The energy sector is one of the major drivers behind economic growth of India. With the country approaching towards a US$ 5 Trillion economy in next 3 years and a US$ 7 Trillion economy by 2030, it is the energy sector that will play a bigger role in this growth story. Renewable energy, power & utilities and energy efficiency are 3 key pillars driving the growth of energy sector. Round-the-clock clean energy availability, resilient power & utilities, accelerated energy efficiency measures should be the focus areas for a sustainable energy ecosystem. Support in terms of budgetary allocations by Central government would help in increased push to the envisaged climate goals.Renewable Energy
We expect that the government will lay balanced approach to accelerate the country’s effort in Energy Transition with interventions across value chain of renewable energy markets including Solar, Wind, Energy Storage, Green Hydrogen & Derivatives and other Green Molecules. Each of these has unique challenges and needs specific interventions:
- Reimposition of ALMM have increased the demand for domestic solar module. However, the supply market is currently constrained to meet the demand with timely delivery which is resulting in price increase of domestic module (up to 0.28 USD per Wp). This is pinching more when the global market is experiencing supply gut with spot price of 0.10 USD per Wp (ex-China). While continuing import duty and ALLMM reimposition protects the investments made in solar PV manufacturing (both PLI and non-PLI), there is a strong need to strengthen the supply chain and reach scale in manufacturing to meet domestic need cost effectively.
- While the global solar module supply gut is expected to last for next few years (more depends on China’s policies), a balanced approach in soothing the ALMM requirement in the interim would ease inflationary pressure on solar tariff and smoothen the transition (note that MNRE has recently lifted the ALMM requirement for Green Hydrogen & its derivatives projects which are within SEZ)
- Offshore wind market in the country shall boost local manufacturing for high rating WTGs. The budget shall refocus to strengthen the local manufacturing ecosystem (PLI, tax holidays, concessional corporate tax, Accelerated Depreciation, and extending the prevailing concessional duty beyond March 2025 up to FY27) that would bring down price of WTG and the resulting tariff.
- Green Hydrogen and Derivatives – There is a necessity to develop domestic market to drive the scale in investment, additional fiscal support including VGF and/or preferential carbon pricing for use of green energy molecules, and/or tax benefits for adopting green hydrogen and derivatives particularly in the operations of end use segments like Fertilizer, Steel, and Refinery in the initial phase would accelerate the investment and adaptation in country’s energy mix. This would also improve the competitiveness of Indian manufacturers and protect against global climate policy exposures such as CBAM. Additional budget for creation of hydrogen hub, and adaptation in end use segments needs to be allocated by Government of India
- Bio-CNG and Sustainable Aviation Fuel are emerging as key energy markets in the country. It’s the right time that industry gets support in term of tax benefits (tax holiday, concessional tax, AD, GST rationalization) to spur investments and consumption of green molecules by end-use segments.
- Measures like rationalization of GST for key materials like cement (28 per cent GST), and Iron & Steel (18 per cent GST) used specifically in Pumped Hydro Storage Plant (PSP) would result in optimization of storage cost as civil infrastructure constitutes 60-70 per cent of overall capital expenditure. Bringing down the GST rates to 5 per cent would improve the competitiveness.
- Also, the prevailing price of BESS in the global market are very competitive on account of supply glut and countries across the globe are strategically evaluating to integrate GW scale BESS in the power system. In this current condition, rationalization of BCD (10 per cent) and GST (18 per cent) for BESS components (bringing down to 5 per cent) would make the storage cost more competitive and accelerate the market growth.
Power & UtilitiesFor a resilient power & utilities ecosystem, it becomes highly imperative that the sector should fire from all (three) cylinders i.e., Generation, Transmission and Distribution. The sector has witnessed some significant improvements in the recent years – AT&C losses reduced to ~15.4 per cent in 2022-23 v/s 21.5 per cent in 2017-18; ACS-ARR gap reduced to INR 0.53/kWh in 2022-23 v/s INR 0.92/kWh in 2020-21; availability of power has gone up by as high as ~72 per cent (across rural areas) since 2015. Overdues to Gencos have reduced by ~30 per cent in the last 5 years. While the achievements are significant, there are still few pockets where a slight push can yield incremental changes and outcomes in the industry:
- RDSS is helping in garnering some major improvements in terms of loss reduction and improved billing & collections. Large-scale implementation of smart meters has led to an exponential rise in demand for smart meters. Enabling provisions must be considered in the budget in the form of PLI based support for manufacturers for increased participation in smart meter manufacturing – ensuring minimal demand-supply gap.
- Additionally, few consumer categories (such as agricultural consumers) are excluded from the current tranche of smart metering under RDSS. Inclusion of such consumers with marginal increase in the capital outlay (and GBS) can yield multi-pronged benefits. For e.g., inclusion of agricultural consumers would result in more effective energy accounting as well as rationalization of subsidy allocation.
- 50 per cent of DISCOMs are operating on losses, optimization of DISCOM financials has become a priority. Deployment of smart meters and asset modernization (via RDSS) is expected to help the DISCOMs in improving their top-line and optimization of power procurement & HR costs can essentially help improving the profitability. However, DISCOMs (of Tamil Nadu, Kerala, Rajasthan and Delhi) are still riding on a burgeoning pile of regulatory assets (over ~INR 1.6 Lakh Cr.). Necessary support (in collaboration with state & regulators) can be provided in the form of loss-takeover grants to liquidate the regulatory assets across the affected DISCOMs.
- The power transmission sector witnessed ~65 per cent increase in transmission network and ~130 per cent increase in transformation capacity between the period 2014-2023. GECs (across Phase I&II) rightly address the demand for evacuation infrastructure across the distributed generation sources. Over INR 54,300 Crores is planned to be spent across GECs. However, with the continued deployment of additional ~351 GW of RE by 2030, it is expected that an additional ~5,00,000 MVA of transformation capacity would be required. Hence, a higher share of CFA through REC/PFC/IREDA can help in expedited deployment of future tranches of GECs.
- India has suffered damages of over ~INR 7.5 Lakh Crores due to climate related hazards (or disasters) between 2013-2023. Power sector is among the most vulnerable sector / infrastructure to such hazards e.g., Cyclone Fani (2019) had damaged power infrastructures of over $1.2 Billion (~INR 9,600 Crores) in Odisha. Climate resilient infrastructure budget may be created for the states that are highly vulnerable to disasters. The grants provided can be used to enhance resiliency of critical services (such as power, transport, telecom, etc.)
Climate Mitigation and Energy Efficiency
While global primary energy efficiency intensity improved by 2 per cent in 2022, it needs to double to 4 per cent annually till 2030 to achieve net-zero goals by 2050. Based on the data analysis of Total Energy Supply (TES) per unit of GDP, India’s energy efficiency improvement rate would need an improvement of over 2.1 per cent points vis a vis Business as Usual (BAU) scenario to attain the doubling of energy efficiency scenario.
Also, to handle the complexities of climate change, energy efficiency will be the critical lever considering the India’s commitments made at G20 and COP28. In light of NDC’s commitment regarding the emissions intensity reduction to 45 per cent by 2030 from 2005 level and net zero achievement by 2070, Central government may give sensible push to promote energy efficiency in the upcoming union budget.
To promote the faster and large-scale implementation of energy efficiency projects in various sectors such as industries (Large and MSMEs), buildings (commercial & public and residential), municipalities (street lighting and water pumping) and agriculture of the economy, the following measures can be considered in the upcoming budget:
- To accelerate the decarbonization in ‘hard to abate’ sectors to achieve net zero pathways, financial incentives in the form of tax rebates/ concessional funding for the implementation of CCUS and other emerging technologies.
- Leveraging energy efficiency financing platform, the interest subvention scheme of around INR 2,000 crore for MSMEs to implement the energy-efficiency technologies is expected in the budget.
- Capacity building and tailored support programs for MSMEs and small industries to navigate the complexities of the energy transitions and decarbonization.
- Promoting energy efficient appliances such as super-efficient air conditioners, BLDC fan, IE4 motors, LED lights, etc. through suitable financial mechanism.
- Expanding the issuance of green bonds and establishing dedicated climate/ green funds to support energy efficiency and sustainable projects.
- Allocating funds to create smart and energy efficient infrastructure at villages/ gram panchayat level.
- Construction practices and materials that reduce energy consumption and carbon footprint of buildings. This includes insulation materials, energy-efficient windows, and green roofs. Promotion and standardization of such efficient building materials can be one of the considerations.
- For incentivizing emissions reduction, the launch of carbon market can be a significant step.
The 2024 Union Budget holds immense potential to accelerate India’s climate action and drive the transition towards net zero emissions. By focusing on clean energy, climate finance, strengthening and developing robust power infrastructures, establishing a carbon market, promoting energy efficiency across sectors, and encouraging the adoption of emerging technologies, the budget can lay the foundation for a sustainable and resilient future. With comprehensive strategies and robust financial mechanisms, India can enhance its environmental sustainability and contribute significantly to global climate goals.
