Budget 2024: Energy sector expects fund allocation for cleaner fuels, green hydrogen

India’s energy sector is hopeful that in the upcoming budget cleaner fuels such as green hydrogen and natural gas would be at the forefront.

The energy sector expects focus of the interim Union Budget, to be presented on February 1, on energy transition and allocation of funds for cleaner fuels.

Finance Minister Nirmala Sitharaman will present Budget 2024, which would be a vote-on-account in view of the general elections slated for April-May 2024. However, the budget might not have major announcements as the full budget for FY25 would be presented after the formation of a new government.

India’s energy sector is hopeful that in the upcoming budget, cleaner fuels such as green hydrogen and natural gas would be at the forefront. Oil and gas sector expects some reforms for city gas distribution (CGD) players to boost consumption of natural gas in the country while the power sector expects announcements to encourage adoption of renewable energy.

The year that was

The year 2023 was eventful for oil and gas sector as international crude oil prices remained volatile due to geopolitical tensions in the Middle-East, supply cuts by oil producing countries and demand concerns.

The year begun with lower crude prices in the first half of the year, trading around $80 per barrel, due to subdued demand on account of global economies. However, crude prices gained momentum and reached around $90 per barrel in the second half of the year with Organisation of Petroleum Exporting Countries (OPEC) and its allies, or OPEC+, announcing supply cuts to support prices. Prices further rose due to tensions in the Middle-East after the war began between Israel and Hamas.

However, crude prices ended the year trading below $80 per barrel due to oversupply of oil in the market.

Meanwhile, India met an all-time high peak power demand of 240 GW in 2023, which was recorded in September, against power ministry’s predicted peak demand of 230 GW.

In 2023, power ministry also emphasised India’s need to add thermal coal-based power generation capacity of 80 GW against the 27 GW currently under construction.

Expectations of the oil and gas sector

The oil and gas sector expects Finance Minister to divert some of its expenses towards improving the green and sustainable energy sector. Several oil PSUs are extensively moving towards achieving their net-zero targets and heavily investing in renewable sources of energy.

In the previous budget, Sitharaman had allocated Rs 30,000 crore for capital investments towards energy transition for state-owned oil marketing companies (OMCs). However, the amount has not been allocated to the OMCs yet.

Industry players have yet again urged the government to consider bringing petroleum products, such as petrol, diesel, natural gas and aviation turbine fuel (ATF), under GST. Additionally, the sector expects announcements for boosting natural gas consumption, discontinuation of windfall tax and exemption of liquefied natural gas (LNG) from customs duty.

Expectations of the power sector

The power and green energy industry believes that the government’s focal point should shift towards green hydrogen since, over the years, it has supported solar and wind, leading to significant expansion in their installed and manufacturing capacities.

The sector expects the government to offer policy incentives for energy storage solutions for maintaining round-the-clock grid stability in the upcoming budget.

Additionally, industry players said lower interest rates for the renewables sector, coupled with innovative financing models, will strengthen the capability of developers and equipment suppliers to compete in line with global standards.