Budget 2020 and Renewables. An Evolving Story

In the longest budget speech in history, the Finance Minister , Ms Nirmala Sitharaman managed to find a mention of the renewable sector, especially solar, at the beginning, middle and end, as it turned out. While the mention in the beginning was for the energy needs of farmers and the role of solar power, the mention in the middle came about for the PM KISAN scheme , and the end was a passing mention of the allocation to renewable power.

However, amidst all this, what she didn’t  mention at all, was the game changer everyone in the renewables, or actually the complete power sector was hoping for. A comprehensive plan for the discoms sector. That, apparently, will still come, as indicated by Power Minister Shri. R.K. Singh in his own post budget press meet.  With many policy announcements and initiatives already being taken outside the budget over the years, its an assurance one can believe, though the bigger reason is that not doing anything will make most of the other moves half hearted too.

So lets quickly get into the details here.

First up, the duty on solar cells and panels is not going away anywhere, contrary to what you might have read. While the current duty structure (safeguard duty) will continue till June 30, 2020. Post that, duty rates on both cells and modules are going to be back to 20 percent, if current exemptions on the basic customs duty go completely after expiry of Safeguard Duty. Unless the gvernment provides partial exemption of some sorts. As of now, from all indications, it does seem like the government is comfortable with a duty protection of 20 percent, which could go up to as high as 30 percent  possibly, if it gets an attractive enough manufacturing offer, when coupled with IGST rate of 5%.

The second big story from the budget is the direct allocations for solar and wind. First , the headline number. Finance minister Nirmala Sitharaman has allocated  Rs 22,000 crore for the power and renewable sector. She also hoped state governments would start shifting to smart meters over the next  three years.  More options for consumers to pick and choose their discoms were also promised.

Budget for 2020 has provided Rs 2,516 crore for solar power sector, both grid-interactive and off-grid projects. This is a an over 10 percent increase over the figures last year.

With open tender prices having come down so much, one assumes most of these allocations would go towards projects in remote areas which require support to be competitive with other options.

The  Central Financial Assistance, or subsidy for rooftop solar, distributed solar like street lamps, besides solar power packs etc is Rs 7500 crores. “Implementation of Ph-III of the off-grid solar PV programme, which covers installation of three lakh solar street lights, distribution of 25 lakh solar study lamps and installation of solar power packs of total aggregated capacity of 100 MWp. In addition, under AJAY Ph-II over three lakh solar street lights would be installed. Further 20MW Projects of Concentrated Solar Thermal will be undertaken,” say the budget papers. All this, with an overall aim for 7.5GW of solar power not counting utility scale solar, certainly sounds good.

Wind energy projects have been earmarked Rs 1,303 crore, with the Generation Based Incentive Scheme for 4 GW wind power capacity to be be commissioned in 2020-21 giving a clear indication for the improvement the government hopes will happen in 2020-21, over the abysmal numbers last year.

And now, Solar pumps. The mixture of agricultural power subsidies, farmer distress, and its own climate targets have ensured that solar pumps are well established as a solution inside the government. Thus, the new resolve for 2 million solar pumps, another 1.5 million pumps where the farmer can sell power back to the grid, and even a scheme to utilise barren land for generating solar power for the grid. With the green corridors that will carry exclusively solar powered energy for agricultural use still not really operational yet, this might well be the year that we see it take shape.

Beyond these, the most promising moves was the announcement that the government may actually advise shutting down of thermal plants that donot conform to pollution norms by 2021. Besides demonstrating intent, the move also signals continuing efforts to create space for renewable energy, in a situation where discoms claim low demand, and thermal plants are already running at low capacity utilisation. The second move was the announcement of Rs 4400 crores for clean air, again a move that, rather than subsidising thermal plants to become less polluting, will possibly focus on more core issues that cause pollution.