What will Union Budget 2024 do for the renewable energy sector?

The interim budget made several announcements towards building India's non-fossil fuel capacity. However, a lot more needs to be done, particularly in infrastructure and financing, if the country has to meet its energy targets

By Divya J Shekhar Forbes India Staff

Published: Jul 18, 2024 04:07:46 PM IST

Updated: Jul 18, 2024 04:14:08 PM IST

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Workers install solar panels on the roof of a residential apartment in Kochi, southern Kerala state, India. Image: AP Photo/R S Iyer

In her interim Budget speech in February 2024, Minister of Finance Nirmala Sitharaman had made a number of announcements about green energy, particularly in the context of helping India achieve its goal of becoming a net-zero economy by 2070. India also wants to build 500 GW of non-fossil fuel energy capacity over the next six years. This capacity stands at around 200 GW, which means building an additional capacity of nearly 50 GW every year till 2030.

Financing of renewable energy projects will be crucial for the government and industry. In early June, Moody’s Ratings estimated that around $190 billion to $215 billion is required to build this 500 GW capacity by 2030. The analytics firm also estimated that another $150 billion to $170 billion investments will be required for electricity transmission and energy storage, while adding that coal will remain a major source of electricity generation over the next eight to 10 years.

The policy announcements and outlays towards renewables and the power industry in the Union Budget on July 23 will likely set the tone of how aggressively India can pursue its energy-related goals going forward.

In the interim Budget, the Ministry of New and Renewable Energy (MNRE) was earmarked an estimated Rs12,850 crore, while the Ministry of Power was earmarked an estimated Rs 20,502 crore. During that time, RK Singh (who lost the elections from the Arrah constituency in Bihar in June), had been entrusted with both the power and renewable energy portfolios.

In the new Cabinet formed by the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) in June, these portfolios have been split. Former Haryana Chief Minister Manohar Khattar got the Ministry of Power, while Prahlad Joshi (who earlier had the charge of coal and mines) was entrusted with MNRE; the coal portfolio is with G Kishan Reddy.

Also read: How Are India's Power Companies Handling The Crucial Renewables Transition?

While India has been aggressive in the transition to renewables, to meet the requirements of a growing economy, the reliance on thermal power, led by coal, will continue for the next few years. “India cannot decommission all thermal power plants, but for us to have a just transition in a fast manner, we need a well thought out strategy to systematically reduce the percentage of fossil fuel that is used to power our central grid,” says Manoj Sinha, co-founder and CEO of clean energy company Husk Power Systems. “Right now, the electricity grid is powered 70 percent by coal and thermal power, it needs to come below 50 percent, because renewables are the future.”

Among the announcements in the interim Budget with respect to renewables, was funding for harnessing offshore wind energy potential for initial capacity of 1 GW, and also coal gasification and liquefaction capacity building to reduce imports of natural gas, methanol and ammonia. The outlay towards the ambitious green hydrogen mission was earmarked at Rs 600 crore, while the finance minister (FM) also announced a rooftop solarisation programme that will help 1 crore households obtain up to 300 free units of electricity every month (see box for more details).

In December 2023, the MNRE introduced a policy by which wind turbines that are older than 15 years but have not exhausted their life can be refurbished. In India, as per a report on IndiaSpend, about 25 GW worth of turbines that are under 2 GW capacity can be repowered and their life can be extended.

“Budgetary allocation to provide a boost for the repowering of wind turbines will help advance the National Repowering & Life Extension Policy for Wind Power Projects, 2023,” says Pramod Kumar Singh, senior director, research and programmes, Alliance for an Energy Efficient Economy (AEEE).

According to Singh, the government's action through the union Budget can influence how India creates demand for more energy efficient infrastructure, goods and services, and how it encourages and aids supply and operational efficiency. The government can prioritise energy efficiency in various sectors, he says, like buildings, industries, and mobility.

Also read: There is opportunity to create more jobs in the green energy economy: World Economic Forum's Espen Mehlum

The FM had also announced financial assistance towards biomass collection and aggregation machinery in February. The bioenergy supply chain has the potential to create employment and new enterprises in the rural sector, while promoting a circular economy, says Suhas Baxi, co-founder and CEO of BioFuelCircle, a digital marketplace for biomass and biofuels, in a quote shared on email. “As we look to the upcoming Budget, we hope to see policies that support the creation of small rural enterprises, provide easy access to working capital, and offer competitive financing rates,” he says. “Additionally, incentivising the use and production of green fuels, along with all products derived from biomass such as biofertilisers, will be crucial.”

The estimated outlay for the green energy corridor—which is a series of infrastructure projects that will synchronise the power generated from renewable energy sources like wind, solar, hydro, with the conventional grid of India—was at Rs 600 crore in the interim Budget, above budgetary estimates of Rs 500 crore and revised estimates of Rs 434 crore in 2023-24.

So far, India has done well in renewables expansion, particularly solar, with policies focussed primarily on large-scale projects and resources, but going forward it would be good to have policies towards building infrastructure and integrating decentralised power to the centralised grid, says Sinha.

Let’s take infrastructure first. One of the biggest challenges in renewable energy sources is intermittency (which refers to how renewable energy sources cannot consistently produce the same amount of power during all hours of the day. For example, solar is available during the day and not at night). As we move towards a reality where a bulk of our power requirements will be met by renewables, in order to ensure uninterrupted availability of electricity generated from these sources, it is important to invest in storage. “The government must promote RE storage technologies through policies and subsidies,” he says.

Second, integrating decentralised energy sources to the centralised grid. In her interim Budget speech, Sitharaman said that among the benefits of the rooftop solarisation programme at the household level is savings of up to Rs15,000 to Rs18,000 annually, from free solar electricity and “selling the surplus to the distribution companies”.

Sinha says there should be policy and investments towards integrating these decentralised energy sources, which is a combination of solar PV rooftops, as well as storage of individual households. “Like green hydrogen, this also needs a lot of investments. The government has already started decentralising solar. Going forward, artificial intelligence [AI] can play a major role to build a virtual power plant that can tap and integrate millions of rooftops plus battery solutions and mini grids,” he says. “This system can also absorb the shock that the centralised, large gigawatt projects will create on the central grid.”