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Solar industry seeks VAT exemption on equipment, incentives for projects
February, 17th 2016

More incentives for solar parks, a sovereign fund to back dollar-denominated solar tariffs, solar equipment exempted from value added tax (VAT) as well as stability in wind power policies are some of the key demands of the renewable energy industry as Finance Minister Arun Jaitley prepares to present the Union Budget for 2016-17.

"Solar parks should be treated at par with special economic zones (SEZs) and minimum alternate tax (MAT) exemption may be provided to power projects within solar parks," said Ficci's pre-budget memorandum. Agreed Rahul Shah, CEO, Tata PowerBSE 0.00 % Renewable Energy: "We should have greater commitment to solar parks."

Many felt a dollar-based solar tariff with a sovereign fund supporting it would make a big difference to foreign investors worried about the depreciating rupee. With declining solar tariffs already squeezing developers' margins, a further fall in the value of the rupee — which slid below 68 to the US dollar last month — could well impact investor interest, unless such a step is taken.

Financing remained a big worry for most people in the industry. "Availability of debt will be a significant challenge," said Ratul Puri, chairman, Hindustan Power Projects. "Simplifying the tax on foreign equity and bonds will make capital available at a competitive price," said Sujoy Ghosh, country head, First Solar.

Capital from domestic players will never be enough." Many hoped that pension funds would be allowed to invest in renewable assets.

While solar developers were generally upbeat, solar manufacturing was a different matter.

The simple problem with solar cell and module manufacturing in India is that it is not competitive," said Jasmeet Khurana, associate directorconsulting, Bridge to India.

"Making them cheaply and well depends on scale, access to cheap capital, vertical integration with access to cheap and reliable energy and a level playing field against other Asian manufacturers. None of these are available in India."

Still, Ficci has suggested reviving the 2% export incentive that was given for solar components until last year (it is now restricted to Category B countries, none of which are promoting solar energy much) and exempting such products from VAT across the country (it is currently exempted only in some states).

With wind power, most developers emphasized the need for a consistent tariff. Unlike solar tariff, which is auction determined, wind tariffs are set by the state electricity regulator and in many states, change every year.

"It is very difficult to win a project, set it up and sign the PPA within a single year," said Sunil Jain, CEO and executive director, Hero Future Energies.

But if the commissioning is delayed beyond March 31 of a particular year, the tariff may change throwing the developer's entire business plan out of gear. All we want is a five-year plan from the states, telling us how much wind power they will draw for that period."

Renewable energy projects enjoy the benefit of accelerated depreciation (AD) by which developers are allowed to claim 90% depreciation in the first year of functioning itself. But the concession is set to expire by the end of this financial year and developers hoped the finance minister would provide clarity on whether it would continue. There was similar apprehension about the 10-year tax holiday the sector get which too will expire this year.

There was some heartburn about the use of part of the National Clean Energy Fund (NCEF) for the Clean Ganga campaign. Sector leaders hoped in future this fund would be reserved entirely for renewable energy. "We expect to get substantial funding from NCEF," said Devansh Jain, director, Inox Wind.

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