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Budget 2018
Jan 17, 2018 04:50 PM IST | Source: Moneycontrol.com

Budget 2018: Large hydro projects may get infra benefits

CRISIL Research expects the government to consider reducing the GST applicable in solar modules to zero.

Crisil Research

 

Tepid PLF growth and stressed financials to result in halving of investments in the convectional power generation; renewables, T&D to be the drivers hereon

CRISIL Research expects power generation volume to grow a moderate ~5% in the current fiscal, given a tepid growth in demand in the first two quarters.

Despite the modest growth in generation, plant load factors (PLFs) of coal-based power plants are estimated to  grow just 100 bps to ~60% this fiscal following strong capacity addition of ~23GW and 24GW in fiscals 2016 and 2017, respectively, and weak offtake from discoms. As things stand, 18GW of capacities do not have long-term purchase agreements (PPAs), and another 3 GW have no offtake.

The Ujwal Discom Assurance Yojana (UDAY) is being implemented in 31 states/union territories. Almost 86.29% (Rs 2.3 trillion) of bonds have been issued by 16 states that have taken over the debt of discoms. We believe a timely and effective implementation of the scheme is critical. We expect the gap between the average cost of supply and the average revenue realised to decline to Rs 0.15 per unit by fiscal 2022.

Given the stressed financials of private sector generation companies, and a dearth of fresh PPAs from distribution companies, CRISIL Research forecasts conventional power-based capacity addition to slow down to 40GW. This includes ~34GW thermal, 4GW hydro and ~2GW nuclear power-based capacities to be added between fiscals 2018 and 2022, compared with 98 GW over fiscals 2013 to 2017. PLFs of coal-based plants are expected to be ~68% by 2022, driven by retirement of old plants and healthy rise in demand.

On the other hand, capacity addition in the renewable space (wind and solar) is expected to double to 58GW over fiscal 2018 to 2022, compared with 26GW over fiscal 2013 to 2017, driven by strong government support, falling capital cost, reducing finance costs, and better execution. However, aggressive bidding, evacuation constraints, offtake issues and irregular payments would be key monitorables.

Investments in the transmission segment are expected to grow at a robust pace over fiscals 2018 to 2022, because of the government’s thrust on improving transmission infrastructure, augmentation of inter-state transmission capacity from 75 GW in fiscal 2017 to 118 GW by fiscal 2022, development of ‘green corridors’, and rising private sector participation in transmission projects through ‘tariff-based competitive bidding’.

Investments in the distribution segment are also expected to increase with the implementation of UDAY. With improvement in their liquidity position, financially–stressed discoms would invest in strengthening their distribution infrastructure andreducing aggregate technical and commercial losses. The central government’s funding support through the Integrated Power Development Scheme, Deendayal Upadhyaya Gram Jyoti Yojana and Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA) scheme would further aid investment growth in the distribution segment. In fact, the Rs 1.6 trillion SAUBHAGYA scheme, launched in fiscal 2018, envisages 100% target acheivement by December 2018.

Budget expectation

The government could consider extending infrastructural benefits (such as accelerated depreciation benefits) available to renewable energy projects to large hydro projects and provide tax breaks under 80 IA.

The government could consider reducing the GST applicable in solar modules to zero.

The government could consider providing tax concessions (currently ~10.3% basic customs duty on import and 28% GST is charged on rechargeable batteries) and manufacturing incentives to battery-based power storage solutions to promote domestic manufacturing and faster adoption. For grids with high renweable energy penetration, battery–based energy storage solutions can play a vital role, given their faster response time.

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