Breakout Market: India
July 20th, 2017
India’s renewable energy market is finally set to breakout following years of uncertainty and empty promises. Recent government commitments paired with a desperate need for sustainable energy provide a landscape ripe for growth.
“Everything changed in 2015 with the Paris Climate Agreement. We must decouple economic growth from environmental impacts and leave a better world. Every moment counts,” spoke India’s Energy Minister, Piyush Goyal at the Vienna Energy Forum.
For years India has expressed its desire to shift from traditional sources of energy towards more sustainable practices. This was not solely a moral proposition. India has chronic energy shortages as a result of massive infrastructural problems. According to MIT Technology Review, at least 300 million people, roughly the entire population of the US, live without electricity. 250 million more receive power for only three to four hours per day. Renewable energy was seen as a way to add to the nation’s struggling power grid and fill in these gaps. In doing so, the door would be opened for foreign investment and growth in the manufacturing sector. The Paris Climate Agreement has acted as a catalyst for this shift towards clean energy.
In 2015 India’s Prime Minister Narendra Modi described clean energy as the “ultimate solution” to the country’s energy crisis. That same year private companies committed over $200 billion towards green energy in India. Much of these investments came from massive development companies including SunEdison Energy, ReNew Power and Adani Group. However, from an investment standpoint waiting for confirmation of the market’s upside would lower risk. This confirmation comes in the form of India’s GST tax code and a continued commitment to lowering tariffs on solar energy and renewable investments.
India has a population of approximately 1.3 billion people in 29 states, 22 official languages and roughly nine million businesses. This in combination with at least 17 different state and federal tax codes has made business across states difficult. The GST seeks to erase those tax discrepancies with a unified tax code. The tax regime will consist of four basic tax rates. India’s government has ensured that renewable energy components, including solar panels and wind turbines, are positioned in the lowest tax bracket of 5%. This is significant because the majority of products in this bracket are deemed as fast moving consumer products. They bear no similarity to renewable energy components. This demonstrates a long-term tax commitment to renewable energy. Additionally, since 2010 tariffs on solar have dropped 70% according to Reuters. These measures encourage further investment in the renewable energy market.
Analysts confirm that India is poised to invest heavily in renewable energy. According to a senior analyst at Moody’s, in order to hit 2022 targets for clean energy capacity, India plans to invest at least $150 billion. This is in combination with a continued reduction in associated development costs. New solar PV projects capital costs were 13% lower in 2016 than in 2015 according to a UNEP-BNEF report.