Budget 2020: Exemption on corporate tax to power NTPC, renewables

The finance ministry’s decision to offer concessional corporate tax to new power projects will stand to benefit state-owned NTPC and upcoming renewable energy projects.

In her Budget speech on Saturday, Finance Minister Nirmala Sitharaman said the Centre is extending “concessional corporate tax rate of 15 per cent to new domestic companies engaged in the generation of electricity” in order to promote investment in the power generation sector. 

Sector executives, however, said no other company, apart from NTPC, is planning new projects in the thermal power sector.

India’s largest power generating company has 20 gigawatt (Gw) of projects in the pipeline for the next three years. It has an equivalent amount planned to set up renewable power projects. At the same time, India has an ambitious target of setting up 175 Gw of renewable energy capacity by 2022. Of this, 85 Gw has been commissioned. 

Some industry captains, however, expressed concern about the lack of clarity if the concession applies to new companies or new projects or both. In either case, the tariff from these power plants will come down. “As such, costs are a passthrough; the consumer will benefit with cheaper power,” said an executive. 

Kameswara Rao, leader-government reforms and infrastructure development, PwC India, said the 15 per cent tax for new electricity generation companies should apply to new companies as well as new power plants. 

“We need to see if it will also apply to stalled hydro plants and associated facilities, such as washeries. The ultimate beneficiary would be the consumer, as the cost of producing this electricity is cheaper. Companies also stand to gain from the benefits of a favourable position in the merit order due to lower tariff,” said Rao. 

CRISIL in its post-Budget report said this decision could lead to 80-100 basis points (bps, or bips) improvement in the equity internal rate of return of renewable companies and a 50-60 bips rise for conventional projects (for setting up of new capacities). 

Private equity has been playing a significant role in the renewable energy space in India. “They had to grapple with equity versus convertible debentures, which we consider more tax efficient,” said Pawan Singh, managing director and chief executive officer, PTC India Financial Services.

The renewable energy sector is elated that the benefit will come to them, given no future pipeline of any thermal power projects. On top of this, in a separate decision, the Centre has also proposed closing thermal power plants where the emission levels are higher than the prescribed limit. CRISIL said close to 10 Gw of thermal power plants could be impacted by this. “This will help ease overcapacity in the sector somewhat,” it said.