Union Budget: Power Sector Wants Incentives For Growth

Standing at the threshold of the Budget 2017-18, power sector bosses wish for a clear policy direction and incentives that would push the growth in both renewable and nonrenewable energy segments.

All hail the GST

To begin with, the most awaited reform by every stakeholder in the country is GST and the bigger question raised whether electricity sector will form part of the GST domain and be taxed @ 0% under GST, allowing the claim of GST refund for operating expenses incurred. This way, per unit cost of power generation can be reduced and benefits can be passed to the consumers, according to Mahesh Makhija, director, business development and commercial (renewables), CLP India.

"For success of not only the renewable sector, but in the larger national interest of ensuring energy security, GST rate on renewable project equipment and all components should be zero. Similarly, the service components should also have minimum levy of not more than 2%-4%", says Shirish M. Navlekar, Joint MD and CFO, Mytrah Energy (India) Private Limited.

Tulsi Tanti of Suzlon however marks his GST peg at 6% slab (Revenue Neutral) or the best at 'Zero' rate which would reduce the cost of generation, making renewable energy most acceptable to DISCOMs and end consumers.

"Renewable energy products currently are excise exempt, and currently electricity duty is kept out of GST, because of which the entire GST chain breaks while producing electricity, if not corrected would lead to increase in cost of generation anywhere between 30 - 50 paise/kWh", says Tanti.

Extend generation-based investment

A key point in the power sector wish list, according to Mahesh and Tanti, is the extension of generation based investment (GBI) scheme for wind energy, which will be crucial to smoothen its transition from an investment-based incentive to an outcome-based incentive, thereby broadening the investment base further.

"On the renewable energy sector - there is a dire need to bridge the yawning gap between government words and actions. Exuberance expressed by government on success of solar bidding and falling solar tariffs would be short lived unless structural issues are addressed on priority", says Navlekar of Mytrah Energy.

Concurring, Sunil Jain, chairman and managing director of Hero Future Energy, said, "The wind sector has just started on its growth path, so the withdrawal of GBI is likely to be a big dampener. Considering the short-term effects of demonetisation, leading to project delays, the government should extend it by at least three more months, so that investors and other stakeholders do not suffer."

"There is a fair amount of Indian capital that has and is invested into wind energy projects, because of presence of Accelerated Depreciation. Most of these investments come from the manufacturing sector in India, which utilises renewable energy for their captive consumption, so that they hedge their energy costs", says Thanti.

Minimum Alternate Tax

"A prominent concern in the sector is with regards to the Minimum Alternate Tax (MAT) rate increase which has moved up from 8% to 21%. It is necessary to have a mechanism for upward revision in power tariff to the extent of increase in tax rates or levy of any new tax by the government, which at present is missing in most of the regulatory orders", says Mahesh.

According to Sanjeev Sardana, President, IEEMA and Managing Director, Yamuna Power & Infrastructure Ltd, "There is a genuine need to lower the rate so to justify the same to be a "minimum alternate tax. We suggested that the MAT rate should be restricted to 50% of the normal tax rate".

Incentivise the DISCOMS

Coming to the poor state of DISCOMS, the private players want the budget to set up a mechanism for the compliance of RPO (Renewable purchase obligation), which is in a dismal state at the moment. Despite of targets being set up by the SERCs, the procurement of renewable by the DISCOMS is rarely fulfilled as thermal is still considered as an attractive option. "MNRE, recently floated a paper to extend Performance Based Incentive (PBI) to the tune of 62 paise/kWh to DISCOMs, which is a very good move, should be implemented", according to Thanti.

Duty Free Imports of Electricity Meter Parts

Sanjeev says that presently, electricity meter manufacturers are paying basic Import duty (7.5% to 10%) on major parts i.e. switch, relay, battery, Inductors, Magnetic/ Ferrite core, cable assemblies, adapters, buzzers, plastic & metal seals. "This import duty makes Indian electricity meters costlier and uncompetitive in comparison to same manufactured in other countries, especially China. For items like backlight, the general chapter heading (8541) has zero basic customs duty. But parts that are used in meter manufacturing, the same are being considered under HS Code 90289010 and are subject to basic import duty of 7.5%".