Central Policy for Renewable Energy Development

During the early 1990s, it was realized that faster diffusion of renewable energy sources required greater reliance on commercialization through fiscal rather than financial incentives involving the private sector - the role of the (Ministry of Non-Conventional Energy Resources) MNES (then a Department of the Ministry of power called the DNES) had to change from that of an implementing organization to one facilitating the rapid commercial application of renewables. Partly as a result of this, the DNES was converted into a full-fledged Ministry (Ministry of Non-conventional Energy Sources, or MNES) in July 1992. Even since, the thrust of the programmes has been on market development in order to facilitate and catalyze commercialization resulting in several-fold increase in the diffusion of RETs. India is perhaps, the only country in the world with an independent ministry for the promotion of RETs.

In order to give the required focus on commercialization, market orientation, and to have greater involvement of the private sector, the MNES was restructured in 1993 on the basis of end-use applications of technologies through horizontal integration of various technologies. The restructured MNES now has sectoral groups of (a) rural energy, (b) urban/ industrial energy, and (c) power generation. Through the restructuring, emphasis shifted towards policies, planning and institutional linkages to promote RETs within each sector.

The change in the structure has resulted in significant changes in the focus of the programmes. For instance, till 1992, the biogas programme had traditionally been the single largest programme within the renewable sector, accounting for over half of the funds allocated. All other individual programmes had received less than 10% of the funds.

The restructuring has also led to a shift from direct financial incentives (e.g., subsidies) to indirect fiscal incentives (e.g., low-interest loans, financing packages for consumers, reduced tariffs and taxes, viable power-purchase prices). This has stimulated private-sector investment in wind and Solar PV power plants, as well as encouraged RET manufacturers and financing intermediaries to address the needs of consumers in their product design

As we have already pointed out that perhaps the most important reason for the slow rate of diffusion of RETs is the high front-end cost. The creation of innovative schemes to finance investment and the emergence of IREDA (Indian Renewable Energy Development Agency) as an institution with substantial financial base for lending in this sector have, therefore, had a substantial impact on the commercialization of RETs.

Financing mechanism with subsidized interest rates and long repayment schedules have been in place since the inception of IREDA but it is only recently that the finances at its disposal have become significant. This has been largely due to the multilateral donor agencies preferring the use of aid to create revolving funds and greater amount of financial resources now available with the multi-lateral and bi-lateral agencies due to issues, such as, climate change becoming urgent. In the case of India, it is also said that tying World Bank aid and loan for the power sector to the much needed reforms within the sector allowing renewables to be treated as alternatives) released funds which would have otherwise gone to the conventional power development. Through the World Bank (for small hydro and windfarm development) and the GEF (Global Environment Facility) (for PV market development), IREDA would receive external aid to the tune of US $ 173 million (about Rs 5200 million) for the Eight Plan(1992-97) period. In comparison, the Government of India allocated just Rs 100 million to IREDA during the Eighth Plan.

Equally important is the shift of the emphasis of the MNES from direct financial subsidy and demonstration projects to relying more on fiscal subsidies which usually encourage serious renewable energy developers and users. The provision of soft loans has leveraged private-sector investment, and increased the funds available with IREDA. Though financial subsidies continue to be provided, there are indications that these will be phased out fairly rapidly as the fiscal incentives being strengthened. The current fiscal incentives for the renewable energy sector include 100% depreciation allowance during the first year of operation (except for hydro schemes), waiver of excise duty for most RETs and their components, and exemption from central and state sales taxes.

A brief description of incentives provided by the MNES (provided by the MNES) is given below. We should also note that significant consultancy services are also provided by the MNES.

Policy Measures In Vogue.