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.

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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.

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

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( Originally published on Jan 29, 2024 )

(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.)

Renewable Energy and Sustainable Financing Concepts

Government Targets and Initiatives

The Government of India aims to achieve 50% cumulative installed power generation capacity from non-fossil fuel sources by 2030. This ambitious target is part of the country's broader efforts to transition towards clean and sustainable energy sources. Additionally, there is a focus on achieving net zero emissions by 2070. The government has been actively intervening to meet these targets, with a particular emphasis on sustainable financing for renewable energy projects. This includes increasing annual capacity addition, localizing the supply chain, and boosting rooftop solar installations.

Capacity Addition and Financing Requirements

India has seen significant growth in the capacity addition of non-fossil fuel-based generation sources in recent years. However, the annual capacity addition has not yet met the required levels to achieve the 2030 target. The country needs an average annual capacity addition of about 49 GW to reach the goal of 500 GW non-fossil fuel-based cumulative generation capacity by 2030. The availability of financing is identified as a key enabler for fast-tracking renewable energy capacity additions. The funding requirement for solar and wind projects during 2022-2032 is estimated at Rs.20.67 Lakh crores, highlighting the substantial financial investment needed for the sector.

Budgetary Measures and Government Support

The annual budgets of the Government of India play a critical role in promoting and supporting sustainable financing to accelerate the implementation of renewable energy projects. These budgets allocate funds towards targeted programs and make important decisions related to taxation and import duties, which directly impact the renewable energy sector. Additionally, subsidies provided under government schemes play a key role in improving the commercial viability of renewable energy projects, enabling their off-take, financing, and implementation.

Focus Areas for Sustainable Financing

In the upcoming budget for FY 2024-25, several areas are expected to be on the priority list for sustainable financing to support renewable energy growth. These include distributed RE installations, localizing the supply chain, and accelerating rooftop solar installations. Government flagship schemes with social benefits, such as the PM-KUSUM scheme and bioenergy program, are also expected to receive higher budgetary allocations. Furthermore, the development of battery energy storage systems and investments towards indigenization and innovations in the renewable energy sector are likely to remain in focus.

Taxation and Domestic Manufacturing

The Government has taken major decisions in the past that have substantially influenced the renewable energy sector, particularly in the context of domestic manufacturing capability across the solar value chain and other renewable energy equipment. Further interventions in taxation and domestic manufacturing aspects will be linked to the Government's assessment of the sector's capabilities and potential for growth .

Role of Public Sector Entities and Green Bonds

Allocations for green energy corridors and capital infusions for key public sector entities relevant for 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. These investments allow these entities to issue more tenders or increase the lending portfolio, thereby driving capital investments in renewable energy, including solar. Additionally, the Government may clarify its plan for further rounds of issuing sovereign green bonds to finance the development of sustainable energy projects.

Innovation and Startup Ecosystem

The use of India's startup ecosystem to drive innovations and growth in new age clean energy technologies presents further opportunities for the renewable energy sector. Given the imperative need for acceleration in non-fossil fuel-based generation capacity, it is essential that all available forms of interventions be explored through the budget and other instruments available with the Government.

In summary, the concepts covered in the article encompass the Government of India's targets and initiatives for renewable energy, the financing requirements and budgetary measures, focus areas for sustainable financing, taxation and domestic manufacturing, the role of public sector entities and green bonds, and the potential for innovation through the startup ecosystem. These concepts collectively reflect the comprehensive approach required to achieve the ambitious clean energy targets set by the Government of India.