Budget 2020-21 introduces new reforms and incentives for power sector

[vc_row][vc_column][vc_column_text]Today, Finance Minister Nirmala Sitharaman announced the Union Budget for 2020-21 under the Narendra Modi government. Among other things, the Budget has introduced a slew of reforms and initiatives for the energy and power sector. Here we take a brief look at them:

• Rs 22,000 crore has been allocated to power and renewable energy.
• 15 percent concessional tax rate has been decided for new power generation companies.
• The Finance Minister urges all the states and UTs to replace conventional energy meters with prepaid smart meters in three years. This will give consumers the freedom to choose supplier and rate as per their needs.
• National Gas Grid will be expanded from the current 16,200 km to 27,000 km. Reforms to deepen gas markets and enable ease of transactions and transparent price discovery will also be made.
• Five new smart cities will be set up via PPP model.
• Thermal plants have also been advised to shut operations if they don’t meet emission norms.
• Large solar power capacity will be set up alongside rail tracks and on land owned by Railways.
• The government aims to achieve electrification of 27,000 km of railway tracks.
• Solar power plants will be developed on barren farmlands, to give a boost to the sector.

Industry players too shared their reactions to the Union Budget. Vimal Kejriwal, MD & CEO, KEC International, said, “Union Budget 2020’s infra focus is expected to provide a significant fillip to KEC. Allocation towards power and renewable energy and transport infrastructure, upgradation of stations and developing solar in railways, setting up of 100 new airports, 5 new smart cities and linking 1 lakh gram panchayats with BharatNet augurs well for our businesses.”

Prabhajit Sarkar, MD & CEO of Power Exchange India Limited (PXIL), shared his views on Union Budget 2020, saying, “In our view, this is a very cogent budget, which touches upon every aspect of the electricity sector with an overall direct outlay of Rs 22,000 crores. The provisions seem to have been crafted to have a long-lasting impact on the structural aspects of the sector rather than just ameliorating some immediate symptomatic issues. Supporting power generation in the renewable sector by proposing grid integration of solarised fallow/barren lands, grid connected solar pumps as well as large-scale solar power development on railway land along rail tracks. In the thermal power space, by suggesting the closure of older thermal power plants which do not meet the pollution control norms, it would lead to far better utilisation of newer generation capacity that otherwise is not being fully utilised.”

He adds, “The tax rate for new electricity generation companies has also now been brought in line with the new regime for manufacturing companies, thereby bringing the corporate tax rate to 15 percent and significantly expected to boost new investments in the power generation space. In the power distribution space, the revolutionary idea of replacing all conventional meters by prepaid smart meters would have a tectonic shift in the manner of doing business. On implementation, this would allow distribution companies to completely eliminate their payment recovery cycle from consumers, thereby leading to a positive working capital cycle and thus payments in time to the generating companies as well, resulting in a virtuous cycle of payments on time. This would also, at a later date, allow for multiple supplier model to be implemented easily as the sellers of such prepaid coupons to consumers may be allowed to source power from different avenues.”

He says, “In addition to the various benefits suggested for the manufacturing sector, the digital refund of electricity duty and other central taxes and duties to exporters is also expected to support the manufacturing in the country and lead to higher electricity consumption. This again is expected to fuel the growth of the power sector in the country. In all, we believe that the Budget 2020 has delivered on the promise of long-term corrective action for the power sector in the country and is expected to revitalise the sector once again.”

Advertising