Photo: Mint
Photo: Mint

Small wind energy producers get sops for revamping projects

Centre to offer interest rate rebate, flexibility in timing of tax payments; move in line with govt's wind re-powering policy

New Delhi: The centre on Monday offered interest rate rebate and flexibility in the timing of tax payments for small wind power producers who upgrade their existing plants.

The move is in line with the Narendra Modi government’s idea of stepping up power capacity by revamping existing projects rather than going for new ones, for which acquiring land and getting green clearances may be time-consuming.

As per the ‘wind re-powering policy’, which was unveiled by the ministry of new and renewable energy on Monday, those producers generating less than one megawatt (MW) of wind power will get an interest rebate of 0.25% from the Indian Renewable Energy Development Agency Ltd, a state-owned power financing entity, for revamping their wind turbines.

These producers will also get accelerated depreciation, a facility under the Income Tax Act, which allows businesses to recognize up to 100% of the cost of a plant or machinery in one year rather than recognizing it over the useful life of the asset.

Recognizing a substantial part of or entire cost of a machinery in a year reduces the taxable income for that year and enables businesses to defer tax payment to a future year.

Under normal circumstances, companies recognize 10% of the cost of a machinery in a given year and it takes a decade to depreciate the entire asset.

The extension of accelerated depreciation to revamped wind-power projects will, however, have limited impact, considering that finance minister Arun Jaitley had in budget 2016 restricted accelerated depreciation benefit to just 40% from 1 April 2017, from up to 100% as allowed now.

“Currently, wind power projects are entitled to accelerated depreciation of 80%. Finance Bill, 2016, has proposed to restrict the maximum accelerated deprecation to 40%. Considering the significant drop, the actual benefit of accelerated depreciation offered under the ‘draft policy of the wind power project’ would be limited," said Hemal Zobalia, partner, India tax leader (infrastructure and energy sector), Deloitte Haskins & Sells LLP.

Those producers who commission the revamped project before 1 April 2017 will get the full accelerated depreciation benefit, and those who do so after that date will get 40%.

To revive the power sector, the government had on 5 November announced a debt restructuring scheme for state power utilities and a comprehensive revision in its power tariff policy on 21 January. The government has set a target of having 175 gigawatts (GW) of renewable energy capacity by 2022, up from 39GW at present, accounting for 13% of the total 289 GW capacity.

India is giving a strong push to renewable energy in line with its commitment to cut carbon emissions by 35% and increase the use of renewable energy sources to generate at least 40% of its power needs by 2030. Currently, about 70% of the total power capacity is fired by fossil fuels such as coal, gas and oil.