Committee on Energy Sceptical of India’s Ability to Achieve its Solar Target for 2022
The parliamentary standing committee has raised its concerns about the MNRE’s underutilization of allocated budgets
December 13, 2019
The Parliamentary Standing Committee on Energy has expressed its concerns about the performance of the Ministry of New and Renewable Energy (MNRE) and the country’s ability to achieve its 100 GW solar target by 2022.
The committee presented its findings to the Lok Sabha in its report titled “Demands for Grants of the Ministry of New and Renewable Energy for the year 2019-20.”
The committee raised concerns about the ministry’s underutilization of allocated budgets. It stated that only 89.88%, 92.37%, and 86.97% of the overall allotted budgets in the last three years have been used and that the explanations given by the ministry for the shortfall have been the same each time.
Citing this, the committee added that the ministry had not taken any corrective actions to address the issue of underutilization of allocated budgets. The committee advised the ministry to take remedial measures to ensure the budget is used in its entirety going forward.
Large-scale solar projects
The committee also said it was deeply concerned about the ministry’s inability to achieve annual targets since 2016 and hoped the current year’s targets are met. It added that this yearly shortfall in target achievement might hinder the government’s mission of achieving 175 GW of renewable capacity by 2022. It recommended that the ministry take corrective action in this regard and ensure the continuous monitoring of the implementing agencies.
The committee raised doubts about the MNRE’s ability to meet the country’s solar target of 100 GW by 2022, citing that only about 31 GW of solar projects (as of September 2019) have been commissioned so far. According to the committee, implementing the rest of the target would be a “huge task” in the short span of just two and a half years.
GST on solar products
The committee also talked about the ambiguity surrounding the applicability of Goods and Services Taxes (GST) for solar products and services, which could hamper the growth of the entire renewable energy sector. It cited inconsistencies in rates for renewable energy devices and spare parts, which are charged 5% GST, whereas the effective rate is around 9%. This will lead to an increase in generation costs and would pose a threat to the viability of ongoing projects. The standing committee recommended that the MNRE seek guidance from the Ministry of Finance so that the effective rate of GST on solar power systems remain consistent at around the 5% mark.
The committee expressed disappointment over the Ministry’s performance in the rooftop solar segment. It mentioned that the rooftop solar systems are not remunerative due to high maintenance costs and delay in disbursement of subsidies despite the Ministry’s assertion to the contrary. It recommended that the process of subsidy disbursement should be made swift and straightforward, and the Ministry should raise awareness on the benefits of rooftop solar. The committee also advised on adopting single-window clearance for approvals regarding connectivity, net metering, electrical inspection, and limitation in sanctioned load.
Discussing the KUSUM program, the committee noted that 237,120 units of solar pumps were installed in the country (as on March 31, 2019). This was meager compared to the program’s target of installing 1 million grid-connected solar pumps by 2022. The committee expressed doubts that the already financially constrained DISCOMs may not be able to pay the farmers for the excess power supplied to the grid. The Ministry has been asked to come up with a mechanism to ensure such payment and inform the committee about it immediately.
The Committee is also concerned about the lack of domestic solar manufacturing capacity. To address this, the Ministry is asked to urgently formulate a dedicated program to support solar manufacturing in the country. It has been recommended to provide subsidy/Viability Gap Funding (VGF) and low-interest rate loans to domestic manufacturers to make them competitive.
The committee noted that financing of about ₹2.8 billion (~$39.54 million) would be required for the additional 70 GW of solar capacity to be added by 2022 (₹40 million (~$564,810)/MW). It is also aware that banks are reluctant to lend to renewables as a result of the non-performing assets (NPAs) in the power sector. The committee has recommended that the loan basket and limit for conventional power sector be separated from renewables so that the development of the industry is not affected due to the NPAs in the conventional power sector.
None of the concerns raised by the committee is a surprise and Mercom has written about and analyzed most of these challenges in detail over the years. There has always been a huge gap between the renewable installation goal and execution and we do not see any sense of urgency among the government agencies to reach 175 GW of renewable energy by 2022.
Earlier this year, the Solar Power Developers Association (SPDA) wrote to the Finance Minister expressing concerns on the additional taxes such as GST being levied in addition to safeguard duty. In another letter, the SPDA noted that the new recommendations from the GST Council made the effective tax rate to be 8.9%, which is considerably higher when compared to the rate of 1.5 to 2% in the pre-GST era. The SPDA had requested the government to make the entire contract for the supply of such solar power projects (including services) to have a flat GST rate of 5%.
In October 2018, the CERC issued an order to compensate the solar power developers by giving them an upfront lumpsum payment as compensation for the additional capital incurred after the introduction of GST Law. It also asked the government agencies to make adjustments in the quoted tariff because of the additional operating and recurring expenditure incurred for the entire term of the project.
Mercom previously reported that the delay in GST reimbursement and lack of clarity is affecting solar project developers in India. The MNRE had issued an order extending the commissioning date of solar PV projects that were affected after the imposition of GST and other related issues.
After reviewing a petition filed by the SPDA challenging the new tax formulation structure for solar projects, a bench of the Delhi High Court, early this year, had asked the GST Council to review the newly-introduced taxation formula.
Image credit: Pinakpani [CC BY-SA 4.0]
Nithin Thomas is a staff reporter at Mercom India. Previously with Reuters News, he has covered oil, metals and agricultural commodity markets across global markets. He has also covered refinery and pipeline explosions, oil and gas leaks, Atlantic region hurricane developments, and other natural disasters. Nithin holds a Masters Degree in Applied Economics from Christ University, Bangalore and a Bachelor’s Degree in Commerce from Loyola College, Chennai. More articles from Nithin.