Boost to SMEs, Easy Imports, Cheaper Financing: Solar Expectations from Budget ’23

Budget 2022 made major announcements. Primary among them was the earmarking of Rs 19,500 crore for production linked incentives towards the manufacturing of high efficiency solar photo voltaic modules. While this has been a source of hope for the industry, a major mood dampener has been the imposition of duties on solar cells and modules. Though introduced with an ambition to encourage domestic manufacturing, the initiative has upped the manufacturing costs drastically for module makers, and project developers too. Especially in combination with the ALMM proviso since October last year.

No wonder, then that this is the prominent ask by the industry in the Budget 2023, says Surendra Kumar Gupta, CFO, Amp Energy India, “While promoting domestic cell/module manufacturing capacity through schemes like PLI is a welcome measure, there is still a big demand/supply mismatch to meet current demand due to limited operational capacity and cell/module exports from India. This, along with restriction on imports through high tariff barriers on imports ( BCD) , has resulted in high prices of modules in India, there by adversely affecting project viabilities and, thus, slowing down growth of renewable sector. The Government must, therefore, till the time there is a mismatch between domestic demand vs supply of modules and PLI based manufacturing capacities become operational, consider project import route for all projects in renewable industry should be re-allowed with 5% duty and also remove BCD restrictions on import of modules for next 12-18 months to help improve availability of high-quality modules at competitive prices.”

Srivatsan Iyer, Global CEO, Hero Future Energies is equally supportive of this view, “The GoI must provide some immediate relief to counter significant cost and schedule disruptions in the wake of the implementation of BCD and ALMM and the global supply chain disruptions.  One area would be in the form of deferment of BCD implementation on solar modules and cells, till such time sufficient domestic manufacturing capacity is operationalized to fulfil the annual demand estimated to reach the 2030 targets. Also, parallel measures to reduce the incidence of domestic solar module manufacturers exporting a large portion of their production, leaving the domestic Industry without viable alternatives.”

Rahul Gupta, MD & CEO, Rays Experts has his share of insights to offer on the duties imposed on imports and spurring domestic manufacturing, “The Government should notify added incentives and promote the export of solar panels. With new manufacturing units coming up, export should be facilitated. At the same time, there should be no curbs on imports because it keeps the industry from gaining access to latest technological developments.”

Another cause of worry in the solar and wind industry has been the high interest rates on project financing, posing a challenge to raise funds for clean energy. Smaller developers are the ones that face the heat the most, making it difficult for them to borrow. Kumar makes a case for lower interest rates, “The renewable solar industry in the country needs support from the Govt., in the coming FY 2023 budget, by ensuring availability of adequate module quantities and project financing at competitive rates. High interest cost on project financing is also putting extreme pressure on project economies, further affecting the industry severely.” He proposes that the Government lend support to the renewable industry by “bringing down interest rates for project financing to 3-5 %, in line with international levels.”

Towards capital allocation, Sharad Pungalia, CEO and MD,  Amplus Solar  hopes that the “Budget will focus on long-term policy stability to encourage investments in the renewable energy sector.” He says, “We expect higher capital allocation towards upgrading the transmission and storage network to maintain grid stability and balance.” One may recall that 2022 saw the Government place an emphasis on transmission and grid stability. A plan worth over Rs 2.40 lakh aiming for the establishment of transmission lines was unveiled. Thus far, there has been an inadequacy in transmission lines which has proven to be a roadblock for the growth of renewables sector.

Recently, a waiver of ISTS charges on solar open access industry was introduced. This was widely applauded across all sectors. But Rahul Gupta has some observations to make and questions to ask, which he hopes the Budget will answer, “Who will bear the brunt of the waiver of these transmission charges? What is the mechanism that will operate here? While the waiver should be allowed to prevail, the Government should step in and clarify as to who will bear the brunt of these charges that have been waived off?”

With a slew of policies and capital allocation towards green hydrogen initiative, the industry is unanimously bullish on this segment which offers great potential and is underutilised. The industry is eyeing the Green Hydrogen segment at this opportune time and in a bid to spur innovation in this sector, it looks to the Budget to further support the development of Green Hydrogen. Iyer, for instance, seeks special concessions like “GST, BCD waivers and Generation Based Incentives (GBI) to enable affordable green hydrogen production” in addition to “tax cuts /concessions regarding reduced GST and BCD on components used for renewable energy generation.” However, with most action expected only post 2025, we wouldn’t be waiting with bated breath on this one.

Recently, the Cabinet gave a green signal to Green Hydrogen initiatives by allocating Rs 19744 cr towards it, in all likelihood for a PLI scheme  for electrolyser manufacturing and related segments.

Iyer further adds, “In order to meet our RE goals by 2030 and truly compete with regions like US, China and the Middle East on emerging technologies like Green Hydrogen which are aided by access to low-cost capital and extremely favorable tax and duty regimes in those countries. Another area here would be to ensure access to low-cost capital for RE, BESS and Green Hydrogen project development, in line with most other RE focused regions and economies across the globe. Additionally, measures like rationalization of GST on Solar Power Generating Systems and the O&M of wind and solar projects, tax incentives for residential and commercial rooftop solar consumers, no capital gain tax on sale of land for wind and solar farms and other associated land reforms will bolster the growth and public support for RE and accelerate the country’s green transition.”

Residential solar, which is gathering momentum, yet continues to lag behind in comparison to other sectors, could do with some incentives, as Iyer puts it, “For residential solar, there should be loan guarantee plan to reduce credit risk and make residential rooftops more attractive.” He concludes, “We look for the 2023-24 Union Budget to prioritize decarbonization, accelerate energy transition towards RE and development of a manufacturing and support ecosystem to enable this transition.”

Vineet Mittal, Director & Co-Founder, Navitas Solar, is all for support for MSMES in manufacturing, to whom the benefits announced may not always percolate. It is a widely held view that the PLI is meant to encourage the bigger players, leaving out the smaller player out of its ambit. He says, “In this Budget, we would like to see encouragement for domestic manufacturing even for MSMEs. If as a nation, we can become a hub in manufacturing, be it any sector, renewables, green hydrogen, EVs then as a nation we can stand on a very strong position in the globe. Our expectations from the budget is to consider challenges and opportunities of MSMEs and allocating some budget for that also.”

Manjesh Nayak, Co-Founder and CFO of Oorjan Cleantech, leaves us with an afterthought, “A tax incentive in the form of a rebate or deduction to domestic users would be a booster to residential solar adoption. Rolling out incentives to DISCOMs for over-achieving rooftop solar targets would also be a positive. Rationalizing GST on solar projects is a must. The current GST incidence at 13.8% is very high and negatively impacts return on investment. This could be reduced so as to make solar investment more attractive. Lastly, easy working capital finance for EPCs is important since they are key to building quality solar assets in the country.”