Solar power tariffs may rise as depreciation benefit capped

Solar power tariffs may rise by 10 paise per unit for new projects with the Budget 2016-17 today proposing to cap accelerated depreciation benefit at 40 per cent, down from existing 80 per cent.
The government had earlier provided benefit of up to 100 per cent accelerated depreciation (AD) to certain industrial sectors to give impetus to investment.
This will now be restricted to 40 per cent with effect from April 1, 2017.
The new rate is proposed to be made applicable to all assets (whether old or new) falling the relevant block of assets, the Budget for 2016-17 presented by Finance Minister Arun Jaitley today said.

"The reduction in Accelerated Depreciation (AD) benefit from 80 per cent to 40 per cent marks a further shift of the renewable energy sector away from non-traditional investors, and towards pure-play power companies," PwC India Leader Energy Utilities & Mining Kameswara Rao said.
"The cut in AD and withdrawal of I-T exemption will see solar tariffs go up in new bids by about 10 paise per kWh. Similarly, state regulators will have to offer higher feed-in tariffs for wind and solar power to attract investments without these benefits," he said.

Echoing views Anish De, Partner Infrastructure and Government Services, KPMG in India said, "Little dampener for the renewable sector as accelerated depreciation benefits gets restricted to 40 per cent from April 1, 2017.

"However, this is in line with the overall direction outlined by FM in respect of reduction in corporate tax rates while doing away with various tax exemptions."
The government has ambitious plans for deployment of 175 GW renewable power capacities by 2022, including 100 GW of solar and 60 GW of wind.