Author Articles

Clean, Green and Go! A Budget needed for India’s historic energy transition

If the past year and the beginning of this one tell us something, it is that the FY23 budget could well have a strong clean energy and sustainability orientation. The tone has already been set.

Earlier this month, Narendra Modi called for a ‘Pro-Planet People’ approach at a virtual Davos summit. This followed the PM announcing India’s ambitious climate targets at COP26 last November, including reaching 500 GW of non-fossil fuel installed electricity capacity by 2030.

GoI’s commitment to the energy transition has been made clearer in the run up to Budget FY23 with recent announcements such as the additional equity infusions into the Solar Energy Corporation of India and the Indian Renewable Energy Development Agency.

On the non-governmental side, the market is increasingly focused on sustainability, with ESG assets under management in India rising 4.7 times in two years to over Rs 12,300 crore (Rs 123 billion) in November 2021 .

Overall, in last eight years, India has made impressive strides in installing renewable energy capacity, supported by an enabling Centre and farsighted states like Gujarat, Karnataka, and Rajasthan. The numbers speak for themselves: renewable capacity has increased over two-fold from 72.6 GW in 2014 to over 151 GW (including large hydro) in December 2021 as per the Central Electricity Authority.

The growth has been laudable but is no longer enough. To achieve its climate goals, India needs to expand renewable capacity addition from around 16 GW last year to between 30-40 GW annually—for the next nine years! In this context, the Budget must be bold, historic, and innovative.

A few steps the government could consider:

More Action on PLI Scheme

Last year’s budget saw the announcement of a welcome Production Linked Incentive (PLI) scheme, which included an outlay of Rs 4,500 crore (Rs 45 billion) for solar manufacturing. The scheme received a huge industry response, which resulted in a demand of about Rs 24,000 crore (Rs 240 billion) as PLI for setting up 55 GW annual manufacturing capacity. Against this encouraging backdrop, the government announced last November it would allocate additional money for the scheme to support the entire capacity. However, a final decision has not been made, and the issuance of award letters is still awaited. In this context, this budget could ensure the extra allocation for the scheme.

Reduce to Boost: Taxes and Duties

Total taxes and duties currently on battery storage and green hydrogen generation equipment are close to 40% and 30% respectively. One hope that, just like the government supported solar deployment by keeping import duties to near zero and GST at 5% for the initial few years, it will similarly bring down import duties on battery storage and green hydrogen equipment to zero in this budget. This will allow the Indian manufacturing ecosystem in these areas to find its footing. Similarly, GST can also be cut to 5% for three-to-five years.

Further, as bid-out solar projects have been impacted by Covid disruptions and the PLI scheme delayed, the government can consider providing exemptions (grandfathering) to such projects with respect to import duties.

Energize Battery Storage

Besides optimizing taxes and duties, battery energy storage projects need to be supported with viability gap funding and regulatory support mechanisms. Battery storage will become increasingly critical as RE deployment becomes a larger piece of the generation pie, to ensure grid stability. In addition to a budget allocation, announcement of enablers such as a mandate and renewable energy equivalent certificates will help create demand for battery storage which, in turn, will encourage manufacturing in this area.

Accelerate Green Hydrogen

The National Hydrogen Mission was launched last August by the PM, for which multiple consultations have been held. The mission needs to be finalized and the finance minister could look at allocations for viability gap funding, putting a cess on grey hydrogen (similar to coal cess), and optimization of taxes and duties, as well as mandating green hydrogen for hard-to-abate sectors like steel, chemicals, and fertilizers.

Untangle Discoms

Budget FY23 could include an incentive plan (including fiscal) for the states to help make their electricity distribution sectors sustainable. This could see interventions such as segregation of wires and supply, delicensing supply, and ensuring independence of institutions such as regulatory commissions.

The Budget, while not the end all or be all of economic policy announcements, is nevertheless a critical enabler for India’s economic growth. For the nation and its renewable sector, it can well make the difference between scrambling desperately to meet our climate goals in 2030 or marching towards them confidently.

The writer is Chairman and CEO of ReNew Power

Source: Economic Times