Home >Opinion >Budget’s impact on renewable energy

At the UN Climate Change Conference held in Paris in 2015, India put forth its strong commitment towards clean energy and announced its climate change plan, i.e. Intended Nationally Determined Contribution (INDC) setting targets for domestic efforts against climate change.

Among other initiatives, key targets are 40% power installed capacity from non-fossil-fuel-based energy resources and reducing emissions by 33-35% of its GDP by 2030.

India’s INDC also sets a target of achieving 175 gigawatts (GW) of installed capacity of renewable energy—including 100GW of solar power and 60GW of wind power.

It would be reasonable to say that India has covered ground in the last fiscal; India launched the International Solar Alliance (ISA), a coalition of solar resource-rich countries, to address energy needs and common concerns.

The Renewable Energy Global Investment Promotion Meet and Expo (RE-INVEST) organized in February 2015, received satisfactory response from global investors. India also signed an MoU with Germany to promote solar energy.

The government has also launched programmes, including the Green Energy Corridors, a nationwide transmission grid dedicated to power generated from renewable energy projects; setting up of 25 solar parks with a capacity of 50MW each; ultra-mega solar power projects scheme; and the viability gap funding scheme for setting up solar power projects by offering project developers capital cost support.

However, a challenge remains in the capital funding required for such capacity expansion. With the finance minister deciding to stick to fiscal consolidation and reining in the deficit, India’s ability to further access debt resources is limited, due to an existing high debt ratio.

In this backdrop, the government has allocated an outlay of above 10,000 crore for 2016-17. This outlay includes 5,000 crore from the National Clean Energy Fund (NCEF) with the balance coming from Internal & Extra Budgetary Resource (IEBR). A significant part of viability gap funding for solar power projects is intended to be financed out of such cash outlay.

The finance minister mentioned diversification of sources of power for long-term stability and outlined his endeavour to augment investment in nuclear power generation in the long term. Changes have been proposed in the public-private partnership (PPP) mode to revive development of infrastructure.

On the taxation front, the clean environment cess on coal, lignite and peat has been doubled from 200 per tonne to 400 per tonne; encouraging the use of renewable sources of energy. Other proposals include extension of benefit of additional depreciation to businesses engaged in the transmission of power and exemption of capital gains arising on account of the appreciation of the rupee against a foreign currency at the time of redemption of rupee-denominated bonds.

The final road map for phasing out of tax incentives has also been rolled out. No profit-linked incentives have been extended to the power sector, or renewable energy in particular.

To this extent, the budget appears to be focusing more on administrative issues within the limits of fiscal prudence, like providing a legal framework for dispute resolution in PPP projects and measures to curb litigation in order to promote a non-adversarial tax regime.

In order to provide a fillip to the sector, especially in view of the ambitious targets for capacity enhancement set by the government, mobilization of finances is of utmost importance.

Gokul Chaudhri is a partner at BMR & Associates. The views expressed here are personal.

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