Key provision for Renewable Energy industry in the Union Budget 2016

The Union Budget 2016 was a mixed bag for the RE industry. The key provisions that will impact the industry are:
 

• Reduction in accelerated depreciation (AD) on RE investment – the rate of AD will be reduced from 80% to 40% from April 1, 2017. AD has been historically an important driver of investment in the RE sector. However, off-late IPPs (who generally do not use AD benefits) have become the key driver of investment in the sector. Nevertheless, this change will reduce demand for RE investment. FY 2016-17 is likely to see a spurt in investment under AD as investors rush to complete projects before the lower rate becomes effective.

• Increase in coal cess – Coal cess has been doubled from Rs 200/ ton to Rs 400/ ton. The proceeds from this cess fund the National Clean Energy Fund (NCEF). NCEF is used for a variety of reasons like Ganga Rejuvenation, proposed payments to states for deviation resulting from wind and solar, and is often not used at all (absorbed by the government to meet fiscal deficit targets).

• Allocation of funds to MNRE has increased from  Rs 262 crore in FY 15-16 to over 5,000 crore in FY 16-17. These will potentially kick-start large projects.                                                                                                                                                                                                                                           * 1Article titled “Govt uses green energy fund for fiscal balancing”, dated April 21, 2015, Mint newspaper . 
  The article can be accessed here.