What the union budget (2017-18) means for Renewable Energy?

Approaching the half-way mark of the 2021-22 targets for Renewable Energy (RE), there was huge expectation from the 2017-18 budget and after an above average budget the last time around (Read more) it was going to be a tough act to follow. The expenditure in the energy sector is slated to increase from 30,065Cr (INR Crore) in the current Financial Year(FY) to 36,718Cr. As there was no big bang announcements in the sector, the focus is shifted towards the financial outlays across projects where the subtle details are described.

Access to electricity

“Well on our way to achieving 100% village electrification by 1^st May 2018”

The Deen Dayal Upadhaya Gram Jyoti Yojana (DDUGJY), the flagship scheme under rural electrification will see an increase in budget allocation from 3,350Cr (Estimate FY17) to 4,814Cr (FY18).  The allocation along with Integrated Power Development Schemes will be crucial in to achieve the 100% electrification target by 1^st May 2018. The Integrated Power Development Scheme which envisages 24×7 power and efficient grid has a total budget  of 5821Cr for the coming fiscal.

Solar Power

Interestingly the announcement of having 7000 railway stations powered through solar gained traction although the overall plan under the railway ministry is to achieve a cumulative target of 1GW. Second phase of solar park development to be taken up for 20GW capacity, which in likelihood is just going to be a preliminary selection in the coming year. Budget allocation of 5,497Cr up from 5,036Cr (although revised estimates for FY 17 peg at 4,360Cr) to Ministry of New & Renewable Energy (MNRE).

The ministry has proposed to add 10GW capacity in the FY with 4.5GW coming from financial aid like VGF (50Lakh/MW assumed) and the balance 5.5GW coming from other state policies.

Wind Power

The outlay for wind is capped at 400Cr down from 488Cr in the previous year although this is justified considering the Generation Based Incentive (GBI) ceases from 1^st April 2017. The target for wind power is 4GW in the coming year.

In spite of  needing a significant development in RE, the budget has reduced the Research & Development (R&D) outlay from 446Cr to 144Cr with no technology specific announcements which is a big drawback.

Power Evacuation

In what could be cited as big plus in the budget is the financial commitment towards power evacuation especially the green corridors. It has seen a marked increase with MNRE and Ministry of Power together getting an allotment of 575Cr for the Green Energy Corridors. The target is to reach 8553CKMs (Circuit Kilometers) in the medium term with 350CKMs targeted in the coming fiscal.

Taxation

The Accelerated Depreciation (AD) as announced in the previous budget will be reduced to 40%. MAT credit is allowed to be carry forwarded up to a period of 15 years from the present 10 years.

The reduction in customs duty on solar module glasses was around in the media but what went unnoticed is the increase in excise duty.Solar tempered glass for solar modules see a nil Basic Custom Duty (BCD) while parts for manufacturing of solar tempered glass has a 50% reduction of Countervailing Duty(CVD) from 12.5% to 6%. All items of machinery required for fuel cell based power generating systems to be set up in the country or for demonstration purposes  and Balance of System (Bos) for bio-gas plants see a reduction in BCD  and CVD to 5% and 6% respectively (down from 10%,12.5%).

The excise duty rate for solar tempered glass has increased from 0% to 6% while the excise duty on the raw materials for manufacturing of solar module glass is reduced from 12.5% to 6%. Likewise the materials for fuel cell based power systems has also seen an excise duty reduction from 12.5% to 6%.

Although there is a significant onus on Make In India, the announced tax benefits are unlikely to benefit in the long run which hints at changes during Goods & Services Tax (GST) roll-out.

The tax on income from trading/transfer of carbon credits has been reduced to 10% from the existing 30%.

On the other side considering the active interest between RE companies and Electric Vehicles (EV) it is important to observe the outlay towards EV. The Faster Adoption and Manufacturing of Hybrid and Electric vehicle scheme (FAME)  has been extended with an outlay of 175Cr. The medium term goal being 2-3 million Electric/Hybrid vehicles. Specifically for this year the outlay is focused on establishing 200 charging stations, introduction of 1.5 Lakh vehicles including 200 electric buses.

In summary, the budget does promise an increase in funding across all programmes of the power and renewable energy ministry. The key question is, will the increased outlay translate to physical progress considering the massive RE targets.