Green players cheer, coal power units unperturbed by tax incentives

The thermal power generation units which would commission post March 2017 would see their cost rising by at least 10-15 paisa per unit. This comes as a result of Central government not extending the 80-IA tax holiday beyond April 2017 for the infrastructure projects including power generation. Renewable energy projects might escape the cost escalation.

“The overall increase in cost of power generation after the tax holiday expires would lead to escalation in final power rates would be close to 10 paisa per unit. The amount is pass-through on the consumers,” said A K Khurana, Director General of Association of Power Producers.

The central government is of the view as the tax holiday is availed post the power units start making profits, the impact would be very project specific. 

“As these units will start production in the future and achieve profit way after that, the impact would be minimal. The tariff would remain unchanged after factoring the time period and the purchase agreements,” said Piyush Goyal, minister of state for coal, mines, power and new & renewable energy at a post budget discussion.

The sector experts however pointed out that as not many projects were riding on this incentive, it will hardly impact the investment in the sector.

“For the past 2-3 years there have been not many new projects which were commissioned or signed any major PPAs. Only the stalled projects came to life with fuel supply and financial closure. So net, the impact on the sector is close to nil,” said a senior power sector expert in Gurgaon. He said the power sector was directionally prepared to face this fate of the 80-IA tax holiday incentive.

“New thermal power projects that are coming up now are mostly captive units. There is also no fresh mega investment in the conventional power sector. Power load factor is declining as the demand is stagnant. Most of the power producers are selling at merchant rates and many at loss. So new investments are very unlikely,” said the chief financial officer of a leading power generating company.

As for the renewable energy sector — both solar and wind would go unscathed due to withdrawal of this incentive. While the Generation based Incentive of 50 paisa per unit has been phased out for the wind sector, the accelerated depreciation of 40 per cent stays. 

“The 10-year tax holiday and GBI for wind sector have been phased out. Reduction in corporate tax rates and MAT credit extension will help small and medium sized businesses. There is also some rationalisation of duty structure for components used in manufacturing solar modules to help domestic manufacturers,” said Vinay Rustogi, Managing Director, Bridge to India.

The CFO quoted above also said as most of the solar units fall in the category of less than Rs 50 crore turnover, they would see their corporate tax go down to 25 per cent. He said this would act as a cushion for all the units that will commission post March 2017.