The Fault in South Asian Clean Energy Policies

Tanjim-Ul-Islam

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Today is World Environment Day. On this occasion, it is necessary for us to reflect on the progress made towards saving our environment from catastrophic effects of climate change.
In this regard, ensuring affordable and clean energy for all is one of the biggest challenges of this century. It is also extremely vital to make the Paris Agreement a success.
A sustainable world needs clean energy. That is why “Affordable and Clean Energy” is goal 7 under the Sustainable Development Goals.
Governments all around the world have been working to provide clean energy to its population. The scenario is no different in South Asia.
Still, there are lapses in policies. In this article, I will focus on the issues with the financial incentive and solar tax measures of three South Asian countries: Bangladesh, India and Sri Lanka.

​​Financial Incentive Measures
Bangladesh
Incentives under Energy Efficiency and Conservation Master Plan up to 2030
Sustainable and Renewable Energy Development Authority (SREDA) has a master plan for energy efficiency called “Energy Efficiency and Conservation Master Plan up to 2030”.
It aims for 20% improvement of Bangladesh’s Primary Energy Consumption per GDP by 2030.
The master plan includes financial incentives like subsidies, preferential taxation, and low-interest loans.
Limitations of the Master Plan
But the plan itself states that providing subsidies and preferential taxation will be tough because it would put the extra financial burden on the government.
Remedies for the Limitations
If the government imposeda carbon tax in the latest budget, it would have generated a huge amount of revenue.
That revenue could have been used to finance the expansion of the renewable energy sector and to subsidize energy efficient initiatives under the master plan.
Sri Lanka
Incentive Policies
Sri Lanka’s incentive policies are based on providing different types of tariffs for both the producer and the consumer. They areFeed-in Tariffs, Net Metering etc.
Feed-in Tariffs are payments to ordinary energy users for the renewable electricity they generate.
Net Metering is a billing system where the customer is connected to the grid through a net metering system and must pay only for the total amount of electricity consumed.
In Sri Lanka, if the solar electricity production of the user exceeds the electricity consumption of the premises, it can be measured through net metering.
The balance amount can be carried forward up to 10 years. No fee will be paid for the excess electricity produced.
Thus, if a consumer generates more than he uses, the excess is credited and carried over and can then be used in subsequentbilling cycles.
 
The inefficiency of the Incentive Policies
According to ADB and UNDP’s report titled “Assessment of Sri Lanka's Power Sector - 100% Electricity Generation through Renewable Energy by 2050”, these incentive policies haven’t been able to attract the necessary interest needed to transition to a 100 percent renewable energy sector.
According to the report, this lack of interest has primarily been because of the fact that some of these interventions are not attractive to potential investors.
For example, the Feed-in Tariff policy has some flaws. These are:

• There is no scaling mechanism for the tariff. Each and every project using the same technology is under the same category irrespective of their power generation capacity.
• Lack of trust of financial institutions about the financial viability of renewableprojects even with the tariffs set as part of the FIT policy.
• The FIT policy encourages the growth of renewable energy. But there is no provision for upgrading the national grid infrastructure to absorb the additional renewable power generated. This can result in grid failure.

Moreover, consumer tariffs in Sri Lanka are independent of the source of electricity. There is a lack of priority for renewable energy.
The lack of priority for renewables along with the low operating cost of fossil fuel based power plants has encouraged investors to invest in non-renewable energy rather than in renewable electricity generation systems.
Reformed and New Initiatives Required
Therefore, these intervention policies need to be reevaluated in order to create an attractive investment climate for the investors. New initiatives should also be implemented for this purpose.
The new initiatives can include initiatives like Generation Based Incentives, Investment Tax Credit, Duty Exemptions, and Capital Subsidy etc.
India
Incentive Policies
In India, there are policies such as Feed-in Tariff, Net Metering, Capital Subsidy, Investment Tax Credits etc.
Capital Subsidy is the subsidy provided to the consumer for installing renewable energy platforms such as solar panels.
Flaws of the Incentive Policies
The Indian government has allotted 5,000 crore rupees to provide thirty percent capital subsidy for rooftop solar panel installation.
But this is only a one-time subsidy which doesn’t cover any future repair costs.So, the policy hasn’t been efficient.
Reevaluation Required
The government needs to revisit the capital subsidy policy to make it more attractive for the end-level consumers.

Solar Tax Measures
Bangladesh
New Provision of Solar Tax
Bangladesh government has imposed 10% import duty on solar panels in the 2017-18 budget.
Reason for the New Tax
The reason behind the government imposing a tax on the import of solar panels was to facilitate local manufacturers.
Negative Impact of the Tax
But the local manufacturers can only meet the demand of home solar panels and irrigation.Therefore, this decision will have a negative effect on the expansion of solar energy in the country.
According to Engineer S.M. Sanzad Lumen, Deputy Director (Solar) of Sustainable and Renewable Energy Development Authority (SREDA), prices of imported solar panels will increase 30-40% due to this taxation.
SREDA plans to generate 1500 MW electricity from solar energy from 2018 and the local manufacturers aren’t equipped for that. In fact, currently 80-90% solar panels are imported.
Moreover, SREDA has already initiated plans to build power plants with foreign investors. The investors signed on for the projects before the tax was imposed.
They planned to use the imported panels. Mr. Lumen feels that the investors might be discouraged to invest when the cost of the panels go up.
So, the import duty will cause problems for Bangladesh to achieve the goal of generating 10% of the total electricity output from renewable energy within 2020.
Sri Lanka
Solar Sector Burdened with Tax
According to Chapter 85 of Sri Lanka’s Harmonized System of Tariff, assembled solar cell panels are subjected to 15% Value Added Tax, 7.5% Port and Airport Development Levy and 2% Nation Building Tax.
These various types of taxes have contributed to the high prices of solar panels in Sri Lanka. Even the cheapest entry-level home solar panel installation costs over 200,000 Sri Lankan rupees.
Slow Transition towards Solar
Therefore, there is apprehension among people to switch to solar energy from the existing cheaper fossil fuel based sources.
India
The GST Effect
India has abolished different types of taxes in order to make way for the integrated Goods and Services Tax. This reform has had a severe impact on India’s clean energy sector.
In the new revised tax schedule, India has imposed 5% tax on all solar panel equipment. This will cause problems for the growing industry which is dependent on China for importing solar panels.
Ambitious Targets Facing Obstacles
In fact, India’s ambitious target of producing 100 gigawatts of electricity from solar energy within 2022 might also get derailed. Currently, India produces 12 gigawatts of energy from solar sector.
Halting Solar Tax Mechanisms
So, the solar tax policies have had a detrimental effect on the solar sector of all three countries. It is high time that the countries stop taxing the solar industry to usher in a new era in the renewable energy sector.
Thus, it is apparent that the South Asian neighbors need to reevaluate and restructure their policies in order to facilitate the growth of the green economy.

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Tanjim-Ul-Islam

"I am a part time writer and a full time optimist."