Renewable Energy Industry in India: What You Need to Know about the 2019 Budget

Introduction

The financial year 2018-19 marked a good year for CleanMax. This can be attributed to the positive sentiment of the renewable energy industry. India is the 4th most lucrative market for providing renewable energy solutions across the globe. It has also earned the 5th position in the world for total solar capacity installed so far. As the country has recently emerged as the largest market for solar PV worldwide, the industry offers voluminous opportunities for growth. However, to initiate further development, the solar energy industry in India is in need for long-term assurance and consistent regulatory policies.

Challenges Faced by CleanMax

CleanMax faced a few challenges in the year 2018 with respect to the ambiguity of 25% safeguard duty levied on the import of solar panels. However, some clarity was received only when the Central Electricity Regulatory Commission (CERC) issued an order approving 5% GST claims made by solar power developers. CleanMax is of the view that considering the services component, the 70:30 mix is on a higher side. Instead, we believe that a range of 10-12% would be more rational as it will bring the effective GST rate to 6.8% – 7.0% from the elevated figure of 8.9%.

The Government of India aims at an ambitious target of 175GW of solar power generation by 2022. Since the business of renewable energy functions within a capital-intensive market, it is crucial to dedicate a long-term capital pool towards the renewable energy industry. This will help in catalyzing growth in a sustainable manner. We urge that specific measures should be taken when planning the 2019 Budget, which will provide long-term credit on favorable terms. These measures could include allocating funds in the banking system for financing solar power projects or establishing FIs/ banks that are dedicated to lending money for renewable energy projects and other social infrastructure developments. As of today, rooftop solar power plant projects are listed under the category of priority sector lending but limited to INR 15 crores per annum. However, if the Government collaborates with RBI to introduce renewable energy projects under priority sector lending without any limitation, it will further help in escalating the growth of this sector.

Opportunities for Growth

Alternatively, the Government should explore new investment opportunities for financing renewable energy and social infrastructure projects. One such alternative could be attracting capital investment from HNI or retail investors. While it is quite unlikely for HNI or retail investors to be interested in owning the solar business, the best way to drive their interest is by helping them look at it as an investment product rather than an asset. This can be done by making such investments tax efficient by allowing pass through of tax incentives such depreciation, for the benefit of the investors. The 2019 Budget has the scope for introduction of a secondary market for renewable energy industries by announcing a broad frame work like REITs for renewable energy, to channelize more investments into this sector.