World Environment Day is celebrated on 5th June across the globe. This year, Delhi based Centre for Science and Environment (CSE) released a study titled ‘India warming analysis’. The purpose of the study was to understand the changing temperature trends in India from 1901-2017.
The analysis of the data collected showed that the annual mean temperature in India has increased by about 1.2 degrees Celsius since the beginning of the 20th century. A press release of the CSE stated that India is witnessing higher frequency and intensity of extreme weather events - droughts, floods, heat waves, etc. - because of rapidly increasing temperature. 2016 was the second warmest year on record.
You know what this means, don’t you? Climate change is real, contrary to what some world leaders might let you to believe. India is responsible for 6% of the global CO2 emissions. Close to 6% of the country’s supply is derived from coal fueled power plants and yet, there are approximately 18,000 villages which don’t have access to energy. The government, therefore faces a dilemma in maintaining the ecological balance while undertaking development. As part of the initial commitments to the Paris agreement on climate change, India plans to reduce its carbon emission intensity - emission per unit of GDP - by 33-35% from 2005 levels over 15 years. It aims at producing 40% of its installed electricity capacity by 2030 from non-fossil fuels.
To achieve this, India has to shift to renewable energy resources. In an article by Down to Earth dated 27th February 2014, renewable energy accounts for about 12 per cent of the total electricity generation capacity and contributes about 6 per cent of the electricity produced in the country. Electricity Act, 2003 and policies to promote solar energy generation from rooftops of residential, commercial and industrial buildings ensure that the scenario is changing, slowly but surely.
Bridge to India (a leading consultancy in the Indian renewable market) had issued a note stating that the 18% GST rate for solar modules as compared to the previous effective rate of 0% would have led to an increase of 12% in the overall costs. But the government ultimately decided a levy of 5% on solar equipments which was a major relief to the industry. Here is a list of the renewable energy equipments which have been classified in the 5% bracket alongside coal:-
Bio-gas plant: 5%
Solar power based devices: 5%
Wind mills and wind operated electricity generator: 5%
Waste to energy plants/devices: 5%
Solar lantern/solar lamp: 5%
Ocean waves/tidal waves energy devices/plants: 5%
In the wind segment, wind operated equipments like wind turbines will be taxed at 5%, same as the rate under VAT. Wind equipment manufacturers also set up the projects for developers which is a services. The tariff on such engineering services has been decided at 18% as compared to the earlier Service Tax of 12%. Solar projects involving civil and works contracts will be taxed at 18 per cent. According to the CEO of Mercom Capital Group, the net effect on solar projects will be 3.5-4.5%.
One issue however would be the ability to claim input tax credit. A solar power plant, which is the input, is taxed but electricity, which is the output, has been kept out of the ambit of GST. Nevertheless, Gajanan Nair, CEO of CleanMax Solar, is of the opinion that this will be but a minor challenge in a competitive industry and the long-term benefits will outweigh the initial hiccups (the chap should pat himself for this positive outlook).
People have claimed lack of clarity regarding the GST on solar equipments but Union Power Minister, Piyush Goyal, has restated that the government is very clear on this matter. It would be suggested that traders find answers at the earliest if India aims to achieve the targets of 100 gigawatt from solar, 60 gigawatt from wind, 10 gigawatt from biomass and 5 gigawatt from small hydropower by 2022.