Lukewarm Response

Union budget leaves key sector issues unaddressed

With the deadline for the renewable energy capacity addition target drawing closer, the industry as well as the government need to ensure that the roadmap for planned capacity addition is followed and implemented in a timely manner. To this end, a number of factors need to be addressed, of which budget allocations form an important part.

The Union Budget 2018-19 for the renewable energy sector fell short of meeting industry expectations. Although the Ministry of New and Renewable Energy (MNRE) released a new blueprint to achieve its target of commissioning 175 GW of renewables by 2022, in November 2017, the funds allocated do not seem sufficient to complement the planned capacity addition. This year’s budget lays significant emphasis on the agricultural and rural energy sectors, and smart cities. While it seems positive for the holistic development of renewables, sector experts feel that the budget does not address the pressing issues, thereby preventing timely growth. Many of the positive features in the budget lack clarity on their actual implementation. For instance, even though the budget notably encourages discoms to purchase the excess solar power generated from farmers, it fails to identify how the financially distressed discoms would be able to offtake the large amount of variable power.

The budget highlights for the renewable energy sector…

  • The allocation for the MNRE in the 2018-19 budget is Rs 51,466.3 million, a slight decrease from the Rs 54,728.44 million allocated in the 2017-18 budget.
  • While the total budget allocation for grid-interactive renewable power has decreased by 6 per cent from 2017-18 to Rs 37,625 million, the allocation for off-grid/distributed and decentralised renewable power has increased by almost 13 per cent over the previous year. Although this shows the government’s growing focus on rural electrification, the funding seems inadequate for the numerous ongoing and proposed schemes.
  • Budget allocations for the solar and wind power segments are Rs 28,937.4 million and Rs 7,574.3 million for 2018-19 respectively. Although the funds allocated for wind power development have increased by over 85 per cent, the allotment for solar power has reduced by 14 per cent over the past year. The increase in the allocation for the wind power segment could be attributed to the centre’s focus on reviving the nearly stagnant wind market and stabilising the newly introduced reverse bidding mechanism. Moreover, the solar energy segment has already seen major price disruptions in 2017-18, with many subsidy schemes and incentives being phased out. In addition, the government has made efforts to bridge the various policy gaps in the industry, thereby lowering the requirement of funds for solar capacity addition as compared to the 2017-18 figure.
  • While biopower has been allotted a budget of Rs 480 million in 2018-19 (down by 37 per cent), small hydro’s allocation has increased by over 63 per cent, from Rs 1,335 million in 2017-18 to Rs 2,185 million in 2018-19.
  • To ensure power evacuation from renewable energy sources, Rs 6,000 million has been set aside for green energy corridors, which is a 20 per cent increase over the 2017-18 figure of Rs 5,000 million.
  • In a first, Rs 100,000 has been allocated for energy storage under both the grid-connected and off-grid segments in the 2018-19 budget. In addition, customs duty for lithium-ion (Li-ion) batteries has been increased from 10 to 20 per cent. However, the effective rate of import duty on Li-ion batteries (other than cell phone batteries) remains unchanged at 10 per cent.
  • For autonomous bodies (the National Institute of Solar Energy, the National Institute of Wind Energy and the National Institute of Bio Energy), the total allotted expenditure has been set at Rs 410 million for 2018-19, down by 23 per cent from Rs 530 million in 2017-18.
  • The government is planning to increase its investment in the Indian Renewable Energy Development Agency by setting aside Rs 101 billion (up by 25 per cent from Rs 80.4 billion in 2017-18). Meanwhile, it has decreased investments in the Solar Energy Corporation of India by 13 per cent (Rs 2.2 billion) this year.
  • The total budget for research, development and international cooperation has been set at Rs 940.2 million, a reduction of 35 per cent from the Rs 1,440 million in the 2017-18 budget.

Customs duty on solar tempered glass for manufacturing solar modules has been reduced to 0 per cent from the earlier 5 per cent, which could help in lowering domestic manufacturing costs. In addition, to promote and benefit smaller renewable companies, the income tax for micro, small and medium enterprises (MSMEs) having annual revenues of up to Rs 5 billion has been reduced to 25 per cent.

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