Context
The budget’s real test lay in its approach to mitigating financial risk in the renewable energy, where capital costs are high, payback periods are long and off-taker, construction and foreign exchange risks raise cost of debt
India’s renewable energy target
India has an ambitious target of 175 gigawatts (GW) of solar, wind and other renewable energy by 2022
Break up
- Solar = 100 GW
- Wind = 60 GW
- Biomass = 10 GW
- Small hydroelectric projects = 5 GW
Author’s contention
India needs to look beyond budgetary outlays and public funds if it is to realize the renewable energy target and should consequently eye the international debt market which is estimated at 95 trillion
- Financial requirements: Solar, alone, would require $100 billion in debt to reach 100 GW
Outlay to Ministry of New and renewable Energy (MoNRE)
- Budgetary outlay in 2016-17: Rs 5036 Crore
- Budgetary outlay in 2017-18: Rs 5473 Crore. Budgetary split is as follows,
- Grid-interactive renewable power: 74 per cent of the outlay
What is grid-interactive renewable energy?
The availability of grid-interactive Photo Voltaic (PV) systems means that energy consumers can tie to the grid when it benefits them and disengage when it does not. Unlike grid-tied systems that are required to disconnect if the grid goes down, grid-interactive systems can continue generating power from their PV modules, battery backup systems and other energy sources such as wind turbines or generators.
What are the benefits of moving to grid-interactive systems?
Grid-interactive renewable energy systems empower users to embrace renewable energy without risking the outages that sometimes accompany off-grid power generation. Grid-interactive systems generate energy first from renewable sources: solar, wind power or hydro. When those are unavailable, grid-interactive users have the option of switching to the electric utility grid. With two equally available sources of power, grid-interactive energy users get more reliable power and lower costs, while also furthering a more sustainable energy future
- Solar: Rs3,361 Crore
- Wind: Rs 408 Crore
- Indian railways 1 GW solar mission: Budget extends support to this programme wherein 2000 railway stations will be powered via solar energy
- Small hydro & Bio Power: Smaller sums of Rs135 crore and Rs76 crore have been earmarked for small hydro and bio-power, respectively
Observations
- Priority to solar: Government will continue to prioritise solar as the funds earmarked for this sector are considerably more than any other sector
Areas where uncertainty prevails still
- No clarification wrt NEF:One continuing area of uncertainty is the role of the National Environment Fund (NEF).The cess on coal remained unchanged at Rs400/tonne. While the total cess collected (projected up to 31 March 2017) was a mammoth Rs54336 crore, only Rs25810 crore have been transferred to NEF. The budget could have clarified the proportion of the cess that would be transferred to NEF
- Impact of GST on renewables: Researchers at the Council on Energy, Environment and Water (CEEW) find that if solar components were categorized based on current levied tax rates (including exemptions and subsidies), GST would impact solar tariffs minimally. However, if preferential tax benefits to renewable energy were not accounted, then GST could raise utility scale solar tariffs by as much as 9.5%, hampering progress
Capitalizing on market opportunities
Two market opportunities stood to gain significantly from strategic budgetary support
- Residential rooftop projects could create 15 GW of renewable energy capacity in India by 2022
- No direct support announced: While budgetary support was extended for housing infrastructure, no direct support was announced for rooftop solar
- Replacing 15% of India’s irrigation pumps with solar pumps could build 20 GW of capacity
- Incentivizing investment in solar pumps: Aiming to double farmer incomes within four years, the budget discusses interlinking Primary Agriculture Credit Societies (PACS) with District Central Cooperative Banks (DCCBs). If this increases access to low-cost loans, the farmers might consider investing in solar pumps which have high upfront costs
Financial risks involved
Solar sector is riddled with following problems which entail financial risk,
- High capital costs
- Long payback periods
- Risks involved raise costs: Off-taker, construction and foreign exchange risks raise cost of debt significantly
Read More: Off-taker and other risks have been explained here
Issues with the budget wrt renewable energy sector
- No measure to mitigate risks: Author states that no budgetary support was extended to any agency to address risks.
- Moreover, financial support to the Solar Energy Corporation of India, the nodal agency for commissioning many solar and wind projects, has been halved to Rs50 crore
- No impetus to technology development: No step has been taken in the budget to boost technology development
- Poor allocation to R&D:Only Rs144 crore has been budgeted for research and development, nearly half of last year’s allocation
- No allocation for energy storage technologies: In 2016-17 Rs 20 crore was allocated for developing, testing and deploying energy storage technologies. In 2017-18 there is no allocation for energy storage, which could worsen the challenges with integrating renewable energy into the grid
- No allowances have been made for electric vehicles or biofuels
Conclusion: An opportunity lost
Author states that while total budgetary outlay to renewable energy marginally increased, there is little to celebrate. This budget is unlikely to spur action or attract any private investment. An opportunity has been lost.
