Apiic) that develops SEZs. Suryanarayana, who goes by one name, said Apiic is examining the proposed guidelines: “We are also on our part trying to make our SEZ environment friendly. The proposal will, in the long run, help in natural resources’ conservation and environmental protection.”
The governments also needs to look at the cost aspect, said an expert.
The guidelines also say that all buildings in SEZs will have to be energy efficient and comply with the energy conservation building code
“This will make SEZs more environmental friendly and also showcase the world that we are building world-class infrastructure based on green technology,” said Sameer Bhatia, senior director and national leader (SEZ advisory practice) at Deloitte Consulting.
“There will be certain enhancement in project cost. This could be partly subsidised as they (the government, in the guidelines) have offered some capital and interest subsidies. This needs a little more detailed analysis as to find out what will be the actual impact on SEZs,” he added.
The additional costs will not affect the viability of the zones, said Ajay Mathur, director general of the Bureau of Energy Efficiency (BEE), a government body that specifies standards of energy efficiency.
“If a building is ECBC-compliant, then even in mid-term it will save money, which is about four years. Very few things, such as maybe LEDs (light emitting diodes), have a break-even period of more than four years,” he said.
The costs may be higher currently, Mathur added, “but all such costs are coming down. One is improved capacity, in terms of training and knowledge of designers, architects and installers, and the other is reduction in prices of such materials due to increased volumes.”
The developer of an SEZ agreed. “Initially, it will increase our capital expenditure, but going ahead it will reduce our operating cost,” said Gyan Bansal, chief executive (SEZs and hotels) at Uppal Group. His group would adopt the guidelines, he added, also because there is a market for green buildings.