Clean Energy and Urban Infrastructure: India’s way forward

5 March 2010

INDIA: The Union Budget of India for 2010-2011 provides significant incentives towards clean energy and better infrastructure. While announcing the budget, Finance Minister Pranab Mukherjee acknowledged the significance of clean energy generation, and emphasised that renewables were ‘a credible strategy (for India) for combating global warming and climate change’.

The Budget this year is a clear indication of the operationalization of the National Action Plan on Climate Change, and Mr Raghuraman, Former Senior Advisor CII has stated, "conveys the government’s serious intent to walk the talk on climate change".

 For the first time in India, 46% of the total budget outlay has been dedicated to infrastructure development. The Ministry of New and Renewable Energy has seen an outlay increase of 61% from last year (amounting to Rs10 billion), and the Budget allocation for the Power ministry has been doubled (Rs51.3 billion).

Key budget highlights:

  • Creation of Clean Energy Fund
  • Clean Energy Cess to be levied on coal (Indian and Imported)
  • Concessional duty on photovoltaic and solar thermal power generating units, and permanent magnets used for wind energy generation
  • Exempt polymers for biofuels, and geothermal energy production from duty
  • Allocations made for solar, hydro and certain other microfinance projects
  • LED and CFL: central excise duty reduced from 8% to 4% 
  • EVs: impose nominal duty of 4%; and exempt basic duty on import of parts thereof
  • To grant ‘import’ status for urban monorail projects

For the first time, a tax has been levied on all new Indian and imported coal in the form of a “Clean Energy Cess”, at the rate of Rs50 per tonne of coal. As an extension of India’s ‘polluter pays’ principle, adopted in its international stand on climate change, this money will be allocated to a corpus for the newly established ‘Clean Energy Fund’ dedicated to R&D and innovations in low-carbon technologies. The projected coal production for 2010-11 (610 million tonnes, India stat) suggests that by year end, a corpus of Rs30 billion per annum will be built from domestic coal usage only. This corpus is likely to extend itself to leverage from public-private partnerships, especially with weighted average deduction of R&D expenses enhanced to 200% for in-house research, and 175% for sponsored projects to boast clean energy initiatives.

Under the caveat of the Solar Mission, the Budget has significantly reduced capital costs for investors by providing a concessional duty (5%) on all equipment, machinery etc., needed for the setting up of photovoltaic and solar thermal units. Mr Anil Lakhina,  Chairman Forum for Advancement of Solar Thermal, states “The budget has taken some excellent steps in the solar space which would prove beneficial, and we welcome the complete acceptance that this budget has provided to the National Solar Mission.”

 To encourage investments and development of wind power, the Budget has reduced duties on permanent magnets and electricity generators which would provide some relief to project developers. Geothermal energy generation has received an encouraging exemption from all basic customs and special additional duties.  The lowering of excise duty on LED and CFL will add fillip to the Bureau of Energy Efficiency’s ‘Bachat Lamp Yojana'. However this provision could have well been extended to energy labelled products to promote energy efficiency.

Within urban infrastructure, there is an emphasis on detraction from private-vehicle usage brought about by an increase in fuel prices, as well as increase in excise duties (year-on-year) on large cars, MUVs and SUVs. In his speech, the Minister noted the significance of urban public transportation in reducing fossil-fuel dependence, and with this Budget, he has granted import status for monorail projects in urban transport.

This amalgamation of emphasis on cleaner energies, and better infrastructure development is a prime example of India’s intent and optimism towards a sustainable, low carbon economy that secures its two pronged aim of energy security and meeting development goals.

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