Budget 2013 : Some good news for the renewable energy sector

The budget proposals being announced today are matter of some joy to those involved in the renewable energy sector. The announced proposals breathes some much needed life into the wind energy sector which had lost steam due to the lack of clarity on the available incentives. There was also some good news for the solar manufacturing sector as well as renewable energy developers. Some of the highlights pertaining to renewable energy sector include:

  • The biggest announcement was the allocation of Rs. 800 crores to MNRE for providing Generation Based Incentives (GBI) for wind energy projects.
  • The government has proposed to introduce an investment allowance of 15% for high value investments (above Rs. 100 crores) in plant and machinery during the period 1.4.2013 to 31.3.2015. Thus any company investing Rs. 100 crores or more in plant and machinery for manufacturing would be allowed to deduct 15% of the investment in addition to the current rates of depreciation. This is specifically beneficial to the solar manufacturing sector as it would help improve the returns on new manufacturing units.
  • In addition to the above, specific incentives have been announced for semiconductor wafer fab manufacturing facilities which includes zero customs duty for plant and machinery. This is again is good news for companies looking to invest in setting up solar manufacturing units (fully integrated) and could help drive down the cost of domestic modules and help them hold their own against foreign competition.
  • From a developer’s perspective, there is more good news. It has been proposed that low interest rate loans would be provided to developers from the national Clean Energy Fund (NCEF). The scheme is proposed to have a lifespan of 5 years. As I have mentioned earlier, low interest rate loans are the primary driver in facilitating investment in solar projects. Low interest rate loans would mean that developers would not be pigeonholed into looking for foreign funds (and thus forced to buy foreign components). This means that this announcement could benefit not only the developers, but also the domestic manufacturers. Again all this depends on what the interest rates are going to be. For reference, power projects financed using foreign funds typically have interest rates between 7% and 9%. One specific project that I recall had a varying interest rate @ LIBOR + 4.9%.
  • The “80IA” benefit would be extended for another year. 80IA stands for a tax holiday of 10 years given to power projects.
  • The Minimum Alternate Tax (MAT) + ancillaries which would have to be paid even during the tax holiday would be retained at around 20%.
  • The education cess levied on imported goods would remain at 3%
  • India Infrastructure Finance Corporation (IIFC), in partnership with ADB will help infrastructure companies to access bond market to tap long term funds.
  • Finally there is also an “evolving” proposal to encourage cities and municipalities to take up waste to energy projects in a Public Private Partnership (PPP) model while remaining technology neutral. The Government will support municipalities that will implement waste-to-energy projects through different instruments such as viability gap funding, repayable grant and low cost capital.

All in all, this is some good news for the entire renewable energy sector and the solar/wind energy sector in particular. Further, the note on waste to energy technologies is heartening as this is remains an untapped source for energy inspite of significant efforts taking in the area and should have the added benefit of helping manage the burgeoning waste pockets in the country.
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8 thoughts on “Budget 2013 : Some good news for the renewable energy sector”

  1. Great info. I would like to know what the Rs.800 Crore of GBI would convert to on project by project basis. Doesn’t look like much if a larger capacity is to be setup using this route.
    Let’s wait for more info on the low interest rate aspect. Definitely sounds interesting.

    1. @Pradeep, this is precisely what I tried evaluating as soon as the announcement was made. It would grealy depend on various factors which remain as unkowns at this point. Some of these include, what would be the quantum of GBI per unit, capacity limits, GBI limits, timeline of allocations etc. Using nominal PLF for wind power plants, I would estimate this allocation would support about 1000 MW (very rough estimate) over the course of the year.

  2. Dear Mr Madhavan,
    Very useful information. Any detailed info on IREDA funding guidelines for solar projects?

    1. Sreedhar, I dont know if there is any specific information on the IREDA funding guidelines for solar projects. Whatever information is available is likely to be outdated come the second phase of the NSM. More importantly, I do not know how the funding is going to be arranged as there was no mention of budget allocation for viability gap funding (VGF) in the budget announcement. We will have to wait and see how it develops.

  3. sharma t sridhar

    really it is great use full to all There was also some good news for the solar manufacturing sector as well as renewable energy developers…. Regards sarma.t.sridhar

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