Pressing need for policy support in Union Budget 2024 if India is to meet its renewable energy goals: JSW Energy Joint MD

JSW Energy CEO Sharad Mahendra

On July 23rd, Finance Minister Nirmala Sitharaman will present the union budget for FY2025. This budget holds significant importance for the power sector, which stands at a critical juncture as the nation has set an ambitious target of achieving a renewable energy (RE) capacity of 500 GW by 2030. The budget could set in motion the initial drivers for the country’s growth, aiming to be a $5 trillion economy by 2027, and also give a fillip to the vision of Atmanirbhar Bharat, laying the foundation for a sustainable future.

Below are some of the key expectations of the power sector from the budget:

Infrastructure and power projects are driven by upfront investment and have a long gestation period. To cater to the power requirements of the nation, India needs to install roughly 50 GW of RE capacity each year, which corresponds to an investment of about $36 billion per annum. In FY2024, the country added 18.5 GW of renewable capacity. However, we also initiated steps towards achieving an annual addition of 50 GW by bidding for 69 GW of projects in the last fiscal year. This underscores the monumental task of ramping up renewable capacity.

Power is a concurrent list subject, with social importance. Hence, it is imperative to have policy continuity, such as the government’s stance on promoting import substitution, extension of the ISTS (inter-state transmission system) charge waiver beyond 30th June 2025, and single-window clearance for RE projects. It is also hoped that the current policy of zero customs duties on ingots and polysilicon will be maintained to ensure cost efficiency in solar cell and module manufacturing.

India will need to augment its thermal capacity by about 88 GW to support the expected peak electricity demand of roughly 350 GW by 2031. It is suggested that the forthcoming budget should include specific provisions and guidelines, including for financing from banks and financial institutions, to encourage the private sector’s participation in the thermal sector.

I expect the budget to tackle challenges across the value chain, going beyond transmission and distribution to include power sector equipment manufacturing, and a continued focus on both financial and structural reform to further lower the AT&C (aggregate technical and commercial) losses of discoms. Policy initiatives like smart metering, smart grid solutions, etc., can bolster grid stability and reduce technological costs.

India's base load demand currently stands at approximately 200 GW, while the peak demand met this summer reached 250 GW. Renewable energy comprises 13 percent of the country's energy mix, and the proportion is steadily increasing. This situation poses a dual challenge: injection of variable power to the grid, and the non-availability of RE during peak demand hours. There is a pressing need for policy support, such as the strict enforcement of storage obligations (set to increase from 1 to 4 percent over FY24-30), single-window clearance for storage projects, enhanced viability gap funding, and public-private partnership for large projects.

In the upcoming budget, I anticipate a reduction in the customs duty — currently 10 percent  — on  containerised batteries to help reduce storage costs. Further, a 10-year tax holiday for projects with standalone battery storage that use renewable energy would be crucial. Also, we advocate the extension of nil customs duty on capital goods and machinery required to manufacture lithium-ion batteries, for the next three years.

As India sets its sights on achieving energy independence by 2047, the adoption of green hydrogen and its derivatives becomes crucial. A budgetary allocation of ₹13,050 crore has been set aside for green hydrogen production, while ₹4,440 crore has been allocated for manufacturing electrolysers. The FY25 interim budget had earmarked ₹600 crore for the National Green Hydrogen Mission (NGHM). However, we expect an increase in this to foster the development of green hydrogen hubs and establish a green hydrogen pathway for sectors that are difficult to decarbonise.

Incorporating power generation under the GST regime could enable power generation companies to offset the input tax, thereby reducing the cascading tax burden on distribution companies. This indirect tax load on power tariffs impacts both industries and the public, contradicting the GST’s aim of minimising tax layering. Hence, it’s essential to bring the power sector under GST. Additionally, allocating funds to financial agencies, akin to the low-cost funds provided to states by the centre, could enable gencos to meet the long-term financing needs for renewable projects throughout the asset’s lifespan. Funding for skill development programmes in the renewable sector is also crucial to address the talent shortage in this field.

The upcoming budget is a pivotal one for India’s power sector, expected to address key challenges and provide the necessary impetus for growth in renewable energy, thermal capacity, and new energy sources, helping shape a sustainable and self-reliant future for India.

Sharad Mahendra is Joint Managing Director and Chief Executive Officer of JSW Energy.