Budget Focus

Industry hopes and expectations

In the run-up to the Union Budget 2022, industry stakeholders talk about their hopes and expectations for the sector. Their top priorities are more reforms in the power distribution segment and measures to spur renewable energy investments to meet the target of 500 GW of non-fossil fuel-based energy by 2030. Excerpts…

What are your expectations from the Union Budget 2022? What are the issues that need to be addressed on a priority basis?

Jaymin Gajjar and Abhishek Nath

The union minister of finance, Nirmala Si­tharaman, will announce the Union Budget 2022-23 on February 1, 2022. This time, it is anticipated that the gov­er­nment will make exciting announcements to help the power sector evolve in line with India’s aspiring energy transition initiatives.

In the Union Budget 2021-22, the main focus was on discom viability and rene­wable energy. The Revamped Distribu­tion Sector Scheme of Rs 3,050 billion was announced to improve the financial and operational efficiencies of dis­coms. The aim was to support discoms in str­en­gthening their infrastructure in­clu­ding system upgradation, prepaid smart metering, and feeder separation, which would ultimately improve the power supply quality and reliability. Also, the scheme was planned to decrea­se aggregate technical and commercial (AT&C) losses to 12-15 per cent, and bridge the gap between the average cost of supply and average revenue realised.

The central government has launched various schemes in the past to improve the operational and financial efficiency of discoms. The Ujwal Discom Assu­rance Yojana was one of the flagship schemes. However, it could not achieve the desired results as AT&C losses, at 22 per cent, are still on the higher side compared to the global average of just 8.3 per cent. There are still 15 discoms with losses greater than 25 per cent in India.

Therefore, for discoms, the effective implementation of schemes could be ensured through suitable incentives and penalty mechanisms. Privatisation un­d­er the public-private partnership mode could be another option that would enable discoms to increase revenues, de­c­rease inadequacies and deliver a good consumer experience. It is a sensitive to­pic and needs to be dealt with accordingly. For instance, last year, the centre an­nounced the privatisation of six discoms in union territories. Only Ch­an­di­garh, Dadra & Nagar Haveli, and Daman & Diu have called for bids so far. For the Chan­digarh discoms, the Punjab and Haryana High Court has al­ready stayed the proceedings. Many stakeholders have also asked for scrapping the bidding process. The government should therefore take into consideration the perspectives of all the stakeholders in this budget and share revised guidelines for the successful and sm­ooth implementation of the privatisation process. In addition, measures sh­ould be introduced to increase the ac­countability of discom officials at all levels (corporate to field). This would make them more responsible for the efficiency of discoms.

At COP26, Prime Minister Narendra Modi announced India’s ambition to go net zero by 2070. He also announced that India would expand its renewable en­ergy capacity to 500 GW and fulfil 50 per cent of its energy requirements th­rou­gh renewable energy by 2030. As of December 2021, India has added 393.4 GW of energy generation capacity to the energy mix. Thermal ca­pacity holds the largest share of 60 per cent, and renewable energy holds a share of 38 per cent. To increase the sha­re of renewables, the government could allocate a budget for research and analysis to assess the feasibility of replacing ageing thermal plants with clean energy technologies such as solar and wind. Thermal plants in each state could be categorised as per their age and efficiency, and robust strategies could be developed for decommissioning old, inefficient and polluting plants.

Further, there could be a budgetary allocation for accelerating the adoption of electric vehicles (EVs) and setting up EV charging infrastructure. New and firm policies along with attractive financial incentives are expected from the government for boosting electric mobility, and developing charging and battery swapping infrastructure across the co­untry. Many private companies are inte­rested in manufacturing EVs. To attract them, the government could announce tax holidays for manufacturers for an initial period of four to five years. The government could also reduce the goods and services tax on EV spare parts, such as batteries and chargers, to 5 per cent from the current 18 per cent. Also, considering the huge demand for high efficiency mono PERC and bifacial solar modules, the government could consider declaring financial incentives or subsidies for indigenous solar module manufacturers. Financial support is essential to give the much-needed push to do­mes­tic solar manufacturing and streng­then the supply chain.

Apart from these measures, the government is most likely to provide budgetary support for developing a hydrogen eco­nomy. India would need financial support from both public and private sectors to develop an indigenous hydrogen supply chain (from production to supply including storage and transport) for setting up a green hydrogen electrolyser capacity of 15 GW by 2030. The electrolyser capacity of 15 GW is expected to generate 3 million metric tonnes of green hydrogen and would require 30 GW of renewable energy. Experts also ex­pect the creation of a nodal office for coordinating all the activities of the central ministries to develop the hydrogen economy.

Privatising discoms, decommissioning ageing thermal plants, replacing ageing plants with solar and wind, strengthening the EV sector, and building a hydrogen economy should be the top priorities while planning the Union Budget for 2022-23. By doing so, India would be able to expand its renewable energy po­rt­folio and start the journey towards a net zero future in a sustainable manner.

Sabyasachi Majumdar

The renewable energy segment remains the key focus area in the power sector for the government amid the prime minister’s announcement of increasing the non-fossil fuel-based capacity to 500 GW by 2030 from 150 GW at present and meet 50 per cent of the country’s energy requirement from renewable sources by 2030. This requires an annual capacity addition of 42 GW over the next eight years, necessitating multi-billion dollar investments during this period. There­fore, the availability of adequate long-term financing at cost-competitive rates re­ma­i­ns important for achieving these targets. Further, incentives and policy measures are required to promote in­vest­me­nts in the energy storage segment considering the increasing share of renewables in the electricity generation mix and the need for adequate balancing so­urces. This apart, policy measures are required to revive the stranded gas-based projects, which would enable the availability of balancing power sour­ces. Also, ICRA expects an increase in the funding outlay for the production-link­ed incentive (PLI) scheme for solar module manufacturing given the strong interest from the prospective players under the tender issued by IREDA. This would augment the domestic module manufacturing capabilities.

The weak financial profile of state-own­ed discoms continues to remain a major area of concern for the power sector. Achieving a turnaround in the distribution segment remains key to achieving the renewable capacity targets announ­ced by the government. This would re­q­uire a focus on operational efficiency improvement and allowing timely pass-through of cost variations through tariffs to the consumers. ICRA expects the budget to focus on accelerating the implementation of reforms in the distribution segment including the proposed delicensing initiative.

Further, the budgetary allocation is expected to be in­c­reased towards str­en­gthening the distribution infrastructure under the “refor­ms-based and results-linked” scheme announced in the previous  budget by the Government of In­dia. Also, ICRA expects the budgetary allocation to be increased for strengthening the transmission infrastructure (both at the intra-state and interstate level), towards evacuating power from regions with high renewable generation potential.

Rajiv Ranjan Mishra

India’s progress in the renewable energy space over the years has been truly remarkable. We are one of the most att­ractive investment destinations in the world today for renewable energy. The in­dustry is looking forward to the up­coming Union Budget with certain expectations. We hope that the government resolves the financial issues of discoms and ensures that the awarded contracts are respected on the fiscal front. Seeing the excellent response that the PLI scheme attracted, we would like for it to be extended to the future as well. We would also like import duties on items such as batteries and electrolytes to be lowered so that we can strengthen our capabilities in areas like green technologies and hydrogen. Last but not the least, we request that electricity be in­clu­ded in the ambit of GST as it will help in the reduction of costs and ultimately benefit India’s consumers.

Kush Singh

As a player in the energy and power sector, we are really hopeful that the Union Budget 2022-23 will set a path to recovery this year. The energy sector is pinning a lot of hope that the upcoming budget will offer the much-needed push for the revival of consumer confidence, especially in the renewable energy sector. The Union Budget 2022-23 must focus on incentivising technology adoption in the renewable energy sector through tax concessions and credit guarantee. For the entire renewable industry to grow, structural incentives need to be built in the ecosystem to enable both the industry as well as consumers to adopt and utilise technology efficiently. Whether it is related to EV usage, investment in battery, lithium imports, lithium converter and lithium refinery set-up,  or green hy­drogen adoption, it is imperative that the high costs associated with these te­ch­nologies are socialised and given en­ou­gh government protection.

The government has set an ambitious target of increasing the installed renewable capacity to 430 GW by 2030 and at the same time increasing the GST on so­lar modules from 5 per cent to 12 per cent, which should certainly be reconsidered as huge investments have been pla­nned in this sector going forward. There is also a need to bring generation and sale of power under the pur­view of GST.

Another important step we hope is taken is utilisation of the GST compensation cess for making existing coal-based pla­n­ts environmentally compliant by in­s­ta­lling FGDs. Allocating money in grants will help avoid the increase in tariffs and will be a positive move by the government to mitigate pollution.

Further, if we look at strengthening the interstate transmission network, it will help restrict grid curtailment and en­sure power flow from renewable-rich states to other states with waivers on interstate and intra-state transmission charges.

Going forward, there will be a much an­ticipated shift in the energy sector, with a focus on ESG and renewables. Thus, the steps should complement that chan­ge. To start with, we expect the government to consider reducing customs duty on electrolysers required for green hy­d­ro­gen generation in order to make In­dia a global manufacturing hub.

N. Venu

Infrastructure development: Capital ex­penditure towards smart and clean in­fra­structure including railways, power transmission and power grid upgradation should be enhanced to create a mul­tiplier effect in investments and create new employment opportunities to uplift the economy.

Given India’s commitment at the COP26 summit, we can hope to see a massive push for public mobility infrastructure and renewable capacity addition in the 2022-23 budget. Although India is making remarkable progress in meeting its ambitious renewable energy target, the public e-mobility space leaves a lot of scope for charging infrastructure. As per an EV industry report, for India’s 2030 EV target the country needs to add 400,000 stations by 2026, that is, more than 200 charging stations a day.

Climate tech: To reach net zero emissions by 2070, much higher fiscal support for low-carbon innovation­ and new climate technologies such as smart charging in­frastructure and energy storage will be ne­eded. We look forward to incentives and tax benefits for technology play­e­rs who are enabling the development of sunrise sectors in India through new te­­chnologies – internet of things, mac­hi­ne learning and artificial intelligence, battery energy storage systems (BESS), and more – and building the local manufacturing eco­system and supply chain.

Transition financing: India’s aim is to become a manufacturing hub for EVs, data centres, solar PV and green hyd­ro­g­en. This vision is dependent on energy transition financing, which is vital to im­prove energy efficiency, enable digitalisation of power equipment and help climate technology reach scale locally. This will be equally important for the MSME sector, which consumes about 30 per cent of the energy delivered to formal industrial units.

The recent spike in raw material prices, increase in freight charges and disrupti­ons in the global supply chain can slow down the energy transition at a precarious time. The government can assist by promoting demand through ea­sier ac­­­c­ess to capital. Also, we expect to see the rationalisation of import du­ti­es es­pe­cia­lly in energy storage, green hy­drogen and carbon capture technologies to help bui­ld the local market. Taxes should also be revisited to ensure faster development of the clean energy ecosystem. Discom dues remain elevated des­pite the recent liquidity infusion. We can look for an appraisal of the expected re­forms and financial performance pa­ra­meters, especially for renewable IPPs that will contribute significantly to In­dia’s COP26 goals.

Boost to research and development (R&D): R&D in domains related to energy transition, especially power quality, smart grids, BESS, green hydrogen and carbon capture, are crucial. Companies investing in the same need to be supported by proactive policies.

Preparedness: We need corporates, governments and financial institutions to be well aligned on investment and re­search programmes. Only then can we bring new technologies to commercial and climate-stabilising scale as well as upscale existing industrial systems. All said, given the rough start to the year be­cause of Omicron, pandemic prepa­re­dness and collaboration with corporates to facilitate relief and curtailment measures will help India recoup from the third wave faster.

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