Drivers of Solar Energy in India

India now has sufficient experience with Solar PV for Governments as well as large Consumers to accept that it is cost competitive with grid power. Consumers are gradually accepting the possibility of regular rise in electricity tariffs. Solar power provides a good source of electricity with zero risk of input / raw material availability.  The recently notified Companies Act provides further support to renewable energy by emphasizing environmental sustainability as a key area of CSR. Solar power therefore addresses CSR goals along with mitigating energy risks for large consumers.

Solar helps on Cost as well as Compliance

Solar power provides multiple benefits to consumers. It provides assured energy without the risk of raw material inflation for the long term. It is a useful source of energy for consumers looking for cost savings. At the same time, solar power addresses External as well as Internal Compliance requirements in the area of Environment Sustainability.

External compliance

Finance managers have to balance various aspects of business while allocating limited budget funds for the coming year. By the time allocations have been made for core business activities, precious little is left for spending on long term sustainability initiatives like environment. Companies tend to limit such discretionary spends especially in times of tough business climate.

Corporate Social Responsibility

The Government of India recently notified Section 135 of the Companies Act 2013. The Act will be in force from the 1st April 2014. It mandates companies to allocate at least 2% of their average net profit made during three immediately preceding financial years, towards Corporate Social Responsibility (CSR).

Who has to spend on CSR?

As per the Companies Act 2013, companies with following categories have to comply with CSR obligations;

1. Net worth of Rs. 500 Crore or more, OR
2. Turnover of Rs. 1,000 Crore or more OR
3. Net profit of Rs. 5 Crore or more

Read more at MCA website

One of the key areas of spending allowed under this section is Environmental Sustainability. Buying green energy or investing in it helps companies allocate this budget for activities that help preserve the environment in addition to helping the business to address energy risk. Provision of tax breaks for such spends would encourage companies to make stronger efforts in this direction.

Where to spend the CSR budget?

1. Eradicating extreme hunger and poverty
2. Promotion of education
3. Promoting gender equality and empowering women
4. Reducing child mortality and improving maternal health
5. Combating human immunodeficiency virus, AIDS, malaria and other diseases
6. Ensuring Environmental Sustainability
7. Employment enhancing vocational skills
8. Contribution to specified Govt. Funds

Business Responsibility Reporting

SEBI has made Business Responsibility Reporting (BRR) mandatory for top 100 companies by market capitalization, listed at NSE and BSE. As part of the program, companies are required to disclose performance in areas such as governance, labour practice, society and environment in line with the National Voluntary Guidelines notified by the Ministry of Corporate Affairs.

Internal compliance

Corporate Policy and Guidelines

With increasing globalization, more companies today do business in multiple markets. Standards of corporate governance vary country to country. However, most developed countries and multinational conglomerates have developed basic guidelines for sustainable business. Companies that are headquartered in these countries or export to them need to comply with these good practices.

Boards now evaluate important investment decisions on multiple parameters apart from financial returns i.e. the triple bottom line – Economy, Society and Environment. Global Reporting Initiative (GRI) and Carbon Disclosure Project (CDP) provide globally accepted frameworks to report performance in these areas.

Carbon Footprint Mapping and Reduction

Renewable energy is the first preference for companies looking to minimize their carbon emissions. Solar energy enables immediate reduction of greenhouse gas emissions while reducing the spend on energy.

Businesses also stand to gain all round appreciation for their efforts towards environment friendly growth. Platforms for industry wide recognition such as CII awards for business excellence and CDP’s annual Carbon Disclosure Leadership Index (CDLI) and Climate Performance Leadership Index (CPLI) reward strong performers for initiatives in sustainability and environment.

Financial benefits

Solar power provides a combination of tax as well as cost benefits. The Government of India is promoting rooftop solar power with a view to reducing the country’s dependence of expensive fuel and high cost infrastructure. More importantly, rooftop solar power today costs less than grid power for large consumers in many states.

Tax Benefits

Investors in solar power plants are eligible for accelerated tax depreciation during the financial year in which the project is commissioned. In addition, income from solar power projects is exempt from tax for a period of any ten consecutive assessment years.

Cost Savings

In this model, investor commissions a solar power project in the consumer’s premises. Consumer pays only for the energy consumed. No upfront or running cost is incurred. Consumers thus benefit from significant cost savings without having to allocate budgets for capital investment.

Multiple Reasons to Choose Solar

Wind energy capacity in India has crossed 20,000 MW in large part due to financial benefits provided to investors. It is expected that solar power too will grow rapidly. Rooftop solar provides a viable alternative for the country to build valuable peak time capacity without the need to depend on heavy investments in infrastructure. The recent drive towards environmental compliance provides additional motivation for consumers and investors in renewables.

Credit: This article is based on monthly newsletter of Agneya Carbon Ventures Pvt Ltd