Budget 2020: Solar Power’s Allocation Rises by 10 Percent


While Indian industry, in general, has opinions (depending on where you sit) regarding the Union Budget 2020, there is satisfaction over the thrust maintained towards the transition to a renewables-driven economy. Under India’s Intended Nationally Determined Contribution in the Paris Agreement, the country has committed itself to 40% generation of its total energy requirements from non-fossil sources by 2030. Already, in 2019, the achievement is 17% with an installed capacity of 35%.

As reported, the allocation for the Ministry of New and Renewable Energy (MNRE) has risen by 10.35%. This also represents a compounded 10% rise for the last 3 years, taking the base figure for actual expenditure of 2017-2018.

This budget maintains the thrust, putting India ahead of the curve of most nations in the quest for non-fossil fuels and a cleaner environment, thus following a more sustainable development path. More than the numbers, it is the comprehensive thrust that is of significance. Some of the transformational steps are discussed below.

Kisan Urja Suraksha Evam Utthaan Mahaabhiyaan

This scheme was launched in 2018 with the acronym KUSUM, aiming to install 17.5 lakh 3 HP solar-irrigation pumps where the electricity grid has not yet reached. Another 10 lakh pumps were to be installed where the grid is available, with the obvious benefit of transition to cleaner energy, as well as augmenting farming income. The farmer would get assured supply of power as well as the option of selling surplus generation back to the grid, where connected. It is transformational as it dovetails with the government’s aim of doubling farming incomes, too. Equally important, it helps bring down the high cost of providing rural electrification through grid electricity across transmission lines to far-flung areas.

This budget has expanded the target to 35 lac pumps (from the 27.5 lac as above), allocating 700 crores for the expansion of KUSUM and another 300 crores for the use of barren land for grid-connected solar power generation. The target is to generate 4 GW with this 1000 crore allocation. If judiciously implemented—there’s the downside of the risk of overexploitation of groundwater—this incentivises farmers with additional revenue from sale of power while augmenting income from unproductive rural land.

India has an estimated 3 crore diesel-run or electric-powered irrigation pump sets adding to the heavy import bill of fossil fuels while posing an ecological challenge spread across the country. Transition to decentralised power availability has immense potential in driving India towards its 2030 aim under the Paris Agreement. At the same time, as reported in an independent study by IEEFA, it can augment farmer incomes while moving to cheaper and cleaner power.

Encourage utilities like railways to generate solar power

The budget has targeted 18-20 GW with the railways generating power along railway tracks as well as roof-top generation at their yards. One such pilot project, as reported, in collaboration with BHEL, is slated to be operational at Bina in M.P. by March 2020. At 1.7 MW capacity, it will supply 25 lac units to the railways grid annually to drive traction.

Corporate tax reduction

As an incentive for setting up new and renewable energy units, the new tax rate of 15% applicable for new manufacturing plants has been extended for such units in Budget 2020.

Dividend distribution tax

One of the impediments to foreign investment in renewable energy was the taxation of dividends declared (DDT). This budget has abolished this tax, paving the way for more investment.

Smart metering

This is a proposal aimed at reducing financial distress of power distribution companies (DISCOMS).  It involves the use of a mechanism like the SIM and handset of mobile phones. Users have to prepay to load their meter and get a choice of changing their power provider. In turn, the provider can charge based on tariff applicable to Time-of-Day. The target is to shift all households in three years to smart metering. Considering that each smart meter will cost 3,000 INR, it is unclear (logistical difficulties apart) how this will be funded.

All said, the sun is shining on the solar sector.