Budget 2022: IESA recommend tax exemptions in energy storage sector

The general justification for tax incentives and exemptions for energy storage systems is that they will place storage on an equal footing with other energy alternatives.

Tax Benefits (exemption of Charges and Duties) relaxation to Storage Projects

While India is running towards achieving its RE goals, Government of India has embarked on an ambitious target of having 500 GW of renewable energy by 2030. This opens up the importance of deployment of Storage in India in order to pursue large scale RE integration. Cost-effective energy storage is essential for adding more renewable energy to the grid and will increase the grid resiliency and stability supporting the energy transition and build-up for the future. New technology like large-scale battery storage, is a critical step on the path to a cleaner and more efficient energy future.

The general rationale behind the Tax incentives and exemptions sought for energy storage systems will put storage on a level playing field with other energy technologies, the incentives and exemptions if allocated will accelerate the investment in the energy storage industry thus accelerating the growth of jobs with contributing to economic recovery.

With the ACC PLI scheme in place and to execute a green energy transition, it is necessary to promote the attempt to make Batteries in India by providing the tax incentives to accelerate the Battery Energy Storage Industry. While the Tax Holidays will boost the investment in the industry, the exemptions on GST, Customs and Excise Duty would result in a reduction of overall system cost immediately and the Tax incentives will support the industry for providing a reduced cost in a long run with domestic manufacturing.

Tax Holidays

• 10-year tax holidays for projects with Standalone Battery Energy storage using RE to charge the battery, Storage with Transmission     element, and Storage with Renewable plants.

Accelerated Depreciation

• Firms developing Standalone Energy storage, Storage with Transmission element, and Storage with Renewable plants are provided with accelerated depreciation at 80 percent on a written down value (WDV) basis.

Exemptions on Customs and Excise duty for Energy Storage System components

• Custom Duty for bi-directional inverters to be cut from 22 percent to 5 percent if used for ESS and RE associated projects.

• Exemption on duties required for raw materials required for Energy storage system shall be exempted for a period of 5 years. Mentioned is  the list of raw materials required in setting up of giga factories in India, that include; Lithium hydroxide and Lithium carbonate, Spodumene, Lithium oxide, Yellow Phosphorus, Natural graphite flakes, Nickel Sulphate, Cobalt Sulphate, Flourspar, Manganese Sulphate, Lithium Hexa-fluoro phosphate, Electrolyte Additives, Separators and separator precursors, Vanadium ore, Refined vanadium, Electrolyte solvents, Phosphorous pentachloride, Hydrogen fluoride, Electrode Binder (Vinylidiene difluoride, Acrylic polymer, Styrene butadiene rubber), Copper and aluminium foil, Conductive carbon powder.

• Excise duty exemptions/ concessional rates on production of renewable energy with Storage or Standalone Storage charged with RE power as well as procurement of goods to be used in the production of renewable energy with Storage or Standalone Storage charged with RE power.

GST reduction

• GST (VAT) exemption on the sale of ESS integrated system to promote BESS industry. 

Incentives

Inclusion of Energy Storage projects as part of Renewable Energy Schemes either for existing projects/upcoming projects require support from the government in terms of adding it as part of VGF schemes for RE projects/separate fund allocation for Storage Projects.