Importance of accelerated depreciation tax benefit for renewables in India reviewed

Sharad Raghavan writes an important article on The Hindu website on the importance of financial support to help the investments flowing in renewable energy in India. The reduction in accelerated depreciation tax benefit certainly has affected the sector. There is an important question raised about why private banks are not lending to solar projects.  You should enjoy this.

 

Reduction in accelerated depreciation tax benefit to hit renewable energy sector

The renewable energy sector, especially wind energy, is suffering because of the reduction in accelerated depreciation tax benefit as announced in the Budget, Upendra Tripathy, Secretary, Ministry of New and Renewable Energy, told The Hindu in an interview. He said the government is looking into why foreign banks have not been lending to solar projects in the country though public sector banks have been enthusiastic and private banks are beginning to show interest.

Private banks are not lending to solar projects. What is the reason?

In RE-Invest 2015, we got a huge response from the banks — private, public and multilateral. For example, the World Bank has given $500 million to SBI to lend to aggregators in rooftop solar. ADB is in the pipeline to give $500 million for rooftop solar to Punjab National Bank. And we have got $1 billion from KFW, the German bank.

Many banks think these are risky projects. That perception is still there but increasingly it is changing. If you look at investment, each MW of solar costs Rs.5 crore and this current financial year we have already put 2,500 MW of solar. A cumulative of 5,000 MW of solar has been crossed now in solar alone.

YES Bank, which is a small private bank, has not only given a large loan for renewables they have also come out with $500 million of solar bonds, what they call green bonds. Exim Bank has also come out with green bonds. There has been a big impetus because to get the 175 GW by 2022, you need around $200 billion of investment, equity and loan put together.

For the first time last year, the government gave Rs.10,000 crore of tax-free bonds for the renewable sector. It went to NTPC, REC, PFC, IRDA… We are telling the multilateral banks — World Bank, New Development Bank, ADB — that whatever loans they are extending at a global level, 15 per cent should come to the renewable sector. If you want to give a fillip to the sector, lending is crucial and credit is vital.

Foreign banks are not giving to the renewable energy sector and we are looking into that. We have requested the Department of Financial Services to put a request to these banks to also actively participate. We are also hiring a consultant, a retired bank official, who can go to all these banks and meet their association president and persuade them. We are trying to reach out to them, we cannot force them.

Are solar tariffs becoming too low for projects to remain sustainable?

The tariffs are what the industry bids. Tomorrow they may be higher than this. So far, it is a market-driven product and one can’t interfere in it.

If you look at the number of participants in these bids, it is quite big. So, there is higher competition and so the rates are low.

But then, price is also a product of volume, how much you are tendering, where you are tendering, how much sunshine is available there and also the reputation of the agency — for example, NTPC is a sovereign organisation, has large reserves, there are no payment issues, so the prices can be low. The point is each auction is unique.

Yes, the price is lower. It was Rs.10 two years ago and Rs.18 in 2010. But declining prices are a factor of higher efficiency and is representative of the global trend.

Rooftop solar has not yet taken off as expected. Is it because it is not as economical on residential properties as it is on corporate buildings?

The first thing is that I always request people not to look at solar as a financial matter. Every megawatt of solar that is generated, a few tonnes of carbon equivalent is reduced. Each megawatt of solar generated is equal to 50 vehicles taken off the road. And if 50 vehicles are taken off the road, three people will not die of respiratory problems, particularly the poor who live on the roadside. So, solar energy is not merely a flow of electrons — there is a social story, a human story behind it. If you keep that view, then even if it costs a little more, it is immaterial. Antibiotics are more costly but we take them. It is not a story of electricity or cost, but a story of our future.

Rooftop solar will also be a part of home loans or home improvement loans. So any bank that is giving a home loan — something private banks must be doing — rooftop solar is a part of it.

But having said that, rooftop is a new area for us. We have a huge target of 40,000 MW by 2022. What we have done in the first phase is that we have been able to convince the states to come up with net metering. Many states have been very proactive. Delhi gives Rs.2 of Generation Based Incentive (GBI) for each MW of solar energy generated through rooftop. Karnataka gives Rs.8 GBI. Other States have net metering — you produce, you adjust your own production against the grid’s supply.

Why has wind energy failed to take off in the country despite the huge potential?

Out of our cumulative achievement of 38,000 MW of renewable energy, 63-65 per cent is wind energy, around 26,000 MW. It started early, unlike solar, and was making good progress but at some point the accelerated depreciation was removed. So, then the investment in the sector went down. And then accelerated depreciation was reintroduced but the investment did not pick up much. Still, this year we will achieve our target of 2,500 MW of wind energy. Next year, we have a target of 6,000 MW and we are consulting the industry on how much we can actually do. But now the accelerated depreciation has gone down to 40 per cent, as per the Budget, which is also a challenging issue.

But wind energy is cheaper in some states costlier in others, around Rs. 6 per unit. So people are now looking at solar also as an alternative. But to promote it, we are coming up with a new concept called hybrid parks. We looked at the solar resource map of India and the wind resource map and overlaid them. We found that there are some areas that are rich in both wind and solar. Those are the areas where we are coming up with hybrid parks, which will have both wind and solar. We also have found that almost 30 per cent of the windmills are very old and very small. They were installed in the 1990s and early 2000s. We have started a re-powering policy where you can replace the oil, inefficient windmills with new, heavier wind turbines that are more efficient. That will also increase the wind capacity.

So, is there an argument for increasing the accelerated depreciation limit for the renewable energy sector?

As the Secretary of Renewables, I would love it. But these are decisions for the Budget and they keep so many things in mind. From my Ministry’s point of view, though, we will say that it is desirable, just and fair but the Finance Ministry has its own constraints.

Has there been any work done regarding increasing India’s energy storage capacity?

Storage is a must for us. Given the variable nature of wind and solar energy, storage helps a lot in bringing stability. But the cost is very high, and is a strong deterrent. But the cost of silicon batteries for cars is coming down. We hope that the cost will come down for other storage types as well. It is an area we have to move in. We are thinking of coming up with schemes where storage is subsidised so that more investment can come in.

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