India’s government proposes coal tax to finance clean energy drive, Japan to assist in renovating old power plants

Speaking in his annual budget speech to India’s parliament, finance minister Pranab Mukherjee has said that a clean energy tax of INR50/t (US$1/t) will be levied on all domestically-produced or imported coal. The resulting revenue will be put into a new national renewable energy fund. Mr Mukherjee also announced a number of tax breaks designed to encourage investment in solar, wind and geothermal technologies. The most significant is an exemption from production tax on solar equipment, some wind turbine parts and electric vehicles. Analysts expect the new tax to raise around US$544m a year.

In related news, a senior official at India’s Central Electric Authority (CEA) has said that it is close to signing an agreement with Japan Coal Energy Centre (JCOAL), in which JCOAL will provide the expertise needed to renovate some of India’s oldest and least efficient power stations and by doing so, reduce carbon emissions.

“A memorandum of understanding (MoU) between CEA (Central Electricity Authority) and JCOAL is expected to be signed shortly,” said a senior official at CEA. “Once the MoU is signed, projects will be identified for renovation and modernization.”

CEA has already highlighted 30GW of generating capacity as being in need of retrofit or repair and the power ministry is considering setting a 3000kcal limit as the threshold beyond which a plant is judged as being inefficient. Modern, efficient plants run at around 2300-2400kcal.

Part of the rationale behind this move is likely to be the fact that current projections indicate that the estimated coal demand from India’s power sector will hit 544Mta by 2012, resulting in a shortfall of 62Mta. The country’s coal demand is expected to reach a staggering 1000Mta by 2018 (Business Green, Live Mint).