Green Zone

Wind power:Budget wish list

Discussion on budget expectation for wind power sector

The renewable energy landscapes both in India and globally is undergoing significant transformation. With over 28 GW wind energy, today India is 4th largest in terms of wind installed capacity. We see the demand for clean, sustainable and affordable power continuing especially in emerging markets. India’s commitment at COP21, to reduce 30 per cent to 35 per cent carbon emission and increase renewable to 40 per cent of the energy mix by 2030 will continue to give impetus to incremental demand for renewable energy.

The wind energy sector can easily achieve the target of 60 GW by 2022, and also harness the export potential of 10 GW (approximately USD 10 billion), if the following recommendations can be considered in the upcoming Union budget.

Following are expectations on the Union budget 2017;
Continuation of Accelerated Depreciation and Section 80 IA for Wind Operated Electricity Generators (WOEGs)
There is a fair amount of Indian capital that has and is investing into wind energy projects, because of presence of accelerated depreciation, believes Tulsi Tanti, Chairman and Managing Director, Suzlon Group. He says, “Most of these investments come from the manufacturing sector in India, which utilises renewable energy for their captive consumption, so that they hedge their energy costs.”

In a typical process industry that is textile, energy consists more than 30 per cent of their operating costs, if such industry invests into renewable energy, the energy costs dips to less than Rs 1 per kWh after 6 to 7 years, making them competitive and profit making. “In order to continue the impetus for ‘Make in India’ and make it successful, Accelerated Depreciation (AD) should be allowed to be continued,” he suggests.

“Further, with presence of MAT, and removal of Sec 80 IA, would make the energy cost higher than today, so Sec 80 IA needs to be retained,” points out Tanti.

On the other hand Dr Sanjiv Kawishwar, Sr. Vice President, ReGen Powertech Pvt Ltd also believes, “Continuing existing accelerated depreciation benefits at least for 5 more years.”

Goods and Services Tax
When it comes to Goods and Services Tax (GST) Kailash Lal Tarachandani, CEO, Inox Wind Ltd says, “We understand that the Government of India is inclined to introduce GST with effect from April 1, 2017. It is learnt that power is proposed to be kept outside the GST net. The entire chain of manufacturing, sales, purchases, service provisions etc, cannot take advantage of credits, if power is exempted from the purview of GST. Therefore, it is hereby requested that zero rating of WOEGs be provided under the imminent GST regime to ensure that GST does not negatively impact the sector.”

Renewable energy products currently are excise exempt, and currently electricity duty is kept out of GST, because of which the entire GST chain breaks while producing electricity, if not corrected would lead to increase in cost of generation anywhere between 30 to 50 paise per kWh, points out Tanti.
He adds, “Since, it is important to contain or reduce the cost of generation, best would be to peg GST at 6 per cent slab revenue neutral or best to be at ‘zero’ rate, which would reduce cost of generation , making renewable energy most acceptable to discoms and end consumers.”

Inclusion of wind energy projects under priority lending category
Including wind energy projects under priority lending category is essential believes Tarachandani. He says, “While the country is reeling under power shortage and wind energy is the cleanest energy produced, the hurdles in financial closure for the projects are resulting in a delay of projects. Currently the wind power projects are included in priority lending category for loans up to ` 15 crore, the plea from the industry is to include lending for large wind energy project under the priority lending category for fast implementation of projects. Also to consider a lower interest rate and longer tenure of lending for wind energy sector.”

Dr Kawishwar recommends for supporting SMEs by providing interest rebate for using renewable energy for captive requirement. He also points out, “It is important to make a policy for sharing hedging risk for borrowings in the wind energy sector.”

Incentive mechanism for state discoms to procure wind energy
There is a requirement to incentivise state discoms to meet the RPO compliances, today, there is no such mechanism, observes Tanti. He states, “MNRE, recently floated a paper to extend Performance Based Incentive (PBI) to the tune of 62 paise per kWh to discoms, which is a very good move, should be implemented.”

Tanti also urges that Generation Based Incentive (GBI) should be continued to maintain the growth momentum and to achieve the target of 60 GW by 2022.

On the other hand Tarachandani says, “The industry gets generation based incentive on projects; the industry would like to have a 5 to 10 year period clarity on continuation of such benefits.”

Financial support
It is important to give financial support to domestic manufacturers to boost the ‘Make in India’ mission believes Tanti. He emphasises, “It is essential to give concessional finance or interest subvention for manufacturing sector that invests in wind energy for captive utilisation. An interest subvention of 5 per cent should be given to such manufacturing units that invest into wind energy for captive utilisation. This is to give impetus to ‘Make in India’ and make manufacturing sectors in India profitable, which are currently under tremendous pressure for margins due to high interest rate and energy costs.”

He also notes that, investment in wind energy hedges their energy costs on a long term basis, making them more competitive at the global level. This will lead to increased exports and manufacturing.

Agreeing upon Tanti’s views Dr Kawishwar states, “Financing wind energy project at a reduced interest rate in which 70 per cent value-wise locally manufactured component are used. In addition, allowing companies to issue tax-free bonds, especially those holding certain credit ratings. Therefore upcoming budget must pay special attention to facilitate efficient financing for wind energy sector and the fiscal benefits and policies should be such that it develops confidence of investors in wind energy.”

Making India a global manufacturing hub
The government is striving hard by introducing various initiatives to make India a global manufacturing hub. While making a point on how India can be a global manufacturing hub Tanti says, “It is important to make raw material exempt from customs, and have higher tariff for import of finish goods, in order to make India a global manufacturing hub for renewable energy. Exemption of customs would create a right environment for manufacturers to set up their facilities in India and help achieve the country’s ambitious target of 175 GW.”

Export subsidy (logistics support) for wind energy sector
India has tremendous potential for exporting wind turbines to overseas geographies. Till date India has exported more than 7,000 MW of wind energy projects across the world. While commenting on the pre budget expectation on the export subsidy Tanti says, “We need to have time-bound logistics subsidy starting from 10 per cent of the sale value to ‘zero’ over a 5 year period, then it would be possible to achieve an export of 20 GW by 2022, which will not only earn FOREX for the country, but also further enhance the ‘Make in India’ vision.”

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