The budgetary proposal to double the coal cess will make solar power more competitive by increasing the cost of the dry fuel, a report by Mercom Capital Group today said, adding increased cost may pass on to consumers in the form of higher electricity bills.
"The Clean Environment Cess previously known as the Clean Energy Cess (tax) has been increased from Rs 200 per tonne to Rs 400 per tonne. This increase will make solar (power) more competitive by increasing the cost of coal. But increased costs are expected to be eventually passed on to consumers in the form of higher electricity bills," the report said.
"Furthermore, nearly half of this tax in the past has gone to the Ministry of Water Resources for the Ganga rejuvenation project and we cannot assume that the entire amount collected from the new coal tax will go towards renewable energy."
Renaming the Clean Energy Cess as Clean Environment Cess, Finance Minister Arun Jaitley in his Budget speech for 2016-17 last month had proposed to raise the cess on coal, lignite and peat to Rs 400 per tonne from the current Rs 200.
Stressing that the accelerated depreciation will be reduced from 80 per cent to 40 per cent beginning in 2016-17, the report said this reduction will mostly affect rooftop solar, some large-scale projects and the wind sector.
It further said the World Trade Organisation (WTO) has recently ruled against India's domestic content policy for solar cells and modules which was originally filed in 2013.
In the short term, this will affect manufacturers who are overly dependent on the Domestic Content Requirement (DCR) market.
"In the long term, the effect should be minimal as DCR projects are a small part of the projects auctioned; manufacturers now have clarity and can adjust their strategy accordingly in order to compete. The Indian government is expected to appeal the ruling," it said.
"Restricting the use of cheaper non-domestic components while expecting solar power at the lowest possible price has never made sense," Mercom Capital Group CEO and Co-Founder Raj Prabhu said.
Mercom sees more than 4 gw in total solar installations for 2016, nearly 100 per cent year-over-year (yoy) growth from 2015 total of 2,133 mw.
