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Aug 2009

The government plans to withdraw the accelerated depreciation benefit that’s given to wind and solar power projects, and replace it with a generation-based incentive.

The change, if implemented, will affect companies like the Tulsi Tanti-controlled Suzlon Energy and Tata BP Solar, as they will not able to claim the depreciation benefit immediately.

The move stems from the finance ministry’s concerns that many companies misuse the depreciation incentive by setting up mock projects, a senior government official said. The finance ministry and the new and renewable energy ministry want a changeover to the generation- based incentive scheme that has been announced. This incentive is up to Rs 12 a unit of solar photovoltaic power and Rs 10 a unit of solar thermal power fed to a grid. Another incentive of 50 paise a unit is available to eligible wind power projects for a period of 10 years.

Companies which supply solar and wind power to states are eligible for a 80 per cent tax exemption under section 32 of the Income-Tax Act, 1961, on their capital investment from the first year itself. However, they are not entitled to the generation-based incentive.

Officials from Suzlon and Tata BP Solar felt the withdrawal of the depreciation benefit could prove negative as investors would shy away. According to them, usually payback on investments in solar projects begins only by the 13th year. Removing the depreciation benefit will make projects even more unviable.

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