Environmentalists voice fears over Indian budget

Environmentalists have rounded on the Indian government after it coupled the announcement of a rise in its renewable energy generation target – to 175 GW by 2022 – with news the budget for its ministry of new and renewable energy (MNRE) will be slashed by more than two-thirds.

A report by the Reuters news agency yesterday (Thursday) in which environmental groups say Narendra Modi’s departmental budget cuts are sublimating the green commitments of the previous, Congress party-dominated coalition government in the interests of economic growth, reinforces the three-out-of-ten verdict on the national budget delivered by analysts Bridge to India at the start of the month.

According to the Reuters report, the ministry of new and renewable energy will have just INR3 billion ($47.6 million) to spend in the new financial year, which starts, perhaps appropriately, on April 1.

With finance minister Arun Jaitley announcing in his budget speech, on February 28, that India’s renewable power generation target would rise, Chandra Bushan, deputy director general of the Center for Science and Environment, told Reuters the budgets for rural solar and renewable energy R&D would both fall.

Although the levy, or cess, on coal will double from to INR200/tonne ($3.17/tonne), analysts Bridge to India pointed out the fossil fuel is sold at cost price to Indian utilities.

Duties changes are small beer

Although Bridge to India said a 5 per cent reduction in corporate tax over four years and a reduction in the import duties applied to the raw materials for PV panels would have a positive effect on solar, it labeled the latest Indian budget a lost opportunity for the sector.

Tax-free bonds to support investment in roads and rail will not be replicated for renewables, the minimum alternate tax rate of 18 per cent was not lifted for renewables projects, as was widely hoped, and there was no sign of higher power tariffs, grid access rules, smart grid investment, grid expansion, easier land acquisition policy or an opening up of the financial system, all of which analysts say are vital for the Indian solar sector.

There was no sign of a plan to reform the power market to rationalize prices and, although the government said it wants to electrify the 20,000 villages without grid power, it revealed no details of how it would do so with Bridge to India questioning how the desired transition from a 1 GW annual solar market to a 10 GW market can be achieved without any new grid investment.

Clean Energy Fund is unspent

On the financing front, pre-budget talk of help for solar through currency hedging support, subventing the interest rate or classifying renewables as a priority sector, all came to naught and Bridge to India was quick to point out the proceeds flowing into the National Clean Energy Fund, set up in 2010, from the doubling of the coal levy are likely to remain unspent, with Reuters reporting the fund has now amassed some INR300 billion ($4.75 billion) which sits unspent in its bank account.

The latest negative verdicts from the industry follow the revelation on Monday that power minister Piyush Goyal told the upper house of the Indian government that he is considering halving the subsidy for rooftop solar systems, from 30 to 15 per cent.

A report run by the DNA India website stated Goyal, who also holds the coal and MNRE portfolios, told the Rajya Sabha, in a parliamentary reply, that rooftop solar already benefits from import duty and tax holiday concessions as well as accelerated depreciation.

According to the report, a continuing fall in the price of solar panels, coupled with a lack of government funds, has prompted the proposal.

Raj Prabhu, CEO and co-founder of analyst Mercom Capital Group, told pv magazine any reduction would have a minimal impact.

"It is just a proposal at this point, nothing is finalized," said Prabhu. "That said, rooftop has been a very small portion of solar installations in India so far and late and non-payment of rooftop subsidies in the past has resulted in many vendors going out of business. Funding allocation and policy priorities seem to be constantly changing."