With a global pandemic and the subsequent lockdowns in the entire nation, 2020 was a year everyone wants to forget and return to normalcy. The year was also relentless for the solar industry’s growth, which saw manufacturing and installations drop by a significant margin.
Solar installations in the year 2020 fell 81% from 1.1 GW installed in the first quarter to a mere 205 MW in the second. The rooftop solar market, which was already struggling to start with, crashed completely in Q2 due to disruptions from the pandemic. Installations in Q2 were the lowest ever since the large dip in the second quarter of 2016. Furthermore, sales of off-grid solar products in India fell by 50% in the first half of 2020.
Certain policy decisions such as the recent one that proposes to cap net metering at 10 kW capacity for rooftop solar installations, threaten the rooftop solar segment. There were a lot of hopes riding high going into the Union Budget 2021-22, after the year we’ve had. The renewable energy industry in general had varied expectations.
So how did the Union Budget pan out for the industry?
OVERALL RECEPTION HAS BEEN POSITIVE
The Union Budget 2021 did not fail the expectations of the solar energy sector. The allocation of additional funds to Solar Energy Corporation of India (SECI), and Indian Renewable Energy Development Agency Limited (IREDA), as well as the additional allocation of around Rs. 3.5 lakh crores to support ailing distribution companies (Discoms), was very well received and seen as great steps going forward.
Additionally, with an intent to provide consumers with alternatives, the Finance Minister expressed the need for a framework to establish more public and private Discoms. To support the Atmanirbhar Bharat initiative, she also announced an increase in the duty on imports of solar inverters and solar lanterns. These duties were bumped up from the existing 5 percent to 20 percent and 15 percent respectively. Additionally, to build up domestic capacity, the government announced that they would notify a phased manufacturing plan for solar cells and solar panels.
KEY TAKEAWAYS FROM THE UNION BUDGET
Some of the key inferences from the budget announcement include:
- Infusion of funds to SECI and IREDA would help address the key challenge of availability of funds for setting up solar plants across the nation. However, the government needs to draft clear guidelines to direct the usage of these funds is the key.
- Further, the industry looks forward to receiving support from government agencies on the Research and Development of the solar module and inverter technology. SECI and IREDA are expected to come up in a big way to fund such initiatives, which could lead to the ultimate transition from imported options to indigenous superior quality and cost-effective hardware.
- Similarly, the allocation of funds for supporting the DISCOMs should be complemented by end-user norms, and stricter rules should be formulated to revamp the existing infrastructure.
- Privatisation is also a welcome step and competition in a free market would help improve the power generation and transmission infrastructure by a significant margin. This would in turn help necessitate low-cost power, thus boosting demand for solar parks and greener energy.
- Other announcements like lowering compliance norms for small-scale startups will definitely help them kick-off. A boost in the adoption of Electric vehicles (EVs) would also compliment the need for green energy.
- The bump-up in duty on imported solar inverters and lanterns is good as far as the Make in India mission is concerned. The apex solar body, National Solar Energy Federation of India (NSEFI), welcomed the decision.
“This will not only promote indigenous manufacturing of inverters but will also lead to job creation in the sector especially impacting MSMEs. This is another step towards realising the goal of Aatmanirbhar Bharat,” Subrahmanyam Pulipaka, CEO, NSEFI, told the Economic Times.
Regarding duty hike on solar lanterns, he further added that the announcement was a welcome step to place Indian manufacturers in a position to enable India in becoming a global leader in the supply of solar lanterns.
This is especially significant as India is one of the largest markets in the world for solar lanterns and has the potential to be a $300-million market for lanterns.
While many positive things came out of the Union Budget, some major concerns still exist in the industry. For instance, it is not enough to just dissuade customers from buying imported hardware, it is equally important to build production capacity at home and promote Indian inverters and lanterns organically. There was nothing in the budget that addressed this key aspect of indigenisation of solar hardware.
It is also worthwhile to note that India has achieved only 37% of its targeted installed capacity of 100 GW by 2022. Of this, the rooftop solar capacity, especially residential rooftop, is negligible. The consensus is that the budget should have focussed more on addressing the challenges faced in the rooftop segment of the solar industry. Regarding large-scale projects, concrete measures to incentivise investors as well as fixing accountability of defaulting off-takers is the need of the hour.
To summarise, while the Budget has announced infusion of funds in the solar and power sector and has been generally very well received, a few more targeted measures would have gone a long way. With the vaccination drive for Covid-19 underway in the country, which will definitely lead the commercial and industrial activity towards normalcy, hopefully, the Budget 2021 is successful in providing the right incentives and make appropriate allocations for spending in the power sector to propel the economy once again to a healthy growth rate as well as move towards a greener and eco-friendly nation.