Opinion: Union Budget 2024 – Boosting India’s Energy Sector

Overview

On July 23, Union Finance Minister Nirmala Sitharaman presented her seventh Union Budget, emphasizing the Government’s commitment to energy security and employment generation in the clean energy sectors. The budget allocated ₹19,100 crore to the Ministry of New and Renewable Energy, highlighting a substantial increase in funding for solar energy and various other initiatives aimed at promoting sustainable energy development in India.

Solar Energy Sector

The allocation for the solar energy sector has been significantly increased to ₹10,000 crore, a 110% rise from the previous year’s budget. This increase is driven by the new PM Muft Bijli Yojana for rooftop solar installations. Despite past challenges, such as delays in subsidy disbursements and net-metering regulations, the Government aims to boost rooftop solar adoption through the PM Surya Ghar Muft Bijli Yojana, targeting 10 million households with a combined outlay of ₹75,000 crore until 2027.

Pumped Hydro Storage and Wind Energy

The budget introduced a policy for promoting pumped hydro storage projects to address the intermittency of renewable energy sources. This policy aims to facilitate the integration of renewable energy into the grid, ensuring continuous power supply and price moderation. However, the wind energy sector did not receive new allocations or support, despite its potential for repowering and efficiency improvements, especially in states like Tamil Nadu.

Nuclear Energy and Advanced Technologies

Nuclear energy is set to play a significant role in India’s energy mix as the country advances towards its “Viksit Bharat” vision. The Government plans to collaborate with the private sector to develop Bharat Small Reactors and Bharat Small Modular Reactors, supported by ₹13,208 crore allocated for R&D in the interim budget. Additionally, the development of Advanced Ultra Super Critical (AUSC) thermal power plants with higher efficiency is on the agenda, with NTPC and BHEL set to establish an 800 MW commercial plant using this technology.

Energy Efficiency and Climate Action

The budget has proposed initiatives to improve energy efficiency, particularly in hard-to-abate sectors and traditional micro and small industries. The government will conduct investment-grade energy audits in 60 clusters, with financial support to help industries transition to cleaner energy sources. A comprehensive policy document on energy transition pathways balancing employment, growth, and environmental sustainability will be released. Additionally, the government will support MSMEs with financial mechanisms to facilitate their shift towards greener practices.

Customs Duty Exemptions and Investment Incentives

To support domestic manufacturing and reduce reliance on imports, the budget exempts basic customs duty on 25 critical minerals essential for renewable energy, nuclear energy, and high-tech industries. This move is expected to enhance the domestic supply chain and manufacturing capacities. Additionally, the budget expands the list of exempted capital goods for solar energy projects while removing duty exemptions for solar glass and tinned copper interconnects, aiming to boost domestic production and job creation in the solar sector.

Support for MSMEs and Agriculture

The budget underscores support for MSMEs, which consume about 50% of the nation’s power and generate over 75% of emissions. Financial mechanisms and energy audits will assist these enterprises in transitioning to cleaner energy sources. In agriculture, the government aims to bring one crore farmers under natural farming, establish 10,000 bio-input resource centers, and support Farmer Producer Organizations (FPOs) for agri-product marketing. These measures are expected to boost the biogas sector, creating rural employment, reducing carbon emissions, and improving soil health.

Bioenergy and Critical Minerals

While the interim budget laid the groundwork for advancements in biofuels and Compressed Biogas (CBG), the Union Budget 2024-25 made no significant announcements for bioenergy. The Government continues to focus on achieving 20% ethanol blending with petrol by 2025 and aims to establish 5,000 CBG projects. A Critical Mineral Mission will be established to enhance domestic production and recycling of critical minerals, with a mandate covering technology development, skilled workforce, and financing mechanisms.

Conclusion

The Union Budget 2024 reflects the Government’s strategic focus on enhancing energy security, promoting clean energy, and achieving net-zero emission targets. By increasing funding for solar energy, introducing policies for pumped hydro storage, supporting nuclear energy development, and emphasizing energy efficiency and critical mineral production, the budget aims to create a resilient and sustainable energy landscape. These initiatives, coupled with support for MSMEs and the agricultural sector, are expected to drive significant advancements in India’s energy transition and economic growth. In the Economic survey, it has also been highlighted to the contrary that the increase in renewable mix would lead to increase in demand for land and water. The availability of land is a major challenge for India, which has the lowest land availability per capita and the transition cost would be amplified with the expected increase in the need for land for renewable energy projects. It has further been highlighted in the Economic Survey that Renewable waste recycling is a challenge which cannot be overlooked as globally, solar photovoltaic (PV) waste is estimated to be as massive as 78 million tonnes by 2050.

BY Shubham Arya, Managing Partner, R Associates