Expectations for the Renewable Energy Sector in the Upcoming Budget, ET EnergyWorld

India’s power sector has seen rapid growth in recent years, with economic growth driving power demand to record levels every year. Demand rose by more than 8 percent in the previous fiscal year to a record 1,622 billion units, according to the Central Electricity Authority (CEA), the power ministry, government of India, while peak demand in summer 2024 has already reached 250 GW, up from 243 GW in 2023 and 216 GW in 2022, according to the power ministry. The power sector focus in the July 2024 Union Budget is likely to include a continued focus on renewable energy, which contributed 71 percent of new power additions in India in fiscal 24, as reported by the Economic Times. India has been successfully driving solar capacity expansion over the past decade. According to a report by the CEEW Centre for Energy Finance (CEEW-CEF), India’s installed solar capacity is set to grow by a record 15 GW in fiscal 2024, driven by falling costs and solid government support. The government is expected to continue its interim budget drive to encourage rooftop solar installations through the PM Surya Ghar Muft Bijli Yojana, which provides budgetary assistance for up to 3 kW of solar power per household. The pace of expansion needs to double, if not triple, to achieve the target of 500 GW of renewable energy by 2030. New units starting production on or before March 31, 2024, benefited from a concessional corporate tax rate of 15 per cent. Extending the expiry date of March 31, 2024, by another 5 years could significantly boost renewable energy growth.

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As per the CEEW-CEF report, onshore wind capacity addition has been relatively low, with 3 GW added in fiscal year 2024. The challenges for this sector mainly stem from the lack of a large home appliance ecosystem and the hurdles faced by developers in implementing projects. The importance of onshore wind cannot be overemphasized as it will be a key component of any net zero energy grid due to higher energy production and daytime availability. Long-term support in the form of innovative financial instruments such as Contracts for Difference etc. for wind integration could improve the rate of capacity addition.

Energy experts believe that nuclear power could be one of the most important technologies that can realistically take the world to a net-zero emissions path. High costs, a longer gestation period and a lack of institutional focus have been the reasons for the gradual progress in this area. Appropriate budgetary provisions to accelerate progress in nuclear power in India could provide a key direction for the sector.

India is well on track to achieve the target of 50 per cent cumulative installed electricity capacity from non-fossil fuel based energy sources by 2030. Hence, it becomes imperative to support newer technologies that can provide reliable power in a system where most of the generation comes from time- and weather-dependent sources. Budget 2023 recognised this need by allocating a budgetary support of Rs 3,760 crore to cover the viability gap for battery energy storage systems (BESS). Power companies have also realised the importance of storage and in the last two quarters have led to an exponential growth in BESS capacity under implementation in India. The sector will now require further support to accelerate the entry of market participants and develop the domestic supply chain. This could take the form of supportive provisions, starting from GST input credit for renewable energy sources for captive hydrogen production, rationalisation and reduction of GST and customs duties.

Pumped storage is another form of energy storage that offers India the added advantage of a fully domesticated supply chain. Globally, these assets have been added mostly through federal routes, given the criticality of such assets to grid energy security. This budget can provide such direction.

As India’s energy transformation accelerates, the door is opening for emerging technologies like green hydrogen and longer-life energy storage systems. The government has already taken the first steps to launch the former through the National Green Hydrogen Mission.

While developing low-carbon assets for the future is important, scaling up decarbonisation of existing infrastructure, especially in transport, buildings and industry, must also be a priority. It would be useful to allocate a budget for end-user adoption of projects that significantly reduce carbon emissions, especially in hard-to-abate sectors. This could include legislation such as the adoption of green ammonia in the fertiliser sector, the integration of green hydrogen in steel production, the adoption of carbon capture, use and storage (CCUS) in the cement industry, etc. The EU Carbon Border Adjustment Mechanism (CBAM) and the US Clean Competition Act are useful examples of similar legislation.

The recent approval of Viability Gap Funding for 1 GW of offshore wind is a promising step that will provide developers with certainty about the bankability of such projects. Longer duration energy storage systems that can supply energy for 7-8 hours have reached GW scale in markets like Europe and China and can supplement conventional fossil fuel based power for long periods during non-sunny hours. NTPC recently took India’s first step in this direction by issuing a tender for 600 kW/3000 kWh long duration storage and the coming year could see an increase in the number of projects if further support is provided for this novel technology.

The growing sales of electric vehicles in the country is an encouraging trend. Continuing and further increasing the momentum created by Faster Adoption & Manufacturing of Electric Vehicles (FAME) will help with special focus on intercity electric buses and private bus segments which account for the bulk of emissions in this segment. Reduction in GST on EV charging services, reduction in customs duty and GST on battery packs/modules and other EV components would also go a long way in accelerating the adoption of electric vehicles and stationary storage systems. Sodium ion technology is gaining popularity as a battery technology, both in electric vehicles and stationary storage systems. Currently, there is no Basic Customs Duty (BCD) concession for cells other than lithium-ion cells which enjoy a reduced BCD rate of 5 per cent. Extension of similar concessions to other Advance Chemistry Cells (ACC) would further support industry growth and technological diversification.

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