Budget 2021 expectations | Renewables & strengthening of power distribution segment is key for power sector: ICRA

Source: Reuters

The focus on supportive measures for renewable energy (RE), strengthening of the transmission & distribution (T&D) network and improving the viability of the distribution segment is likely to continue in the coming Budget given the criticality of the power sector for economic growth of the country and the strong policy focus on renewables.

With improving tariff competitiveness and policy thrust, renewable energy (particularly, solar, wind and hybrid segment) will remain a key driver of the capacity addition nationally. There is a strong project pipeline of about 50 GW, comprising both projects awarded through Central nodal agencies as well as through state agencies. ICRA expects a capacity addition of about 70 GW in RE in the period till March 2025, necessitating an investment outlay of about Rs.3.5-4.0 lac crore.

In this context, ICRA expects supportive policy measures in the Budget to ensure availability of long tenure financing avenues for such projects. Further, within the RE segment, a significant push is required from both the Central and the state governments to promote investments in the roof-top solar segment by providing incentives; ensuring a favourable regulatory framework (to ensure the consistency & supportive net metering regulations) as well as a single window approach to ensure procedural approvals.

While there is a policy thrust under the Atmanirbhar Bharat plan to encourage domestic manufacturing of solar cells and modules, the clarity with regard to specific policy measures towards both tariff (such as basic customs duty) as well as non-tariff concessions, is still awaited. Given that the overall progress in implementation of various schemes announced by the Government to encourage sourcing of modules from domestic players is slow, the implementation of such supportive measures is critically important for the domestic players till their scale and cost competitiveness improves against imports, particularly from China.

Policy measures are also required to revive stranded gas-based projects, given that such projects can be used to meet peak power demand and as a balancing power source in the light of the rising share of intermittent renewable generation expected in the overall energy mix.

The weak financial profile of the state-owned discoms continues to remain an area of concern for the power sector, there having been limited improvement in the operating and financial performance of these utilities. While a liquidity relief scheme was announced in May 2020 to provide liquidity to state discoms through state government guarantee-backed loans, it remains a short-term measure. So far, this scheme has been only partially implemented.  ICRA expects announcement of a higher budgetary allocation towards strengthening of the distribution infrastructure, which will enable discoms to improve their operational efficiencies.

The wind and solar power projects are likely to be concentrated in a few suitable resource-rich regions, while the consumption of such energy is likely to be distributed pan-India. This is likely to need augmentation of an inter-state transmission network in a timely manner. Thus, ICRA expects the Budget to take steps to speed up the execution of transmission network-strengthening projects (both at intra-state and inter-state level). These steps would include a higher budgetary allocation and a fast track approach by Central/state nodal agencies as well as regulatory bodies for the requisite approvals in a timely manner.