“Govt should provide more incentives to solar panel manufacturers”

April 8, 2015 7:37 am0 commentsViews: 133

K(08_2015_Govt-should)1Say Chandan Mishra, Associate Director, and Sandeep Mohanty, Manager, Energy and Utilities, PwC India, in conversation with Monica Chaturvedi Charna.

What are your expectations from Budget 2015?
Improvement in power distribution and cutting down distribution losses has always been the lowest hanging fruit for better fi nancial viability of distribution utilities, but one which has proven to the most diffi cult. Fast tracking investments in programmes such as feeder segregation, capacity augmentation and electrifi cation should be the focus. States may be asked to design and fund their own schemes to achieve the aforementioned objectives, now that funding is taken care of under schemes like the Integrated Power Development and the Deen Dayal Upadhyay Gram Jyoti Yojna.

The central government may accelerate the process of implementing retail competition in the distribution sector. We anticipate that this initiative will not only improve the customer experience and involvement but enhance the coverage to rural areas much like the telecommunications sector. This, along with the leveraging of digital media in the power sector, would be the a signifi cant game changer for the sector in future. On the renewable energy front, government should now move up the value chain and provide additional incentives to solar panel manufacturers, such as tax rebates and funding R&D eff orts in solar energy, subsidy to move to solar rooftop, mandatory solar investment targets for profi table PSU’s (similar to CSR) and directing states to strictly adhere to RPO targets. Additionally, a central pool of funds can be created to fund new technology based demonstration projects. The Central government should ensure that cheap funds are available for renewable energy fi nancing. The fi nal objective of ‘Ensuring aff ordability of power for all’ is the trickiest one. Providing direct subsidy to consumers is not a sustainable approach and cannot be used beyond a certain limit. The government should focus on laying guidelines to move to retail competition, removing cross subsidy surcharge (in a more defi nitive time period), reducing distribution losses and prevention of theft. Most of these are in control of the states but the central government, in the Budget, can adopt a performance-based mechanism to disburse some of its committed fi nancial assistance to states.

What policy changes would be most welcome for betterment of the power sector?
States and government-owned utilities can no longer impose their monopoly on consumers, especially while being ineffi cient. The initiative which will change the face of the industry and bring power to the doorstep of end consumers is introduction and implementation of retail competition. The growing public discontent over electricity rates and services is attributed to our monopolistic industry structure.

The industry also needs technology to fl ow in from developed countries. India has emerged as a leader in implementing projects but we lag seriously in terms of technological discovery and adoption. The government’s initiative towards this has been heartening to bring in technology from developed countries but we need to focus on research at home. Our educational institutions are pegged as the best in the world – yet, we do not feature as leaders in discovering new, innovative technologies. The government and industry needs to support, both in terms of policy and funds, research and investments in alternate and clean technology.

In mining, we believe the government is on the right track. We need to quickly operationalise a framework and a market to promote commercial coal mining. This will not only drive production up but also generate immense employment, bring in latest and effi cient technology in the sector but most importantly, give a major thrust to the power generation sector. Counting purely on Coal India in this case is simply not the solution.

What provision/s were left unattended by the last Budget which the current one should incorporate?
The previous Budget had touched upon key issues in the sector but a rational course of action was missing, especially in rejuvenating the existing traditional generational capacities. The new Budget should provide a clear cut thrust on enhancing private participation in the coal mining sector, in line with the ordinance and guidelines issued over the last few months, which was missing in the last Budget. Focus should also be on the development of coal markets and commercial mining in India, once the existing mines are auctioned.

The Budget should also focus on an action plan to revive sick assets, especially the ones that are stranded due to unavailability of gas, which was not addressed in the last Budget. The lack of gas has left a signifi cant quantum of capital sitting idle, incurring costs but not generating any returns. There was a discussion a few months back on gas price pooling, which should be implemented as soon as possible.

The new Budget should also touch upon amendments to the Electricity Act, especially the introduction of retail competition. The Cabinet has already accorded its nod to the key amendments and the government should now quickly introduce the changes in the coming fi nancial year – however, issuing a policy directive in the Budget would be extremely helpful and positive. States in anticipation will begin preparations for the advent of retail competition.

Finally, in the area of renewable energy, it is expected that the government promotes manufacturing of equipment (under the ‘Make in India’ campaign). Additional benefi ts such as tax exemptions and cheap  power should be provided to the manufacturing industries. The government, unlike earlier, should clearly focus on not only enhancing the manufacturing sector but also propel new R&D into aff ordable renewable energy technologies, which could be in the form of tangible and signifi cant grants to educational and research institutions, tax breaks on R&D investments and special fi nancing support to set up the manufacturing infrastructure.

How will the sector fare this year?
The government’s fast action in case of coal mine auction, along with the commitment to change the draconian land acquisition bill, will surely lift investor spirits. The investment landscape in power generation – both conventional thermal and renewable is improving. However, there are lingering concerns pertaining to gas, hydro and nuclear, which will limit growth in these areas. Gas availability and pricing needs serious focus and attention of the government to attract investments in this segment. Hydro has lost its sheen due to long development periods, leading to higher tariff s and a mandatory hydro purchase obligation may be useful points of debate (which the government did initiate a few months back by writing to the states to seek their inputs). Nuclear energy, on the other hand, has shown promise with recent deals with Australia and Canada, but the availability of fuel is still a concern. It will certainly take some time for India to get access to the  highly prized Nuclear Suppliers Groups (NSG) but the omen seems to be good.

Increasingly, investors seem to be drawn towards solar projects and opportunities for setting up new capacities are increasing. It is likely that we will continue to see substantial progress in solar capacities, the new UMPP framework may be issued soon and bidding may be continued thereon.

The successful conclusion of coal auction and subsequent freeing of CIL driven coal linkage will boost investor confi dence in coal-based projects as well; however, the growth in generation is marred by lack of sale opportunities to distribution utilities in states as well as an unviable cross subsidy surcharge in most states. Most distribution companies in the country have abysmal fi nancial health coupled with operational ineffi ciencies, lack of capital and most importantly high AT&C losses. These utilities are in no position to procure additional power, although the demand exists. This will seriously hamper the sector’s viability and growth. Adding to these woes is the high cross subsidy surcharge, levied by most states, which makes direct sale of power almost impossible. While the former problem is certainly not in the hands of the central government, the latter – which is a key barrier to growth of the sector – can be addressed through suitable policy provisions in the Electricity Act. Segregation of the wires and retail businesses is expected to address the financial woes of distribution utilities to a signifi cant extent. It is anticipated that the sector will undergo a face-lift once the new Act is operation, hence it is imperative that the new Electricity Act be implemented soon.

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