Revenue Secretary Haskmukh Adhia, earlier this week, clarified that the solar modules will fall under the 5 percent tax bracket of the Goods and Service Tax (GST) and said that an official statement is be likely to be made on June 3 at the next GST council meeting.
The initial rate announcement was met with an uproar by the industry last week as solar modules were placed under the 18 percent tax bracket.
It would have had a major disruptive effect on the solar industry, as noted by renewable energy market research firm Bridge to India (BTI), where infrastructure with the potential to provide 10 gigawatts (GW) worth of energy would be affected.
Cheap & Clean – How Solar Power May Shape The Future of Modern India
India’s green goals: The bottom line
India accounts for 4 percent of the world’s carbon emissions. It is obligated under the Paris Agreement to reduce its carbon footprint up to 35 percent from its 2005 levels as well as increase its forest cover by five million hectares to absorb the massive carbon emissions by 2022.
The initial mandate would be to reduce the volume of emissions by diversifying the means of power generation and supply.
In a report titled 'A Report of the Expert Group on 175 GW RE by 2022', the NITI Aayog said that more than 300 million people still do not have access to electricity. The report also estimated that India electricity demand will be more than double the level in 2021-22 as opposed to 2011-12.
While India's power production capacity stands at 275 GW, the consumption capacity stands at 140 GW. The Niti Aayog report attributes the losses to factors such as coal supply shortage, high level of transmission and distribution losses, and poor financial health of utilities. This forces some utilities to avoid high costs by "simply not buying power, causing cost local shortages, rolling blackouts, and increase in fixed costs" according to the report.
Thus,“tapping into abundant indigenous renewable resources could avoid revenue outflows for expensive imported fuels” it says.
Taking the first step, India stated a target of 175 gigawatts (GW) of renewable energy generation by 2022. Of this, 100 GW would be from solar power, 60 GW of the wind, 10 GW from biomass and 5 GW from hydropower.
A Moneycontrol report stated that to achieve the proposed capacity of 100 GW target by 2022, the overall investment required would be around Rs 6 lakh crore and so keeping the duties down on solar power equipment is necessary.
The road ahead
Recent developments at the Bhadla solar park in Rajasthan auction saw tariffs falling to a new lows of Rs 2.44 a unit. Such low tariff rates are also attributed to the influx of solar modules supplied, whose prices plunged by as much as 30 percent, with Chinese imports adding to the glut.
While this might be good news for the consumer, it might not be sustainable for the solar market in the long run as distribution companies and other stakeholders of infrastructure provision would find little incentive to engage with the market. A uniformity in the provisions of regulation and law across states, as well as cutting down o the red tape would encourage companies to take up solar projects more readily.
A Report of the Expert Group on 175 GW RE by 2022 , released by NITI Aayog, states that,"to capture the benefits of renewable energy, India would need to make available the necessary capital, and get comfortable with managing the variability and uncertainty of renewable energy generation in conjunction with the existing and planned fossil fuel-based and large power plants. "
Financing is certain to be a challenge for renewable energy. It quoted The Planning Commission estimates, where infrastructure development under the 12th Five Year Plan would require more than USD 1 trillion, and renewable energy requirement may further add to the debt.