Budget demand: PowerMin seeks tax breaks for ongoing hydel projects

A proposal for deemed export status has also been sought for hydro projects.

Written by Aanchal Magazine | New Delhi | Published:January 18, 2017 1:23 am

In a push to the hydropower sector, the Ministry of Power has sought concessions for under-construction hydel projects in the upcoming Budget for 2017-18. This includes the clubbing of these projects under the ‘renewable energy’ category, alongside solar and wind projects, which entitles these projects to sharply lower tax rates.

A proposal for deemed export status has also been sought for hydro projects, in line with the proposed status for solar power units and a demand for a zero-rated supply status for the hydro sector, which is likely to involve a tax shortfall of Rs 880 crore over five years.

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The proposed sops for the hydro sector comes at a time when the Centre is making concerted efforts to push hydel generation as a counter-balance to the massive deployment of renewable capacity such as solar and wind. Since India does not have much fuel for gas-based power plants, there is now a policy push to the hydro sector as hydel generation capacity can ramp up and down to adjust to the vagaries of solar and wind generation every day.

“Around 11,000 MW hydro power capacity addition expected in next five years. Most of the projects are situated in north east and special category states. Supplies made to under construction hydropower projects may be granted deemed export status in line with that being contemplated for solar power projects. Granting deemed export status may involve tax shortfall of Rs 880 crore spread over a period of five years,” officials from power ministry said. Under the current tax regime, the renewable energy sector attracts zero excise duty, value added tax (VAT) at the rate of 0-5 per cent with concessional VAT by most states and a Central Sales Tax (CST) levy of 2 per cent.

According to latest estimates prepared by the Central Electricity Authority (CEA) — the apex planning body in the power sector — a typical availability of about 70GW-80GW (giga watts, equivalent to 1000 mega watts) from the estimated addition of 141GW of wind and solar power has been estimated by 2020-21. According to experts, on a bright sunny day in summer, the peak availability of wind and solar combined could go up to 90 GW. On the other hand, the total hydro capacity in the country, which is 42 GW now, is expected to be 52GW in 2021, according to CEA estimates. Out of this, around 40 GW would be generated round-the-clock in summer and monsoon, which offers a certain degree of flexibility to be ramped up and down to counter balance the solar and wind generation cycle.

Alongside conventional hydropower, the CEA estimates peg the max renewable energy power from wind, solar and hydro during summer-monsoon season at about 120 GW against a projected all-India intra-day demand of about 160-170 GW in 2021 (projection based on the historical growth trend in demand). Also, the 5 GW nuclear plant capacity always run at base load.

What this means is that the massive fleet of over 266 GW thermal plants in the country will have to ramp down to technical minimum and some of them may have to back down also when solar power peaks, and start ramping up in the afternoon from 3pm onwards to as the sun goes down and the net demand rises to its daily evening peak which may be of the order of 200 GW in 2021. The current coal capacity is about 182 GW and overall thermal capacity (coal plus gas) is 211GW. This is where the hydropower sector could prove vital in the country’s energy mix.

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