India has one of the world’s largest programmes to expand renewables--a doubling of capacity over the next four years--but India’s ambitious 2022 target of generating enough non-coal energy to replace the equivalent of 175 coal-powered plants is veering off track
On February 1, 2019, the ruling Bharatiya Janata Party (BJP) has a chance to get things back on track, help India reduce its addiction to coal, help clean the country’s air and meet the global climate-change commitments of the world’s fourth-fastest growing carbon polluter
After record growth in the installed capacity of renewables over the four years to 2017, capacity addition slowed down in 2018. The main reasons: an anti-dumping duty imposed by the government on imported solar modules to aid domestic manufacturing, higher rates of taxation under the goods and service tax (GST) and unclear policy.
So, the last budget before 2019 general elections is of particular significance to the renewables sector, which comprises electricity from solar, wind, hydro and bio power.
These are the issues the budget must contend with:
- Due to a 2018 slowdown, the government will have to install 3.5 times more capacity every month than its average speed for the last four years.
- A new duty on imported solar modules--which meet more than 80% of the country’s need--increased production costs and threaten the competitiveness of solar tariffs against those of coal.
- Higher GST rates on solar modules and services are driving away investors and manufacturers. Delays in a long-term policy to remove uncertainty from the sector is holding back new investment.
Why the renewables budget is important
Addressing policy issues are important if India is to fulfill its commitment to the Paris Climate Agreement 2015 to install 175 giga watt (GW)--a GW is 1000 mega watt (MW)--of renewables power capacity by 2022. This is enough to replace 175 coal-fired power plants of 1,000 MW each and reduce India’s dependence on fossil fuels.
More than 80% of India’s electricity comes from fossil fuels, which produce greenhouse gases and hasten global warming. Reaching the renewables target is important because it will point India towards a route to achieve its 2030 goal of getting its 40% electricity from non-fossil sources, compared to 11% now.
Renewables will also solve an important health issue back home: air pollution, responsible for one in every eight deaths and the loss of 1.24 million lives in India in 2017, IndiaSpend reported on December 7, 2018.
As coal power plants-India’s chief air polluters--missed a December 2017 deadline to clean-up and got the deadline extended by five years to 2022, increasing clean-energy capacity is an important tool to fight toxic air, according to the National Clean Air programme (NCAP) of the Indian government. Launched on January 10, 2019, the NCAP aims at cutting down national pollution levels by 20-30% over five years to 2024.
Of India’s 2022 renewables target, 100 GW is supposed to come from solar and 60 GW from wind power, according to government data. India installed 74 GW renewable power capacity by October 2018.
By October 2018, renewables formed 21% of India’s electricity generation capacity of over 340 GW, up from 13% in 2014, when the BJP government took office.
To achieve the task that the BJP government has set for itself--of installing 175 GW by 2022--it will have to install over 2 GW of renewable capacity every month till March 2022, according to an IndiaSpend analysis of government data. This is 3.5 times more than the government’s current average speed, as we said, of installing about 0.6 GW (600 MW) capacity every month since March 2014.
Over 12 months to October 2018, India installed about 13 GW of capacity, 15% less than 15 GW the preceding year.
This slowdown needs to be addressed, said experts, if the government wants to reach 2022 renewables target and that requires budgetary attention.
How India compares with the world
India lags its neighbor China in terms of overall expenditure on and growth of renewable energy.
The government of China’s plan is to spend about $360 billion (Rs 25 lakh crore) on renewables over four years to 2020, about 90 billion (Rs 6 lakh crore) per year, while India’s renewable ministry in its last budget 2018-19 proposed to spend about $ 0.7 billion (Rs 5,146 crore).
Put another way, China’s annual budget for renewables is 128 times more than India’s.
By 2017, China had 650 GW of installed capacity of renewable, over 36% of its total energy generation capacity, compared to India’s 18%.
India also lags China in terms of new investment in green energy. In 2017, China spent $126.6 billion (Rs 9 lakh crore) against India’s $10.9 billion (Rs 75,500 crore), meaning for every $1 India spent on clean energy, China spent $12, according to a 2018 report by the United Nations, Bloomberg New Energy Finance and the Frankfurt School-UNEP Collaborating Centre for Climate & Sustainable Energy Finance.
Renewables funding: NDA government vs UPA
Under the National Democratic Alliance (NDA) government, led by the BJP, funding to the ministry of new and renewable energy (MNRE) increased by 600% over four years to the financial year (FY) 2017-18, according to an IndiaSpend analysis of the revised budget estimates of the ministry.
Under the the United Progressive Alliance (UPA) government led by Prime Minister Manmohan Singh, the MNRE received its highest budget funding in FY 2011-12, about Rs 1,200 crore. The ministry received the highest funding under Narendra Modi’s BJP government in FY 2016-17, about Rs 4,300 crore, 3.5 times more than UPA’s highest, as per the analysis of revised estimates.
The renewables budget under the UPA’s highest-spending year as a proportion of the total budget was 0.09%, compared to the NDA’s 0.21% in its highest-spending year.
What should renewable sector’s priorities be?
As we said, one of the main reasons for the slowdown in renewables in 2018 were an anti-dumping duty on imported solar modules to save domestic manufacturing, higher rates of GST taxation and policy uncertainty.
The “ad-hoc measure” of the anti-dumping or “safe guard” duty created uncertainties for investment in renewable sector in the country, Priyavrat Bhati, advisor-energy, Centre for Science and Environment (CSE), a Delhi-based think-tank, told IndiaSpend.
The duty made cells and modules coming from China and Malaysia costly. These countries cater to more than 80% of India’s needs, as we said. The duty could derail India’s solar power sector from meeting its target of quadrupling capacity over the next four years to reach 100 gigawatt (GW) by 2022, IndiaSpend reported on July 20, 2018.
The upcoming budget could address issues related to this duty and provide much needed seed money to the renewables sector for domestic research and development to help build domestic capacity in solar-module manufacturing and storage, or battery, capacity, said Bhati.
Equipment for renewable energy generation was previously subject to tax breaks, such as on the basic customs duty for solar modules. Now, it is taxed at 5% under GST. This has reduced competitiveness of renewable energy against fossil fuels by increasing the per kilo-watt hour (unit) production cost of solar electricity, Vibhuti Garg, senior energy specialist, International Institute for Sustainable Development (IISD), a think-tank, told IndiaSpend
GST has created a lot of confusion in the solar sector with different tax rates for different services. “If we sell the complete solution, then it has a GST rate of 5 percent,” an official of an Engineering, Procurement and Construction (EPC) company of renewable projects told Mercom India, an industry publication, in October 2018. “But in case we unbundle it and provide to the customer separately, then the components will have 18% GST rate.”
The upcoming budget can help remove policy uncertainties from the sector and provide “long-term indications”, Daanish Verma, executive vice president, sustainable investment banking, YES Bank, told IndiaSpend.
The government, said Verma, has not been able to improve the financial health of electricity distribution companies (discoms) . Functional discoms are the “crux of the growth” in the renewables sector, so this needs “urgent” government funding support, said Verma.
The government should also increase its target and funding for wind energy, a more reliable source than solar because it can, unlike solar, function round the clock, said Bhati.