INDIA’S RENEWABLE ENERGY SECTOR: NSEFI’S KEY PROPOSALS FOR UNION BUDGET 2024-25

As India gears up for the Union Budget 2024-25, set to be presented by Finance Minister Nirmala Sitharaman on July 23, the National Solar Energy Federation of India (“NSEFI”) has laid out a comprehensive set of recommendations aimed at fortifying the renewable energy sector. These proposals, if implemented, are expected to significantly enhance the tax framework, GST policies, and overall financial viability for companies involved in power generation and infrastructure projects.

Enhancing the Tax Framework for SPVs

One of the central focuses of NSEFI’s proposals is the enhancement of the tax framework for companies organized as Special Purpose Vehicles (SPVs). SPVs are instrumental in the power generation and infrastructure sectors. NSEFI suggests introducing group relief for income tax purposes, which would allow parent and subsidiary SPVs to be treated as a single assessee. This measure aims to address the financial imbalances caused by isolated fiscal assessments of SPVs, where some may incur losses due to substantial initial investments while others or their parent entities record profits.

Extension of Section 115BAB

Another critical recommendation by NSEFI is the extension of the sunset date for Section 115BAB of the Income Tax Act, 1961. This section, which offers a reduced corporate tax rate of 15 percent to new manufacturing companies, including those in power generation, is currently set to expire on March 31, 2024. NSEFI argues that the impacts of the COVID-19 pandemic and the resultant economic slowdowns warrant a further extension to March 31, 2026. This extension would accommodate delays in project commissioning caused by external disruptions, ensuring that companies continue to benefit from the reduced tax rate during these challenging times.

GST Reforms for the Solar Power Sector

On the GST front, NSEFI is advocating for significant modifications to the valuation mechanism for Solar Power Generating Systems. Following a government decision that increased the GST rate for goods from 5 percent to 12 percent, the effective rate has risen from 8.90 percent to 13.80 percent. NSEFI proposes adjusting the valuation ratio from 70:30 to 85:15 and reducing the GST rate for goods back to 5 percent. This adjustment would lower the effective rate to about 6.95 percent, making solar power generation more economically viable.

Concessional GST Rate for Pumped Storage Projects

Additionally, NSEFI recommends a concessional GST rate of 5 percent on goods and services used in developing Pumped Storage Projects (PSPs). This reduction would decrease costs by 10 percent and potentially lower PSP tariffs by approximately 0.60 INR/kWh. By facilitating inflation-free and fixed tariff Renewable Energy with Round-The-Clock (RE-RTC) for 25 years, this measure would provide a significant boost to the development of PSPs, which are crucial for energy storage and grid stability.

Addressing Key Challenges in the Renewable Energy Sector

The renewable energy sector in India faces several critical challenges that require immediate attention. One major issue is the Reserve Bank of India’s (RBI) stipulation of priority sector lending, which is restricted to loans up to Rs 30 crore. This limitation is not adequate for the substantial capital requirements of renewable energy projects. NSEFI is calling for an increase in this cap to ensure that renewable energy firms can access the necessary funding.

Streamlining the Approval Process

Another pressing concern is the need for faster closure of the bidding process until power purchase agreements are signed with selected developers. Delays in this process can hinder project timelines and escalate costs. NSEFI emphasizes the importance of adhering to renewable purchase obligations across states to ensure uniformity and commitment to renewable energy targets.

Scaling Up Local Manufacturing

To compete with global majors on quality and price, local manufacturing of wind and solar equipment must be scaled up. NSEFI advocates for strategic support to increase local manufacturing capacity, which would reduce dependency on imports and enhance the competitiveness of Indian products in the global market.

Encouraging Green Financing

NSEFI’s proposals also highlight the need to encourage green financing to enable sustainability-linked funds. Supporting collaboration between academia and industry on cleantech manufacturing is crucial for driving innovation and producing world-quality products. Periodic updates to standards, testing, and certifications of new products will ensure that the industry stays at the forefront of technological advancements.

Review of Intra-Sectoral Budgetary Allocation

Given the growing need for state support towards pumped storage projects, NSEFI recommends a review of intra-sectoral budgetary allocation. Increased investment in grid integration and energy storage technologies is essential to ensure a consistent and efficient supply of energy. This strategic focus would facilitate the integration of renewable sources into the grid and enhance national reliability and resilience.

Budgetary Support for Renewable Energy

The upcoming Union Budget is anticipated to provide substantial support for the renewable energy sector. The government aims for 500 GW of renewable energy by FY30 and 85 GW of additional thermal capacities by FY32. Key areas of focus include the development of large-scale solar parks and ultra-mega solar power projects, necessitating streamlined approval processes and a single-window clearance system to simplify land acquisition.

Access to Low-Cost Finance

Access to low-cost finance is crucial for solar power developers and EPC contractors. NSEFI hopes the government will introduce or enhance low-interest loans and financing schemes to aid in the rapid development of solar power projects. Accelerated grid integration, with a focus on enhancing substations and transmission line capacities, is vital to match the renewable power capacity addition plan of 500 GW by 2030.

Tax Rationalization

Tax rationalization, such as reducing GST on solar components and Basic Customs Duty (BCD) on PV modules and cells, will be instrumental in ensuring the availability of essential modules until domestic supplies are sufficient. Promoting public-private partnerships (PPPs) will help combine resources and expertise to boost the development and execution of solar projects.

Enhancing Manufacturing Capacity

Enhancing the manufacturing capacity for critical equipment like transformers, inverters, and HT panels is another key recommendation. This would help bridge the demand and supply gap and ensure the timely availability of essential components for solar power projects. Capital subsidies and tax breaks to reduce the cost of setting up manufacturing facilities in India would further support this initiative.

Extending the ALMM Deadline

NSEFI also advocates for extending the Approved List of Models and Manufacturers (ALMM) deadline until domestic manufacturing capacity can meet volume and quality requirements. This extension would provide a buffer period for manufacturers to ramp up production and ensure the availability of high-quality components.

Focus on Energy Storage and Grid Infrastructure

Significant investment in robust grid infrastructure and promoting energy storage solutions are vital to ensuring a reliable and efficient energy supply system. NSEFI calls for more incentives for businesses and corporates to decarbonize India's industrial landscape. Preparing energy-intensive industries like cement and steel for the transition phase of the Carbon Border Adjustment Mechanism (CBAM) is essential for a smooth transition to a low-carbon economy.

Skill Development and Workforce Training

The upcoming budget should also address the need for skill development programs to create a workforce capable of supporting the renewable energy sector. Training for new green jobs and reskilling of workers from conventional energy sectors will be crucial for a smooth transition and sustainable growth.

Support for Biofuels and Blue Economy

As India moves towards its Net Zero emissions target by 2070, support for the biofuel sector and blue economy initiatives will be critical. Clear policy frameworks, incentives for research and development, and investment incentives to accelerate the adoption of sustainable biofuels will bolster energy security and contribute significantly to environmental sustainability and economic growth.

Conclusion

NSEFI’s comprehensive set of recommendations for the Union Budget 2024-25 underscores the critical need for policy reforms and strategic support to bolster India’s renewable energy sector. By addressing key challenges, enhancing the tax framework, and advocating for significant GST reforms, these proposals aim to create a robust and supportive environment for renewable energy development. As the nation prepares for the presentation of the Union Budget, the renewable energy sector remains hopeful that these strategic recommendations will influence key policy decisions, driving India towards a sustainable and resilient energy future. ???????????????????????????????????????????????????????????