IEEFA India: What’s in store for renewable energy this budget?

There is much to look forward to in India’s 2022-23 Budget.

The Government of India has already set a target to achieve 500 gigawatts (GW) and a 50% share of energy from non-fossil fuels by 2030, backed up with a net-zero emissions by 2070 pledge delivered at COP26.

As the Government would know, in order to achieve these ambitious targets, the renewable energy sector will require substantial government financial support in the form of targeted subsidies, import tariff restrictions, interest-free loans, better tax structures and careful policy framing for both the States and discoms.

Building on new energy initiatives

The 2022-23 budget will likely see government attempting to lower its fiscal and current account deficit, providing a huge push for domestic manufacturing to reduce reliance on expensive fossil fuel imports.

The government will build on new energy initiatives already actioned during 2021 in response to the COVID-19-induced crisis and to boost economic growth.

That includes the production-linked incentive (PLI) scheme for renewable energy including batteries to boost domestic manufacturing, the greening of Indian railways, priority sector lending to renewable projects, and the provision of further capital to the Solar Energy Corporation of India (SECI) and the Indian Renewable Energy Development Agency (IREDA).

In its previous Budget, the government approved 10GW of integrated manufacturing capacity for ‘High Efficiency Solar PV Modules’ with a financial outlay of Rs4,500crore (US$616 million) using the production-linked incentive (PLI) scheme.

The bid received a tremendous response from the industry and forced India’s central government to reconsider. They eventually increased the PLI amount for solar module manufacturing with an additional Rs19,000 crore (US$2.5 billion)) confirmed.

It is hoped that in Budget 2022/23 the PLI scheme will be extended to include the manufacturing of polysilicon, wafers, and ingots as well, to ensure backward integration. Doing so will reduce India’s reliance on imports across the value chain.

Cabinet recently approved a fresh equity infusion of Rs1,500 crore (US$205 million) into the Indian Renewable Energy Development Agency (IREDA) to boost its lending capacity. Such a move demonstrates again the government’s commitment to assisting local bodies help achieve the country’s 450GW renewable energy target.

Despite government’s ongoing support to the sector, more can be done

Additional government financial support is needed to increase the uptake and development of new energy technologies such as battery storage, green hydrogen, hydro, offshore wind, and so forth.

Renewable energies such as solar and wind are now price competitive in India – and cheaper than coal or gas-powered generation.

Battery storage however – critical for integrating increasing renewable energy into the grid – is still an expensive technology.

The Government must offer essential viability gap funding for new energy storage projects, and emerging green hydrogen and offshore wind projects. Once these technologies are more established, the government can leave the price determination to the markets.

Further, the transmission and distribution network will soon require strengthening. The Government should urgently plan for modernizing and digitalizing the transmission system for better integration of new renewable energy capacity into the grid.

India is lagging behind its 40GW solar rooftop installation target by 2022. In order to facilitate uptake, in Budget 2022/23 the Government should offer more capital subsidies and concessional loans, particularly to Micro, Small and Medium-sized Enterprises (MSMEs) and residential customers.

Budget 2022/23 could put in place the necessary supports for India to complete the third successful chapter of its renewable energy story.

Necessary Government financial and policy support for newer clean energy technologies will determine the level of success in which India is able to achieve its renewable energy target.

By Vibhuti Garg, Energy Economist and Lead India at the Institute for Energy Economics and Financial Analysis (IEEFA)

This op ed first appeared in Economic Times.

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