Budget 2021: Can green energy receive a boost?

The year 2020 will be marked as a year of unparalleled changes in the power and renewables sector. While the supply chain and consumption witnessed a significant change due to the sinking demand and rising input costs, the pandemic also facilitated the energy transition in India.

The government has played a crucial role in reviving the sector by providing various incentives and announcing a much necessary stimulus package for connected segments such as green energy and EVs. Moreover, the renewable energy targets were revised to an even more ambitious 220 Gigawatt (GW) by 2022 from 175 GW to give a push to the Atmanirbhar Bharat agenda.

Necessary boost to accelerate digital adoption

The pandemic has accelerated digital adoption across sectors, and power & renewables sector is no different where we are seeing increased digitisation, usage of smart technologies, smart utilities and smarter working styles. In the upcoming Union Budget 2021, we hope to see a greater focus on indigenisation, innovation, energy efficiency, and electrification besides market reforms and system integration.

Foster local manufacturing

In order to boost domestic manufacturing, the duty structure on the import of solar modules must be revamped. In this case, project developers would like to have an exemption or as low import duty as possible at least till the time local manufacturing scales up, while local manufacturers will prefer a higher import or safeguard duty in some form.

Thus, government should protect the interests of indigenous manufacturers in a way that it does not impact the timely project development and foster local manufacturing in India.

Battery manufacturing is another big area that needs to be highlighted. To build a battery ecosystem in the country, the government could consider reducing the GST on lithium-ion batteries from 18% to 5% and giving greater thrust to battery storage policy.

The nation is thriving towards local manufacturing by introducing Production Linked Incentive (PLI) scheme for various sectors and, thus, it becomes vital to evaluate safeguard duties on imported modules, batteries and even e-vehicles. A higher budgetary outlay to incentivise investments in R&D in renewables and storage space is the need of the hour.

Re-focus on wind energy

The wind industry which has the longest history of contributing to the renewable energy capacity as compared to solar, has more domestic components and relatively provides more jobs. The government now holds the responsibility to conduct more wind auctions in light of lower solar tariffs and administer Wind RPO or a minimum wind procurement to keep the industry alive.

GST and other policy reforms

The prolonged matter of inclusion of gas and power within the ambit of GST could be re-considered. The introduction of a ratepayer-bond concept to fast-track the retirement of inefficient and costly coal-based power plants will create a win-win situation for GENCOs, DISCOMs and end consumers of electricity.

Newer financing mechanisms for the renewable sector

Because funding to the renewable energy sector usually gets mixed with thermal power for limits, new financing mechanisms should be another focus area for the government in this Budget. At present, the definition of power merges both renewable energy and thermal power due to which the banks are not lending to the renewable energy sector citing that their power sector exposure is full.

As a next step, removing renewable energy from power sector priority lending and creating a separate priority sector category for it by enabling renewable energy IPPs would ensure more bank funding.

Green energy is no doubt the future

The overall motto is to manifold green energy capacity in all its forms by lending policy and funding support. This can be achieved by setting aside funds to make a robust ecosystem for indigenous solar manufacturing. A wide-ranging policy framework is required for encompassing both tariff and non-tariff barriers, long term financial support, and direct incentives to make the domestic solar industry cost competitive.

Apart from the central government, it is essential for the state governments to extend their early support towards the setting up of at least 5 or 10 Off-shore wind and floating solar commercially proven demonstration projects. The country needs to have a long-term green hydrogen roadmap up to 2030. Green hydrogen certainly has a withstanding future and the time to start is now.

Views are personal. The author is Partner and Leader, Power & Utilities, EY India.