Bridge India

India is getting its solar fundamentals right but the policy is still a ‘work-in-progress’

On Saturday (31st January 2015), the Minister for New and Renewable Energy, Piyush Goyal, called for a meeting with solar developers and manufacturers to discuss various aspects related to structuring of accelerated depreciation (AD) mechanism to ensure a level playing field for developers. The minister announced that the government is considering proposals to provide interest rate subvention for developers who don’t claim AD.  Separately, there is a proposal to consider how private developers can raise capital through green bonds. But it appears that the developers’ demands for a universal tax-credit structure, like the one in the US, or for waiver of Minimum Alternate Tax (MAT) for solar projects might not be approved by the Ministry of Finance.

  •  The Indian government has announced several sound plans but the implementation process and policy clarity is not yet matching up
  •  BRIDGE TO INDIA believes that interest rate subvention may appear to be a fundamentally sound concept but the practical implementation and monitoring would be very challenging
  •  There is an urgent need to back up mega plans with detailed policy measures

The Indian government has announced several bold initiatives to grow solar energy in India in the last few months –new solar targets for 100 GW, strong focus on rooftop segment, setting up of government solar parks for utility scale and ultra-mega scale projects, significant increase in renewable purchase obligations (RPO) and attempts to reduce the cost of financing for solar projects. These are fundamentally sound plans but perhaps unsurprisingly, implementation process and policy clarity is not yet matching up.

In one of our previous blogs (refer),we also discussed how the allocation process for the upcoming NSM projects does not seem very well planned. The guidelines for these projects have gone through multiple rounds of changes and the timeline has already slipped considerably. Even on the issue of creating a level playing field for developers who are notable to claim AD, BRIDGE TO INDIA believes that interest rate subvention may appear to be a fundamentally sound concept but the practical implementation and monitoring would be very challenging. Disappointingly though, the differential tariff structure for AD and non-AD projects has been done away with before any an interest rate subvention scheme or any other such plan is implemented.

We understand that the Indian solar policy environment has been very dynamic since the new government took over but there is an urgent need to back up mega plans with detailed policy measures and simplify allocation and other investor interfacing processes.

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