India's Andhra Pradesh state introduced its first solar-energy policy, offering tax benefits to projects and exemptions from power-transmission fees as the local government seeks investment to curb electricity shortages.

Plants built by June 2014 will be able to claim the incentives for seven years, according to an order issued yesterday by the state energy department.

“If executed appropriately, this policy would enable Andhra Pradesh to get a huge influx of investment from solar developers,” said Vishal Pandya, director at REConnect Energy Solutions Pvt., which advises companies in the industry.

The southern state, which says it gets some of India’s highest sun irradiation, is promoting solar energy to boost generation capacity after suffering a 17.3 percent power deficit in July. It’s working with other states toward a national goal of becoming one of the world’s fastest-growing solar markets, with a targeted 20,000 megawatts across India by 2022.

Andhra Pradesh didn’t set a specific goal for solar installations or announce higher tariffs, unlike the central government and Gujarat and Karnataka states, which have awarded above-market rates to developers for a limited amount of capacity.

To attract investment, Andhra Pradesh will waive transmission fees for using state-owned infrastructure. It also won’t charge a so-called cross-subsidy fee, which is levied to compensate state-owned distributors for losses they incur on supplying power below cost to households and farmers.

Solar projects will get refunds on value-added tax paid for equipment and on land duty and registration charges for sites. In addition, the state plans to speed up the approvals process, issuing permits to build grid connections within 21 days.

Copyright 2012 Bloomberg

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