Budget 2025: Key proposals to boost India’s power sector

India’s renewable energy ambitions depend on R&D initiatives and capacity-building of the workforce.

By Rajiv Ranjan Mishra 

The power sector is vital for sustaining economic development, and the energy transition requires continued policy interventions and financial support. As India strides toward its ambitious clean energy targets, Budget 2025 offers an opportunity to address some of the critical challenges and catalyse growth in the power sector.

Expediting the Signing of PPAs

There are projects of approximately 55 GW for which auctions have been successfully conducted, but PPAs are yet to be signed. This uncertainty could hamper investments, discourage RE developers, and slow down project execution. Policy interventions, including fiscal measures that incentivise Discoms to expedite the PPA signing, will enhance the pace of renewable energy project commissioning and provide a stable investment climate that will attract both domestic and international players.

Enhancing Supply Chain Resilience

Supply constraints in transmission equipment, especially in the case of HVDC technologies (transformers, reactors, etc.), may delay ongoing transmission projects, affecting the completion of planned RE capacity additions. Fiscal incentives such as PLI, tax breaks, and concessions for domestic OEMs in the transmission sector can enhance local manufacturing capabilities and reduce reliance on imports of equipment such as GIS, transformers, STATCOMs, etc. Furthermore, the government could infuse equity into public enterprises to establish new manufacturing facilities aligned with current requirements.

Creation of Land Banks for Renewable Energy Development

Land acquisition and Right of Way (RoW) challenges continue to be some of the biggest hurdles for renewable energy projects. These issues cause significant delays, escalate costs, and deter potential investors. The government may want to consider establishing centralised land banks for renewable energy development, which will streamline the land acquisition process and mitigate disputes.

Adoption of Advanced Technologies

Financial incentives may be considered to promote the adoption of advanced technologies such as AI-driven grid management systems, advanced weather forecasting tools, load management tools, etc. Encouraging pilot projects and providing financial incentives for their adoption could help India overcome the challenge posed by the integration of renewable energy into the grid while ensuring grid stability.

Strengthening the Bond Market

Emphasis should be placed on strengthening corporate bond markets by introducing measures such as tax exemptions for investments in the power sector. A robust bond market will help developers diversify their funding sources and reduce dependency on traditional financing, ensuring steady capital flow for renewable projects.

Renewed Focus on CCUS and Energy Storage

The budget should include financial incentives for Carbon Capture, Utilisation, and Storage (CCUS) projects and dedicated funding for R&D to accelerate the deployment of CCUS technologies. There is also a need for a clear regulatory framework for CCUS to encourage greater private sector participation.

Developing a Robust Carbon Market

The Bureau of Energy Efficiency has issued the broad framework for introducing a carbon market in India. This should now be taken forward by aligning India’s carbon market framework with international standards. Establishing such a market will not only help industries transition to greener operations but also position India as a global leader in carbon trading. Tax exemptions will promote wider participation among stakeholders.

Innovative Financial Instruments

The volatility of electricity tariffs underlines the need for financial instruments that enable effective risk management. Introducing electricity derivatives could provide a reliable price discovery mechanism and allow market participants to hedge against price fluctuations. The government should explore other innovative instruments, such as contracts for difference (CfDs), virtual power purchase agreements, etc., to meet the varying needs of different stakeholders.

Investment in R&D and Capacity Building

India’s renewable energy ambitions depend, to a significant extent, on R&D initiatives and capacity-building of the workforce. Increased funding for areas such as offshore wind technologies, green hydrogen manufacturing, hybrid renewable systems, etc., could position India at the forefront of clean energy innovation. Simultaneously, capacity-building programmes aimed at creating a skilled workforce to manage advanced energy systems will ensure smoother adoption of new technologies and accelerate India’s energy transition. Collaborations with academic institutions and global organisations will facilitate knowledge transfer and enhance India’s expertise in the latest renewable technologies.

Facilitating Renewable Energy Exports

India’s progress so far in renewable energy offers significant export opportunities, especially in solar and wind technologies. Budget 2025 should support the export of renewable energy equipment and services. It would also help to have incentives for export-oriented manufacturing units and explore bilateral trade agreements with renewable energy-focused nations. This will unlock new revenue streams.

Favourable Tax Regime for RE Promotion

In view of the increasing calls for higher capital expenditure in renewable energy, Budget 2025 would do well to continue tax holidays for renewable energy projects under Section 80-IA of the Income Tax Act, and to reduce the corporate tax rate for renewable energy companies to 15% or lower. Hydrogen has great transformative potential for the ongoing energy transition. It would be beneficial to have tax incentives, such as reduced tax rates or tax credits, for green hydrogen production, and to reduce and rationalise GST rates for renewable energy equipment such as solar panels and wind turbines. 

(Rajiv Ranjan Mishra, Managing Director, Apraava Energy.)

Views are personal, and do not represent the stance of this publication.