| The growth of renewable energy (RE) market in India is highly dependent on the policy and regulatory environment. Consistent and potent policy measures and regulations, to catalyze the growth of RE, are of utmost importance for India. It needs both a strong government push to accelerate short-term addition of capacity and a dedicated 2030 roadmap for long-term development.
Some major policies and other notifications that are impacting the RE market since March 2021 have been summarized below.
Table 1: Key government policies/schemes impacting the RE sector since March 2021 | Policy/Scheme | Date of Issue | Description | Impact | Basic Customs
Duty
(BCD) | March 2021 | - In March 2021, the MNRE announced the imposition of BCD on imported solar cells (25%) and modules (40%) effective from April 1, 2022.
- Intended to improve competitiveness of domestic modules, BCD however has been a cause of concern for solar PV manufacturers and solar developers.
| - Solar manufacturers – BCD will be imposed on Solar modules and cell manufactured in Special Economic Zones (SEZ) wherein more than half of India's solar cell manufacturing units and about 40% of solar panel manufacturing units are located.
- Solar developers – Imposition of BCD will increase the project cost of a solar plant by 20-25%. Thus, the BCD imposition is predicted to have a severe impact on ~15GW of solar projects.
| Approved List
of
Models and
Manufacturers
(ALMM) | March 2021 (First ALMM list) | - Intended to standardize solar manufacturing in India and to add a non-tariff barrier against foreign module makers, MNRE introduced ALMM back in January 2019.
- First ALMM list was issued in March 2021, with latest version from April 2022 listing 55 manufacturers and a cumulative capacity of ~14GW, which is still significantly lesser than 15-20 GW of current domestic demand.
- MNRE initially proposed ALMM inclusion to be applicable for all types of solar projects from 1 April 2022. Later, however, the government decided to defer the date of ALMM enforcement for open access and net metering projects to 1 October 2022.
| - Of the 14 GW of ALMM-listed capacity, a large chunk represents outdated modules. Thus, there is a significant demand-supply gap as most of the current module demand in India has shifted towards high efficiency 400Wp+ modules.
- Anticipating an upsurge in the demand of domestic modules, leading domestic solar manufacturers increased prices by US¢3-4/Wp between February and March 2022
| Production
Linked
Incentive (PLI) | April 2021 | - Aiming to spur domestic manufacturing, the government of India introduced the PLI scheme, with "High Efficiency Solar PV (Photovoltaic) Modules" as one of the target sectors.
- PLI tender (issued in May 2021) was over-subscribed by more than 5 times as 54.8 GW worth of bids were received against an allotted capacity of 10 GW.
- Current winners under solar PLI are Reliance (4GW), Shirdi Sai electricals (4 GW) and Adani (2 GW).
- The outlay for integrated PV manufacturing, initially promised as INR 4500 crore was later increased to INR 24,000 crore.
| - PLI scheme highlights government push to promote solar manufacturing in India through creating a favorable policy environment.
- Thus, several new entities (RE developers, PSU, foreign manufacturers) have announced plans to set up solar manufacturing units.
- Cumulatively, about 33 GW of module and 29 GW of cell production capacity are in pipeline to add to existing domestic capacity by 2025.
| Green Open
Access
(OA) Policy | June 2022 | - Ministry of Power published the green OA policy as Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 in June 2022.
- Green OA policy aims at creating a standardized framework for OA development in India.
- The policy provides mandatory banking (with a minimum settlement period of one month) to C&I consumers availing RE power under OA arrangement.
- It further provides clarity related to OA charges, including quashing of additional surcharge (AS), which is a major component of OA charges.
- Other highlights of the policy include reducing the eligibility limit (to 100kW) and setting a fixed approval window of 15 days to clear OA applications.
| - This policy has been receiving a very strong positive response from all RE stakeholders. The long-term clarity that the policy provides is deemed quite welcoming.
- However, for 'actual' implementation, all RE stakeholders now await state regulators' response to the policy.
| Goods and
Services Tax
(GST) | October 2021 | - On October 1, 2021, the Indian government increased GST on solar cells and modules from 5% to 12%.
- Additionally, the GST on supply component (70% of solar project cost) was also increased from 5% to 12%.
- The GST on solar inverters and module mounting systems is already as high as 18%.
| - Since October 2021, the effective rate of GST on a solar project (supply +Installation) has increased from 8.9% to 13.8%.
- The capital expenditure (CAPEX) of solar projects has increased by 4.5%, effectively raising solar tariffs by INR 0.1/kWh.
| Source: JMK Research
Some key policy recommendations to increase uptake of RE and remove potential roadblocks are: - Extension of ALMM Enforcement Date – Until substantial domestic capacity of high-wattage modules is developed, ALMM should not be enforced. This extension is especially important for C&I power purchase agreement (PPA) market. Considering their smaller scale, C&I projects will find it more challenging to source these high-efficiency modules as compared to Discom PPA projects.
- Reduction/Deferment of BCD on Solar Cell – BCD of 25% on solar cell needs to be reduced considerably or deferred to curb a probable additional price hike in domestic solar modules in the near-term. The ratio of cell to module manufacturing capacity for the particular year must be a deciding factor in fixing the BCD rate for solar cells for that year.
- Effective and timely Implementation of Green OA policy – The general stance of states has been to hinder the migration of their high-paying C&I consumers to cheaper renewable energy through OA. Thus, implementation of the policy may lead to significant tussles between states and the Centre. Regardless, to spur development of green OA market, the timely implementation of green OA policy becomes very important.
- Stricter RPO enforcement – Pan-India enforcement of strict penalties for non-fulfilment of RPOs is vital. Draft National Electricity amendment act, which will most likely be finalized in the current financial year, includes provision of increased penalties for RPO noncompliance.
To conclude, in order to reach the ambitious target of 500 GW non-fossil fuel capacity by 2030, just one segment of RE will not be enough. Simultaneous development of all RE segments (rooftop, OA, Discom PPA, onshore and offshore wind etc.) will be essential. Thus, it is the responsibility of policy makers to design regulations which are all inclusive, consistent and provides long-term clarity to support concurrent development of all RE segments. |
