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Budget 2022: A prescription to boost the growth of the renewable energy industry

Kushagra Nandan on Expectation from Budget

Budget 2022: A prescription to boost the growth of the renewable energy industry

By Kushagra Nandan

Given the recent focus and announcements by the Prime Minister, the industry expects a highly progressive and growth-oriented Budget for the sector with a balance of spending and policy focus.

New Delhi: The recently concluded COP26 Summit deliberations saw Prime Minister Narendra Modi announce that India will increase the non-fossil fuel-based or renewable energy capacity to 500 GW by 2030. He also stated that India will achieve net-zero carbon emissions by 2070.

The announcement made at Glasgow clearly shows that India needs to fast-forward its efforts to reduce its dependence on fossil fuels and boost its capacity for green energy generation using the power of wind, solar, and water. Today, renewable energy (RE) sources such as solar and wind have become extremely price competitive, and in line with coal or gas-powered power at low penetration levels. The sector has witnessed increasing investor confidence over the years. However, in order to achieve the ambitious target of 500 GW by 2030, India will need to increase its current installed RE capacity by more than three times, which would require a new investment of a whopping $500 billion.

It could be said that a precursor to the announcement at COP26 was visible in last year’s Union Budget where the Government first announced the PLI scheme for 10 GW of integrated manufacturing capacity for ‘High-Efficiency Solar PV Modules’. Later in the year, due to an extremely positive response from the industry, it increased the allocated PLI amount from Rs 4,500 crore ($616 million) with an additional Rs 19,000 crore ($2.5 billion).

Taking a cue, the industry's expectation from the upcoming Union Budget of 2022-2023 is for a strong and sustained focus on extensively increasing the adoption of Renewable Energy through various sustainable schemes and tax incentives. Doing so will help reduce the dependence of the domestic manufacturing industry on expensive fossil fuel imports. To achieve the ambitious targets announced by the PM, the Renewable Energy sector will require extensive Government financial support in the form of interest-free loans, targeted subsidies, and better tax structures which will impact policy change for not just the states but at the discom levels as well.

More specifically, the government should announce measures that will dilute the monopoly of the Discoms by introducing a framework by which the consumer would have increased flexibility over time to choose to buy power from whichever supplier meets their needs. The government should also look at both short-term reforms and long-reforms (in the form of a new Electricity Act) to help bring in the much-needed private investment required to rapidly scale up renewable power. To encourage further investment into the sector, first, the outstanding debt burden of Discoms needs to be reduced significantly. A sustained financial turnaround in state-owned distribution companies will help improve operational efficiency, resulting in lower tariffs and much-needed flexibility, which will ultimately get passed on to the end consumers, especially the Commercial and Institutional ones.

A continued focus is needed on reforms in the distribution segment with a higher budgetary allocation towards strengthening the distribution network under the Reforms-based and Results-linked scheme announced in the last Union Budget. Both solar and wind energy have a degree of variability - solar power production peaks during the sunshine hours and wind power peaks during the night. India’s power infrastructure, especially the grid, has not been designed to absorb the significant variability of solar and wind energy and distributed power generation. Therefore, a significant upgrade of the grid is required to absorb the increased renewable energy. Thus, an increase in the fiscal allocation for upgrading the transmission infrastructure (hardware and software) will help increase the mix of renewables and facilitate wheeling power from the regions with a high renewable generation potential to regions with high demand. This investment is required both at intra-state and inter-state levels.

The government should also look to invest in and incentivize companies, in the form of tax relaxations and credit guarantees, which can provide technology solutions to modernize and strengthen the interstate transmission network. The result - restriction of grid curtailment, which will increase the flow of power from renewable-rich states to other states with waivers of inter and intrastate transmission charges.
The government should also consider and take cognizance of the importance of the Renewable Energy industry with regards to a cleaner, greener, and more sustainable tomorrow and give it an ‘Infrastructure’ status. In doing so, the sector can avail a host of tax breaks, incentives, and credit on lower interest rates helping domestic solar manufacturers reduce dependence on high-cost foreign imports while encouraging them to scale up operations. As part of the larger ecosystem, a capital subsidy should also be considered to set up a domestic R&D and Quality testing infrastructure within the manufacturing unit.

Given the recent focus and announcements by the Prime Minister, the industry expects a highly progressive and growth-oriented Budget for the sector with a balance of spending and policy focus to continue to aid the overall increase of the contribution of renewable energy in the overall power mix. Policy measures are also expected to augment the long-term financing avenues for the renewable energy segment, with particular attention around the modernization and revolutionizing of the transmission and distribution network in the country. All this will contribute to the Government’s agenda of ‘Make in India’, and combined with unflinching Government support, appropriate and adequate incentives and tax reliefs to the industry can help India in becoming a renewable energy hub in the years to come.

Original article featured in the Economic Times