The slew of proposals announced by finance minister Arun Jaitley in the Budget on Monday will lead to an increase of coal-based electricity prices by 10-12 paise per unit, due to the doubling of cess on coal. Additionally, the reduction in accelerated depreciation (AD) and withdrawal of income tax exemption for new plants are likely to bump up prices for renewable energy.
The Budget increased the cess on coal to Rs 400 per tonne under the ‘clean environment cess’, which translates into a tariff hike of nearly 3% over the average tariff. Similarly, the reduction in AD to 40% from 80% earlier will likely see higher tariff for solar and wind energy for developers to realise acceptable return on investment. This will also dissuade smaller, non-power companies from investing in the sector, thus reducing competition.
“The proposed doubling of cess impacts us more, increasing the cost of generation by 12 paise per unit,” Kameswara Rao, leader – energy utilities & mining, PwC India, said in a statement. He added that solar tariffs will likely see an increase of 10 paise per unit due to withdrawal of income tax exemption for new power plants, along with a cut in AD.
A government official told FE on condition of anonymity that higher funds collected through the coal cess would be utilised in promotion of renewable as well as transmission projects through various means, including viable gap funding for projects.
Experts said while the weaning away of subsidies — reduction in AD and withdrawal of IT exemption — would lead to higher tariff, it was necessary for the healthy growth of the sectors as it would mark a further shift of the renewable energy sector away from non-traditional investors, and towards pure-play power companies.
“In the immediate period, the cut in AD will spur a higher level of wind and solar investment in the first half of 2016, as companies will vie to secure the most of the remaining tax break,” Rao said.
However, Tulsi Tanti, chairman, Suzlon Group, disagreed : “We hope the government will reconsider reduction in AD limit and reiterate that it should remain at 80% till 2022, to boost manufacturing under the Make in India vision,”. Suzlon group is engaged in manufacturing wind turbines.