AQ: Negative Impact of Accelerated Depreciation on the Indian Economy
For argument sake or as an illustration, if we assume that 1 MW solar will generate 1.6 Mkwh and rs. 1.2/kwh is rebate for AD taken by the investor = 16 x 1.2 = Rs. 19.2 lakhs/year
[Now, Adani and Tata Power have been negotiating the firm Contract PPA to get more, like wise biomass people who based their PPA on LCOE, but, are asking more money from Government, hence, Solar PV developers may also follow the same route after few years, wherein this rebate of AD given will not have any meaning!!]
Total rebate given = 19.2/year x 25 years = Rs. 480 lakhs = Rs. 4.8 Crore (that too year wise depreciated / devaluated rupee value, which has no meaning !)
But, the tax saved is = 80% of investment = 0.8 x 10 cr = 8 Crore, upfront, right in the first year, which is great value, which government would have used as Equity to develop many more MWs.
Is this POLICY of providing 80% Accelerated Depreciation correct by any standards and why Finance Secretaries or policy makers can’t take note and issue corrective measure for INDIA FIRST Culture??
MNRE, in its Draft policy has proposed 20 to 40% Viability Gap Funding, which will further worsen the LOSS to the government !!
If Mahagenco (with 50% subsidy) goes ahead with the proposed business model, then, how and why State and hence Central government has to take the burden due to such errant policies??
We must put an end to the Scrupulous Project Development, which avails the Capital Subsidy (or Viability Gap Funding) and the Accelerated Depreciation and then the Promoters Sell the Project to a prospective buyer, who in turn approaches the Government for the Tariff hike in the 25 years tenure (please note the Politics dynamics or change of administrative set up will hamper the sustainability), thus, the nation is a great loser
Policies and the enabling tax advantages to few promoters (who claimed Capital Subsidy without creating good quality asset or with NON functional biomass power plants) have made a big dent on Indian Economy without any good results esp in Renewable energy sector.
Government or its administration through such policy (without checks or being accountable) transferred the Public Property to the Private Companies in the Form of Renewable Energy Generation through Capital Subsidy (or Viability Gap Funding) coupled with Accelerated Depreciation along with Low cost Debt fund to these Corporate companies (like EXIM etc) / Project Developers – entrepreneurs, which are not paid back as few of these projects are not functioning and still no action taken to recover the Capital Subsidy paid or Tax recovery which was availed through Accelerated Depreciation (AD).
If Government would have established all these projects from the Tax collections (which are doled out as free through AD), it would have needed only a fraction i.e only Rs. 51,504 Crores, which could have been managed from the taxes of Rs.137,344 Crores while retaining the land and property in Government’s name and could have generated lot of employment.
But, by giving an opportunity to Private sector, many have failed to deliver and no Action to recover the Capital Subsidy or the Debt (due to Tribunals etc…. Please be informed that Indian Parliament had to pass an act in Dec 2012 to recover debt (through wrong business cases of Project Promoters, approved by many banks which were certified by National and International Advisors or Consultants) which is around a whopping 40 Billion USD!!)
Total estimated Renewable energy project capacity = 12% of total installed 220GW = 26000 MW
Cost/ MW Investment Equity Debt Cap Sub AD
Source MW installed Total 30% 70% Rs(Cr) 80%adj
Biomass 6 4,500 27,000 8,100 18,900 6,750 21,600
Wind 7 20,160 131,040 39,312 91,728 104,832
Solar PV 10 1,300 13,000 3,900 9,100 VGF? 10,400
(Ground)
