Budget doubles down on clean energy transition

The Union Budget FY23 reiterates the government’s commitment in limiting climate change, while focusing on “sunrise opportunities” in green energy and clean mobility systems to move towards a carbon neutral economy. To that effect, proposals like higher allocation for PLI in solar, floating green bonds, de-carbonisation measures, infra status to battery storage, among others sends strong positive signals to the industry and financial institutions. Presenting the Budget for FY23 in parliament on Tuesday, Finance Minister Nirmala Sitharaman said, “The risks of climate change are the strongest negative externalities that affect India and other countries”. She emphasised that the low carbon development strategy opens up huge employment opportunities and will take India on a sustainable development path.

Energy transition

To move towards green energy and clean mobility systems, the government assured that supportive policies, light-touch regulations, facilitative actions to build domestic capacities, and promotion of R&D will guide its approach. Welcoming the Budget, Power Minister RK Singh said it is “forward looking” and is a step towards innovative and sustainable development in new India to strengthen the country’s energy transition journey and fight climate change. Summing up the proposals on green economy, Moody’s Investors Service Senior VP (Sovereign Risk Group) Christian de Guzman said that on the back of government’s announcements on climate change over the past year, the focus on climate-related initiatives in the Budget signals the government’s broadening commitment to achieve net-zero carbon emissions by 2070. However, analysts said that more clarity would be needed to understand the government’s comprehensive approach to decarbonisation. “While the announced intentions to use sovereign green bonds and to significantly increase subsidies to promote solar power generation are a good start, further details on the more comprehensive approach towards decarbonisation would be needed to discern the credibility of India’s ambitious targets, and more importantly, its economic and fiscal implications,” Moody’s Guzman added. Similarly, IEEFA Lead India Energy Economist Vibhuti Garg said, “At a macro level, increase in capex will boost economic growth, however, not much additional budgetary support or tax incentives have been provided to clean energy both grid and off-grid including solar rooftop, storage technologies and green hydrogen. This is despite the big expectation that support will be provided to these new technologies to improve its commercial viability”.

Solar PLI

On hike in PLI quantum for solar panels, the Power Minister told reporters, “This is a big scheme and aid to create production capacity of 40-45GW of solar equipment here (in India), which ranges from polysilicon to modules”. The Budget proposes that funding under the PLI scheme for domestic solar cells and module manufacturing will be increased to ₹24,000 crore from the existing ₹4,500 crore. CRISIL Research Director Hetal Gandhi said this will reduce dependence on imports, which now stands at 90 per cent for cells and 75-80 per cent for modules. It will make India not only self-reliant for annual module needs, but also open up export opportunities for domestic module manufacturers.

Green bonds, a welcome step

The Finance Minister proposed that as a part of the government’s overall market borrowings in 2022-23, sovereign Green Bonds will be issued for mobilising resources for green infrastructure. The proceeds will be deployed in public sector projects, which help in reducing the carbon intensity of the economy. Such bonds will help companies raise investment for projects like green hydrogen. CEEW Centre for Energy Finance Director Gagan Sidhu said that the proposal to issue sovereign green bonds has several benefits, principal among which is signaling the country’s seriousness in pursuing climate action. India will now join a select group of countries, primarily European, which have issued such bonds. The Budget document has also proposed to hike import duty on solar cells to 25 per cent from 20 per cent from April 1, 2022, which will help promote domestic manufacturing. The Budget document also talks about co-firing 5-7 per cent biomass pellets in thermal power plants, which will result in CO2 savings of 38 tonnes annually. Also, four pilot projects for coal gasification and conversion of coal into chemicals required for the industry will be set-up to evolve technical and financial viability.

Charging infrastructure

Singh also said that the government will bring out a battery swapping policy and make green mobility zones. Such zones could come up in overcrowded areas like Connaught Place or Sarojini Nagar. CEEW-CEF Programme Lead Rishabh Jain explained that limited charging infrastructure has been a key challenge to scale up electric mobility. The announcement on battery swapping and interoperability in the Budget could lead to increased user confidence and encourage many to buy electric vehicles. “Additionally, the government has included charging stations and battery storage as part of the harmonised list of infrastructure that will facilitate credit availability,” he added. Besides, for encouraging important sunrise sectors such as Climate Action, Deep-Tech, Digital Economy, Pharma and Agri-Tech, the government will promote thematic funds for blended finance with the government share being limited to 20 per cent and the funds being managed by private fund managers.

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