BUDGET 2020: WHAT DOES THE INDIAN SOLAR INDUSTRY EXPECT?

The overall industry sentiments call for standardisation of captive renewable energy policy across states to promote open access purchase of power, need for increase in fund allocation to MNRE and SECI to facilitate growth of rooftop solar; reduction in GST rates as there is no input credit that can be claimed by power companies, need to rectify absence of netmetering systems across states, rationalisation of indirect taxes, addressing the credit squeeze to bring back liquidity into the system, clarity on provisions pertaining to the recovery of dues by National Company Law Tribunal (NCLT), exemptions on surcharges and duties, and lot more. In a nutshell, the industry demands stability of policies by addressing regulatory uncertainties that impact investor confidence from pumping in fresh investments to promote solar sector growth in India.

Mr. Sanjeev Aggarwal, Managing Director & CEO, Amplus Solar

“The last year has been full of challenges for the solar industry and we hope that this year’s budget will provide the much-needed impetus to the solar industry. We believe that higher investments should be dedicated to improving and modernising the transmission networks so that power from renewable sources can be evacuated on a real-time basis across the country. We should provide open access to all industries so that they procure the lowest cost of electricity including from renewable sources that will improve their competitiveness in manufacturing.” There is also a need for a standardised uniform captive renewable energy policy at the national level, to promote open access purchase of power across states, unlike the current scenario where every state has a different policy. This would enable the transmission of power from states with higher renewable energy potential to those with lower, facilitating C&I consumers to have access to low-cost renewable energy. The government should also make sure that the confusion regarding GST goes away and the GST is notified at 5% as was the original intent during the GST roll-out phase. Subsidies and incentives should be extended in the newer technology areas like battery storage and e-mobility. Along with greater focus on electric vehicles, the government should also address related feasibility issues for a substantial roll-out, like increasing the number of charging stations and making them more accessible. The rooftop solar market continues to grow but there are several challenges including regulatory uncertainty that still pose a threat. Restrictive policies, like absence of net metering should be rectified across the states. To compensate the state distribution companies, there should be an increase in fund allocation to MNRE and SECI to facilitate the growth of rooftop solar.

Mr. Animesh Damani, Partner, Artha Energy Resources

The power sector has set high expectations from this year’s budget and are hopeful of seeing power being included in the 15 per cent tax bracket. It has been a long-standing demand of the industry for reduction in GST rates as there is no input credit that can be claimed by power companies. “I strongly believe that subsidies for the residential sector need to be tweaked as they are not giving desired results. A bigger focus on incentivizing commercial and industrial users is the need of the hour. We are hopeful of seeing a new version of Ujwal DISCOM Assurance Yojana (UDAY) in this budget with a greater focus on compliance from Discoms towards timely payment to generators and reduction in their own losses. A move to shift subsides from discoms to the state budget will be a much-appreciated move.” Animesh Damani is of the view that the budget alone cannot propel the growth of the solar industry and it needs sector specific reforms to resolve issues the way SERCs, CERCs and utilities work. “The gap in the implementation of central government’s agenda towards renewables and stance of Discoms on anti-renewable needs to be addressed.” There is a need for captive renewable energy policy as consumers, who are supporting the government’s agenda on renewables are facing resistance from Discoms. Recently, Maharashtra proposed adding grid-support charges for net-metered consumers ranging from Rs 4 to Rs 8 per unit. As a result, such charges are refraining consumers from following the government’s agenda and dithering new consumers from installing projects. There is a lack of clarity on various charges, a process for setting up captive open access plants amongst other issues that need to be addressed. Visibility for a 10-year horizon on applicable charges is extremely important as such projects involve high capital expenditure. Damani vouches for exemptions from cross-subsidy and transmission charges, as it makes projects viable and consumers do not have to bear the burden of additional charges.

Mr. Rohit Chandak, Chief Financial Officer, Ayana Power

Our key expectation from the budget is as follows:

1. Revive bank loan market: Renewable Energy (RE) sector needs steady support of banks. Whether by including renewable energy in the priority sector or other incentives, banks must be encouraged to provide long-term debt to RE projects. Unless the banks actively participate in funding of these projects, it will not be possible to achieve the ambitious target for RE in India. The non-availability of bank finance for under construction RE projects is already reflecting in poor subscription for various on-going tenders.

2. Focus on DISCOM health: Poor health of state DISCOM is a key concern for the entire power sector. No business can survive if a Government-owned counter party doesn’t pay for undisputed invoices for more than a year. A well thought plan to improve health on a long term basis, rather than temporary liquidity support is needed for the hour. While there have various initiatives like UDAY in this regard, the structural issue of negative unit economics (revenue realization being lesser than average cost of supply) is the key to solving this issue on a sustainable basis.

3. Sanctity of Contract: Infrastructure business derive their value from the expectation that the Government-owned counter parties will honour the contract in letter and spirit over 20-30 years life span. Any attempt, action or display of an intention to not honour signed contracts can impact foreign investment significantly. Adequate laws or legal protection must be provided against the same.

4. Corporate Tax: Provide express clarification that renewable energy projects are eligible for 15% tax rate as provided for manufacturing.

5. GST Off-set: There is heavy accumulated GST input-credit for renewable energy projects that goes completely unutilised by the project SPVs as power sale is exempt from GST. Renewable SPVs shall either be allowed to procure at nil GST or be allowed to claim refund under inverted duty refund structure.

6. Cash Trap: Mostly infrastructure businesses are housed in different SPVs and suffer from cash trap once the projects start generating operating cash flows. Adequate relaxation from deemed dividend and interest disallowance provisions to allow movement of surplus cash as inter-company deposits must be allowed.

There is a significant number of foreign investors willing to invest in the renewable energy sector in India. However, some of the fundamental issues need immediate attention and we hope that Budget 2020 will address many of the highlighted issues.

Ms. Vibhuti Garg, Energy Economist, Institute for Energy Economics and Financial Analysis (IEEFA)

Technology is shaping the future of energy mix and to meet its climate commitment as part of the Paris agreement, the budget needs to give a strong push to clean fuels. While renewable energy has become price competitive with conventional fuels, policy certainty to be ensured and negative impact on the price of renewable energy by imposition of duties and charges to be avoided.

To boost more renewable energy deployment, industry will like to see waiver of custom duties and safeguard duties on renewable energy equipment imports till the time domestic manufacturing picks up. Further, more support needs to be provided to electric vehicles and storage technologies than can help in achieving clean, efficient and sustainable mobility.

Government should provide financial support to new technologies like off-shore wind etc. and also exploit the potential of solar rooftop and other decentralized renewable energy like solar pumps for agriculture by waiver of transmission charges, cross-subsidy surcharge on such consumers.

Given the increasing issue of air pollution, it becomes imperative for the Government to provide support for meeting the environmental norms by thermal power plants. Government should also propose innovative financial ways of phasing out of old and stranded thermal power assets.

Mr. Saif Dhorajiwala, Co-Founder and Executive Director, Fourth Partner Energy

Our expectations from the upcoming budget announcementby the Finance Minister is focused on reviving demand and consumption, especially rural demand – as this will directly help in boosting the economy. Therefore, rationalisation of indirect taxes is expected. Measures to bring liquidity back into the system and address the credit squeeze will need to be announced. Also normalisation of the credit cycle is essential to boost business sentiment. Fresh capital infusion or recapitalisation of PSBs is not something the market is expecting, but commentary around the same is awaited. Clarity on provisions pertaining to the recovery of dues by National Company Law Tribunal (NCLT) is likely to be announced. Recovery from resolution of pending NCLT and non-NCLT cases will be crucial to secure and revive the financial health of lenders this calendar year. India’s target is 100 GW Solar power by 2022, the market is ripe for utility scale players, distributed solar developers and EPC contractors to contribute to this significantly. Recent sectoral research indicates over 300 solar firms are operational in the country. India is undoubtedly amongst the better-performing countries globally in terms of adopting solar power, but the rate of growth is not nearly enough to achieve the 40 GWp rooftop target for 2022. Policymakers, DISCOM/utility companies, financiers, developers, clients, tax authorities and all other stakeholders work in tandem. This will result in unstoppable growth of the Indian solar sector – the outlook for 2020 is positive, but stable regulatory policy and availability of debt will be the crucial drivers of growth. Stable, long-term policy, ease in CEiG and net-metering approval and open access norms to facilitate migration by C&I consumers will boost the solar story. This has to be done, keeping in mind incentives to Discoms to ensure their financial health does not become a concern. Exemptions on surcharges and duties will always help accelerate the growth of any industry. However, one has to remember that Power is a concurrent subject - which means apart from the Centre’s vision, states have to act in accordance to enable exponential growth of India’s renewable energy industry.

Mr. Bharat Bhut, Director, Goldi Solar Pvt. Ltd.

In this year’s budget, the expectation from the government is to formulate incentives for promotion of domestic manufacturing in the heavily import dependent solar industry. Local manufacturers need to be safeguarded through duties on imported products, so as to make domestic products more cost-effective. It is our hope that this will give a significant boost to the “Make in India” vision of the government.

While the government has made major policy and regulatory interventions in order to promote solar power development, what is expected in this budget is the stability of policies. The various regulatory uncertainties that are impacting investor confidence need to be addressed urgently. In addition, we expect the government to ensure better synchronisation between the discoms and solar companies to ensure a win-win situation for all stakeholders.

Mr. Vikas Jain, Director, Insolation Energy Pvt. Ltd

Solar manufacturing has been struggling hard since its inception in india. There are a lot of expectations from the budget, in specifics about import duty levied on imported solar modules. There is a need to create a level-playing field for solar manufacturers located within SEZ and those in the Domestic Tariff Area (DTA) to ensure manufacturers pay duty on raw materials imported irrespective of their units located within SEZ or in the DTA. Currently, the manufacturers within SEZ are exempted from paying duty on raw material imports, this needs to be changed. Also timely refund of GST on inputs, duty free import of equipment should be made available to support solar manufacturing in India, as we are 100% dependent on imports for plant and machinery, scrap ADD on glass from China and Malaysia.

Budget announcements made during the last three years have seen no significant steps to propel growth of the solar industry, except introduction of schemes which have not been implemented yet at the state-government level due to lack of funds. There is also an urgent need that all states have a revised captive renewable energy policy. Currently there are many rules and regulations that captive has become no longer viable. Considering this is a state-wise subject there is a lot of pressure on Discoms to keep this policy in abate. Also exemptions from transmission charges fully or partially is long awaited demand from the solar industry. Levying hefty charges on wheeling, transmission, and minimum guarantee has ultimately made renewable captive power plants unviable. Owing to lack of captive policies under the State Government purview, setting up of captive plants is an industry-wide challenge thus far. Overall, the industry looks forward to a promising budget that will aid continued growth of the solar sector in 2020 and beyond.