By Amelia Tsui
Associate, Dezan Shira & Associates
With Prime Minister Narendra Modi leading the charge, India has been working hard to encourage investment in its fast growing solar energy sector. The Indian Government has set high goals for the solar industry, with hopes to install 100 gigawatts of solar power, and to increase its solar capacity 30 fold by 2020.
Just recently, Re-Invest 2015, the first Renewable Energy Global Investors Meet and Expo, was held in New Delhi. The event was a great success, garnering commitments to invest over USD $200 billion in the renewable energy sector. At least 70 percent of that investment is dedicated to solar energy.
India is not the only country with high solar energy goals. However, what India has is unprecedented backing from its government and favorable geographical conditions.
When foreign companies invest in India, they may take either the government route, or the automatic route. For the government route, certain business sectors are required to obtain government approval prior to investment. Other sectors are eligible to take the automatic route, where prior approval is unnecessary.
The renewable energy industry is one sector where the government permits foreign companies to take the automatic route and allows 100% FDI. Foreigners may invest either as a joint venture or on their own, but do need to comply with the reporting requirements of the Reserve Bank of India (RBI) and other relevant regulations.
In addition to open foreign investment policies, the government has a variety of incentives in place. Foreign companies are granted exemptions from certain excise duties and may receive concessions on import duties for equipment necessary to set up a solar plant. For example, solar tempered glass and other raw materials used in the manufacturing of solar energy projects are fully exempt from excise duty.
Basic customs duty is reduced to 5 percent for machinery and equipment used for solar energy production projects. Customs duty is removed completely for certain raw materials used to produce solar back sheets, EVA sheets and PV ribbons for solar photovoltaic cells or modules. Other incentives include a 30% subsidy for off-grid photovoltaic and thermal project costs, a 10- year tax holiday for solar power projects, and a payment security mechanism to protect companies from the risk of state utilities or discoms default.
Another major facilitator of solar energy growth is the Renewable Purchase Obligation (RPO) regulation. In 2011, the National Tariff Policy was amended to require State Electricity Regulatory Commissions in India to purchase a minimum 0.25 percent in 2012 to 3 percent by 2020. Solar-specific RPO could be increased to 8 percent by March 2019. This RPO guarantees a market for solar energy generated power.
In addition to a strong backing from the government, and fast growing economy, India’s geographical location just above the equator, allows for a plethora of sunshine all year round. Most areas in India experience clear and sunny skies over 250 days a year. Annual radiation levels range from 1,600 to 2,200 kWh/m2. This, according to the Ministry of New and Renewable Energy, is equivalent to approximately 6,000 million GWh of energy each year.
U.S., China Back India’s Solar Power Industry
Investment in Indian solar energy presents many benefits, which have received widespread attention from the international stage. Already, two of America’s leading solar firms have pledged more than 20,000 megawatts of solar energy. In January, U.S. President Barack Obama announced US $4 billion investment for India; half of that money will go towards leveraged financing for renewable energy projects, including solar power. Obama also announced his intention to support India’s solar power push with financing during a trip to the country.
More recently, Modi’s trip to China in May produced three agreements for Chinese investment into Indian solar projects. Essel Group, a subsidiary of one of India’s prominent conglomerates, and China’s leading solar energy firm, JA Solar, signed an agreement to set up a 50: 50 joint venture to establish a solar cell and module manufacturing company in India. Canadian Solar (CSI) Solar Power China and India-based Sun Group established an agreement to manufacture solar modules and 5,000 MW of solar power in the next five years. China-based Trina Solar and India-based Welspun Energy also signed an agreement for a Photovoltaic (PV) Industry Park in Gujarat, India.
Solar power businesses that want to take advantage of India’s incentive schemes and lucrative market should take note of these high-level agreements. The investment from the U.S. and China is a strong endorsement for India’s growing solar power industry.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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