OPINION | Budget 2026: Turning India’s clean energy ambition into execution 

India can strengthen its clean-energy value chains

As India approaches the Union Budget 2026, the clean energy transition stands at an inflection point. Budget 2025 laid important groundwork—doubling allocations for green hydrogen to ₹6,000 crores, launching the National Manufacturing Mission, and strengthening domestic supply chains. These measures have reinforced a powerful message: rapid decarbonisation can coexist with economic growth.

The results are visible. India’s non-fossil fuel capacity has crossed 260 GW, growing 22.6% year-on-year, with renewables now accounting for over 50% of the installed power mix. Yet, achieving 500 GW of renewable capacity by 2030 and net-zero emissions by 2070 will require sustained and targeted fiscal support—especially for emerging segments where economics remain fragile.

In Budget 2026, three areas merit urgent attention.

Scaling-Up the Compressed Bio-Gas sector

Launched in 2018, the Sustainable Alternative Towards Affordable Transportation (SATAT) initiative aimed to set up 5,000 compressed bio-gas (CBG) plants by 2023–24. While CBG blending obligations effective FY 2025–26 have revived momentum, progress remains uneven. Of over 1,100 registered plants, only about 160 are operational, and just 113 are currently selling gas.

Policy refinements—such as advance Central Financial Assistance (CFA), harmonisation under the Ministry of Petroleum and Natural Gas, biomethane pipeline norms, and BIS methane purity standards—have improved the outlook. However, fiscal support has not kept pace with rising costs. Plant capex has increased from ₹4–5 crore per tonne per day (TPD) in 2021–22 to ₹6–7 crores per TPD today, yet CFA levels remain unchanged.

CFA should be enhanced from ₹4 crores per 4.8 TPD to at least ₹6 crore per 4.8 TPD, without an upper cap. 

Current limits discourage larger projects, with plants above 12 TPD capped at ₹10 crore of support. A pro-rated CFA linked to actual capex—similar to the recent increase in viability gap funding for MSW-to-CBG plants—would encourage scale and attract long-term capital.

Equally important is budgetary allocation. The initial ₹800 crore earmarked for Phase I (FY 2021–26) has been exhausted, and the additional ₹180 crore announced in September 2025 supports barely 10 plants. With over 1,000 plants expected to be commissioned by 2030, a cumulative allocation of around ₹10,000 crores is essential to unlock the sector’s potential.

To replicate ethanol’s success story, CBG economics must improve. While ethanol enjoys a premium of roughly 120% over fossil petrol, CBG trades at an 85% discount on an energy-equivalent basis. Supplementary revenues depend on market development assistance (MDA) for fermented organic manure and liquid fermented organic manure. Current allocations are inadequate to cover digestate processing costs.

Revising MDA to ₹3–3.5 per kg for five years would stabilise unit economics during the scale-up phase. 

Taxation is another bottleneck. CBG plants face an inverted GST structure: output is taxed at 5%, while plant and machinery attract 12%, leading to blocked input tax credits and higher effective capex.

Aligning GST for CBG with wind and solar—where rates were rationalised to 5%—would significantly improve project viability. 

Leveraging carbon credit market

Finally, carbon and renewable gas markets are approaching a turning point. The proposed Renewable Gas Certificate framework and forthcoming carbon credit trading system can provide additional revenue streams. Allowing CBG-linked certificates and carbon credits to be traded domestically and internationally under Article 6.2 of the Paris Agreement would further strengthen project economics, especially as global carbon prices remain well above India’s current proposed floor.

Green Hydrogen: Building homegrown capability

The National Green Hydrogen Mission has gained momentum, but achieving the target of 5 million tonnes of annual production by 2030 will hinge on domestic electrolyser manufacturing.

Targeted customs duty exemptions for patented components and materials not yet manufactured in India can reduce capital costs and accelerate localisation—an approach already adopted for critical minerals and lithium-ion battery components. In parallel, incentives for integrated renewable-hydrogen projects can improve economics by reducing transmission losses and creating clustered industrial ecosystems around hydrogen hubs.

Battery Storage: Strengthening the renewable grid

As solar and wind capacity expands, Battery Energy Storage Systems (BESS) will be critical to manage intermittency and ensure grid stability. However, fragmented GST rates across BESS components inflate project costs. A uniform 5% GST—aligned with other renewable infrastructure—would accelerate deployment.

In addition, the viability gap funding introduced for 4 GWh of storage in Budget 2023 should be extended to larger capacities. Scaling storage is essential if India is to reliably integrate 500 GW of renewables into the grid.

Budget 2026 is an opportunity to convert ambition into execution. By addressing these structural and fiscal gaps, India can strengthen its clean-energy value chains, crowd in private investment, and reinforce its position as a global leader in the energy transition.

(Ashish Bhandari is MD & CEO, Thermax.)

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