Budget 2023: From GST refund on purchases to GST reduction - Here's what renewable energy expects from Modi govt

Budget 2023: We expect the Union Budget for 2023-24 to prioritize decarbonisation, energy transition towards renewable energy, says Global CEO of Hero Future Energies.

Budget 2023 and Renewable Energy Sector :Land and regulatory approvals continue to remain one of the biggest challenges in setting up large utility-scale projects in India

The renewable energy (RE) sector has been one of the major focuses of the government for the past couple of years. Be it the previous budget and agenda of the G20 presidency, the government has always prioritized the sector. With the budget 2023 around the corner, Srivatsan Iyer, Global CEO of Hero Future Energies, in an exclusive interaction with Zee Business talks about the budget expectations and measures like tax incentives for residential and commercial rooftop solar consumers, no capital gain tax on sale of land for wind and solar farms and other associated land reforms may help in economic growth:

Do you expect any tax incentives or related announcements in the coming Budget?

We expect the Union Budget for 2023-24 to prioritize decarbonisation, energy transition towards renewable energy and development of a manufacturing and support ecosystem to enable this transition.

With the government’s increased focusing on increasing the share of renewable energy in the overall energy mix, we hope that there will be announcements related to the sector in the Budget such as clarity on inclusions under “Solar Power Generating Systems” and to provide some relief to the RE industry by reverting to the 5 per cent GST structure in 2021.

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We expect rationalization of GST on operation and maintenance (O&M) of Wind and Solar Plants from 18 per cent to 12 per cent, which unlike conventional Power Generation assets, forms the bulk of the Operating Costs. Also, there should be a provision for refund of GST on purchases made for generation of electricity through RE. With the increased focus and buzz around Carbon Credits and development of an effective market mechanism for Trading, we also request the government to ensure similar tax treatment for income from sale of Renewable Energy Certificates (RECs) similar to carbon credits u/s 115BBG.

Additionally, measures like tax incentives for residential and commercial rooftop solar consumers, no capital gain tax on sale of land for wind and solar farms and other associated land reforms will bolster the growth and public support for RE and accelerate the country’s green Transition.

India needs more than $10 trillion to achieve net-zero emissions by 2070, but there are not many companies investing in renewable energy. Do you think this can change in the foreseeable future?

With India updating its Nationally Determined Contributions and setting an ambitious target of non-fossil fuel sources accounting for 50 per cent of total installed power capacity by 2030 and a Net Zero Pledge by 2070, the RE sector is bracing for significant growth after a period of delays and pandemic induced challenges.

Much of this intended growth requires significant financing and the government has taken certain initiatives to this end with the Finance Minister Nirmala Sitharaman announcing the plan to issue sovereign green bonds in the 2022-23 budget. India’s first sovereign green bond issued this week got a better-than-expected yield, raking in $1 Billion, 7.29 per cent, six basis points lower than the similar maturity sovereign debt. This is a very encouraging trend as we see investors ready to fund India’s green transition at a lower than market borrowing cost burden.

As people get more sensitized to climate change and its real world effects across the globe, we have also been seeing increasing interest from large institutional investors looking to deploy capital in sustainable decarbonization / RE projects.

The government has recently undertaken measures such as the LPS scheme, providing much-needed relief to RE developers, boosting investor confidence in the domestic RE space. Additionally, we may also see increased liquidity through the operationalization of certain long-awaited measures like the Carbon Emissions Trading Mechanism, which serves as a supplementary revenue scheme, bolstering the economics of RE development.

Such measures, working together will provide the necessary funding to push through with the National decarbonization and Net Zero Goals in the Medium to long term.

PLI incentives are available for companies engaged in manufacturing high-efficiency solar PV modules. Can such incentives be extended to other companies operating in the renewable energy space?

Looking to boost self-reliance and also establish India as a manufacturing hub, the government is working to establish robust domestic solar, BESS and Green Hydrogen manufacturing ecosystems.

To this end, it has introduced several measures like manufacturing linked tenders, PLI schemes for solar, advanced cell chemistry BESS and Electrolyzer manufacturing and a dedicated Green Hydrogen Policy. All of these offer a portfolio of incentives aiming to make domestic manufacturing cost competitive. There also exist some tariff barriers for key import RM like glass etc. The solar manufacturing PLI scheme actually does incentivize indigenization as it directly rewards higher domestic value add as compared to imported raw materials in the finished product.

While government support is absolutely essential for setting up of a successful manufacturing ecosystem, but in order to become a truly global manufacturing powerhouse, there also needs to be a sunset date for such incentives as was there in the case of VGF and other similar schemes meant to boost RE installations, in order to compete effectively in global trade with China.

What are the key policy changes India needs for better support to manufacturers catering to green energy?

A. Some key developments expected on the policy front in the coming year include a more comprehensive Green Hydrogen Policy and fleshing-out of the recently announced Green Hydrogen Mission objectives, in addition to the PLI schemes already announced. Further, we look for strong policy support for the wider implementation of Energy storage (BESS, Pumped Hydro, etc.), to enable the greater proportion of intermittent RE in the energy supply base of the country. Also, the industry is looking forward for more clarity on the structure and operationalization of the Carbon Emissions Trading Mechanism, which has been in the discussion stages for a while now and could provide additional impetus to the decarbonization efforts of the Industrial sector.

Decarbonization of the C&I sector is the cornerstone of decarbonization of the economy and achieving that requires concerted efforts on both the demand and supply side. While we laud the announcement of Green Energy Open Access rules as a key enabler in this transition, recent developments regarding clarity around Group Captive regulations at the state level, which, at the time are subject to variability depending on states and DISCOMS can prove to be a real dampener.

Also Read | Budget Expectations from other industry leaders

What are the key policy changes India needs for better support to manufacturers catering to green energy?

At the current pace of RE deployment, Grid expansion and modernization needs to be expedited to deal with increased variability and redistribution of demand and supply centres. For the RE sector to remain on a high-growth trajectory, initiatives like dedicated Green Energy Corridors, establishment of Renewable Energy Management Centres, competitive bidding for transmission infra and greater private participation should be promoted. Land and regulatory approvals continue to remain one of the biggest challenges in setting up large utility scale projects in India and the government should focus on some long overdue land reforms and harmonizing state wise differences in rules and procedures for redeployment. Similarly, single window clearances for RE projects as announced by some states being implemented across the country would provide a much-needed fillip to the pace of deployment.

One key point for the government to consider in policy measures going forward is to ensure minimal financial impact on existing installed capacity. RE projects typically do not have the financial leeway to absorb retrospective changes unless a specific pass-through/Change in Law provision is made available, as almost 90 per cent of the capital required to operationalize the asset comes in the form of upfront capex and project economics are finalised and sealed at the time of commissioning.

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