Budget 2024: How budget planning can help stimulate growth of renewable energy (2024)

Synopsis

Interim Budget 2024: The Government of India aims to achieve 50% cumulative installed power generation capacity from non-fossil fuel sources by 2030. However, there is a need for increased annual capacity addition to reach the target. The upcoming budget for FY 2024-25 is expected to focus on sustainable financing for renewable energy (RE) projects, including distributed RE installations, localizing the supply chain, and boosting rooftop solar installations.

Budget 2024: How budget planning can help stimulate growth of renewable energy (1)

Budget 2024: In the past few years, the Government of India has been pacing up its interventions to meet the ambitious clean energy targets, i.e. to steer the country towards 50% cumulative installed power generation capacity from non-fossil fuel sources by 2030; and achieving net zero by 2070. India currently has an installed generation capacity of 187 GW from non-fossil fuel sources including 133 GW from renewable energy (RE) sources, as of November 2023.

Read our full Budget 2024 coverage here

Between 2016 and 2022, while India has seen a sharp acceleration in capacity addition of non-fossil fuel-based generation sources, the same has not exceeded 16 GW thus far on an annual basis. In comparison, the country needs an average annual capacity addition of about 49 GW, to achieve the target of 500 GW non-fossil fuel-based cumulative generation capacity by 2030.

Availability of financing is a key enabler for fast tracking of RE capacity additions. The draft NEP prepared by CEA has estimated the funding requirement for solar and wind projects during 2022-2032 at Rs.20.67 Lakh crores. Budgetary measures undertaken by the Government not only play a critical role in promoting and supporting sustainable financing to accelerate implementation of RE projects but also emphasise its national significance.

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Annual budgets of the Government of India have provided the much needed impetus and direction to the RE sector by means of allocation of funds towards targeted programs as well as announcement of important decisions relating to taxation and import duties.

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For the upcoming budget for FY 2024-25, from the perspective of sustainable financing to support RE growth, a few areas such as distributed RE installations and localising the supply chain are expected to be on the priority list. Accelerating rooftop solar installations is likely to see a substantial boost in budgetary allocations, especially considering the recent announcement regarding 23% increase in per KW central financial assistance for up to 3KW installations under Phase-II of Rooftop Solar Scheme. Government’s flagship schemes on RE which have social benefits also, such as the PM-KUSUM scheme and bio energy program, are also expected to receive a higher budgetary allocation. Subsidies provided under GOI schemes play a key role in improving the commercial viability of RE projects, thereby enabling their off-take, financing, and implementation.

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Another area of potential focus is the development of 4000 MWh of battery energy storage systems, where the Government has recently announced VGF support of up to 40% of project cost. It may be noted that allocations for green energy corridor, and capital (equity) infusions for key public sector entities relevant for RE such as Solar Energy Corporation of India (SECI) and Indian Renewable Energy Development Agency (IREDA) etc. are also likely to be covered in the budget process. Such investments allow these entities to issue more tenders (SECI) or increase the lending portfolio (IREDA), thereby driving capital investments on RE, including solar. The Government may also like to clarify its plan for further rounds of issue of sovereign green bonds to finance development of sustainable energy projects.

Another important area likely to remain in focus is Government’s thrust to accelerate investments towards indigenisation and innovations in the RE sector. PLI Scheme for High Efficiency Solar PV Modules is already in place and may see a further extension/ allocation of funds. Another area to watch out for will be the National Green Hydrogen Mission which may see an increased allocation in this year’s budget as countries across the world have launched targeted programs with the ambition of emerging as leaders in this new energy segment.

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On the taxation front, the Government has taken major decisions in the past which have substantially influenced the sector. Further interventions in such aspects will be linked to the Government's assessment of domestic manufacturing capability across the solar value chain and other RE equipment.

Finally, there are more opportunities to tap, such as the use of India’s startup ecosystem to drive innovations and growth in new age clean energy technologies. Considering the need for acceleration in non-fossil fuel-based generation capacity to ~50 GW per year, it is imperative that all available forms of interventions be explored through the budget as well as other instruments available with the Government.

The authors are Partner, Deloitte India

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

Government's Clean Energy Targets

The Government of India aims to achieve 50% cumulative installed power generation capacity from non-fossil fuel sources by 2030 Currently, India has an installed generation capacity of 187 GW from non-fossil fuel sources, including 133 GW from renewable energy sources.

Annual Capacity Addition

India has seen a sharp acceleration in capacity addition of non-fossil fuel-based generation sources between 2016 and 2022. However, the annual capacity addition has not exceeded 16 GW, while the country needs an average annual capacity addition of about 49 GW to achieve the target of 500 GW non-fossil fuel-based cumulative generation capacity by 2030.

Financing for Renewable Energy Projects

Availability of financing is crucial for fast-tracking renewable energy capacity additions. The draft National Electricity Plan (NEP) estimates the funding requirement for solar and wind projects during 2022-2032 at Rs.20.67 Lakh crores Budgetary measures undertaken by the Government play a critical role in promoting and supporting sustainable financing to accelerate the implementation of renewable energy projects.

Sustainable Financing Focus in the Budget

The upcoming budget for FY 2024-25 is expected to focus on sustainable financing for renewable energy projects. Key areas of focus may include:

Distributed RE Installations: The budget is likely to prioritize the promotion of distributed renewable energy installations.
Localizing the Supply Chain: Efforts to localize the supply chain for renewable energy projects may receive attention in the budget.
Boosting Rooftop Solar Installations: The budgetary allocations for rooftop solar installations are expected to see a substantial boost, considering the recent announcement regarding increased financial assistance for rooftop solar schemes.
Higher Budgetary Allocation for Flagship Schemes: Government flagship schemes such as the PM-KUSUM scheme and bioenergy program, which have social benefits, are expected to receive a higher budgetary allocation.
Battery Energy Storage Systems: The development of 4000 MWh of battery energy storage systems may be a focus area, with the Government providing support through the Viability Gap Funding (VGF) scheme.
Green Energy Corridor and Capital Infusions: Allocations for the green energy corridor and capital infusions for key public sector entities relevant to renewable energy, such as Solar Energy Corporation of India (SECI) and Indian Renewable Energy Development Agency (IREDA), are likely to be covered in the budget process.
Sovereign Green Bonds: The Government may clarify its plan for further rounds of issuing sovereign green bonds to finance sustainable energy projects.

Indigenization and Innovations in the RE Sector

The Government's thrust to accelerate investments towards indigenization and innovations in the renewable energy sector may also be a focus area in the budget. This may include the extension or allocation of funds for the Production-Linked Incentive (PLI) Scheme for High Efficiency Solar PV Modules Additionally, the National Green Hydrogen Mission may see an increased allocation in this year's budget.

Domestic Manufacturing Capability and Taxation

The Government's decisions regarding domestic manufacturing capability across the solar value chain and other renewable energy equipment may influence the sector. Further interventions in taxation aspects may be linked to the Government's assessment of domestic manufacturing capability.

Utilizing India's Startup Ecosystem

The budget may explore opportunities to tap into India's startup ecosystem to drive innovations and growth in new-age clean energy technologies.

In conclusion, the upcoming budget for FY 2024-25 is expected to focus on sustainable financing for renewable energy projects. The Government aims to achieve its clean energy targets by increasing annual capacity addition and promoting various initiatives such as distributed RE installations, localizing the supply chain, boosting rooftop solar installations, and supporting indigenization and innovations in the renewable energy sector.

Note: The information provided above is based on the search results and my expertise in the field of renewable energy and sustainable financing.