As a part of the Union Budget 2023-24, the finance minister has announced several key measures to strengthen the government’s focus on green growth. These include a focus on green hydrogen, investments in energy transition and net zero objectives, and the promotion of green mobility. The budget also highlighted the vision for “LiFE” – Lifestyle for Environment, which aims to spur a movement of environmentally conscious lifestyles. Further, the budget stated that India is firmly moving forward towards achieving panchamrit and net zero carbon emissions by 2070 to usher in a green industrial and economic transition. Meanwhile, the Economic Survey 2022-23 highlighted that India has already achieved the target of 40 per cent installed electric capacity from non-fossil fuels ahead of 2030. Various government initiatives have put India on track to fulfil its commitments of a 50 per cent share of renewables in overall installed capacity.
Power Line presents a round-up of the Economic Survey and the key budget announcements, and their impact on various segments of the power sector…
Under the Union Budget 2023-24, the Ministry of Power (MoP) has received an allocation of Rs 206.71 billion, an increase of 28.6 per cent over the previous year. Around 78 per cent of the total allocation has been earmarked for the central sector schemes (see Table). A total investment of Rs 608.05 billion has been proposed by its eight state-owned power companies for 2023-24 (as against Rs 514.7 billion budgeted in 2022-23). NTPC Limited has budgeted investments of Rs 224.54 billion, followed by NHPC Limited at Rs 108.57 billion, SJVN Limited at Rs 100 billion, Power Grid Corporation of India Limited at Rs 88 billion, the Damodar Valley Corporation at Rs 27.08 billion, North Eastern Electric Power Corporation at Rs 20.19 billion, and THDC India Limited at Rs 39 billion. The budgetary allocation for the Ministry of New and Renewable Energy has increased to Rs 102.22 billion in 2023-24, from Rs 69 billion in 2022-23. Further, the budgetary allocation for the Department of Atomic Energy has increased by 10.36 per cent to Rs 250.78 billion in 2023-24, while that for the Ministry of Coal has declined by 51 per cent to stand at Rs 1.92 billion. Nuclear Power Corporation of India Limited (NPCIL) has received an allocation of Rs 94.10 billion for 2023-24. Moreover, NPCIL will raise Rs 128.63 billion through internal and extra budgetary resources.
Key budget announcements
National Green Hydrogen Mission: The recently launched National Green Hydrogen Mission, with an outlay of Rs 197 billion, was emphasised as it is expected to facilitate the transition of the economy to low carbon intensity, reduce dependence on fossil fuel imports, and help India assume technology and market leadership in this sector. India aims to achieve an annual production of 5 million tonnes (mt) by 2030.
Investments in energy transition and net zero objectives: An allocation of Rs 350 billion has been proposed by the Ministry of Petroleum and Natural Gas for priority capital investments in energy transition, net zero objectives and energy security. Further, battery energy storage system (BESS) capacity of 4,000 MWh will be supported with viability gap funding (VGF) to steer the economy on to the sustainable development path. A detailed framework for pumped storage projects (PSPs) will also be formulated.
E-mobility: For 2023-24, an allocation of Rs 51.72 billion has been made for the FAME II incentive, which is approximately 80 per cent higher than last year. To further provide an impetus to green mobility, the budget proposes a reduction in basic customs duty on the import of capital goods required for lithium-ion battery manufacturing to nil until March 31, 2024. It has increased customs duties for semi-knocked down and completely built units including electric vehicles (EVs). In accordance with the scrappage policy, a vehicle replacement initiative for 0.09 million government vehicles has been provided with 50-year interest-free loan support to state governments.
Ladakh power link: An interstate transmission system for the evacuation and grid integration of 13 GW of renewable energy from Ladakh has been proposed with an investment of Rs 207 billion including central support of Rs 83 billion.
Green credit programme: A Green Credit Programme has been proposed for notification under the Environment (Protection) Act to encourage behavioural change by incentivising environmentally sustainable and responsive actions by companies, individuals and local bodies, and helping mobilise additional resources for such activities.
Economic Survey 2022-23 – Highlights for the power sector
The Economic Survey 2022-23 was presented on January 31, 2023, preceding the Union Budget, and provided an overview of the power sector.
Installed capacity: The total installed power capacity of utilities and captive power plants (industries with demand of 1 MW and above) was 482.2 GW on March 31, 2022, recording an increase of 4.7 per cent over the previous year. Thermal sources of energy accounted for the largest share (59.1 per cent) of total installed capacity in utilities, followed by renewable energy resources at 27.5 per cent and hydro at 11.7 per cent.
Growth in the renewables segment: India has already achieved the target of having 40 per cent installed electric capacity from non-fossil fuels ahead of 2030. It has now set a more ambitious target of 50 per cent, which will result in a significant reduction in the average emission rate. The National Green Hydrogen Mission has been launched with the aim of making India energy-independent by 2047.
In order to reduce the carbon footprint of the agricultural sector, the Pradhan Mantri Kisan Urja Suraksha evam Utthan Mahabhiyan aims to provide energy and water security, de-dieselise the farm sector and generate additional income for farmers through solar power production. The government has introduced the Solar Park Scheme to facilitate necessary infrastructure like land, power evacuation facilities, road connectivity and water facility, along with all statutory clearances. As of September 30, 2022, the government has sanctioned the entire target capacity of 40 GW for the development of 59 solar parks in 16 states.
Indian Railways, a major user of electricity in the country, has announced its commitment to achieving net zero carbon emissions by 2030, and has shifted its focus towards using more renewable sources of energy. As of November 2022, Indian Railways has commissioned plants generating about 143 MW of solar power (both on rooftops and on land) and about 103 MW of wind power.
According to the Economic Survey, India is increasingly becoming an attractive destination for investment in renewables. As per the Renewables 2022 Global Status Report, during the period 2014-21, total investment in renewables stood at $78.1 billion in India.
Coal availability: At the beginning of the fiscal year, coal availability became a challenge for India’s thermal-based power generation plants, triggered by a resurgence in economic activity and intense heat waves from early March to mid-May 2022. In addition, in the wake of rising international coal prices, the power sector curtailed coal import significantly, and domestic coal production struggled to meet demand. The Government of India took several steps in April and May 2022 to address the coal supply constraints. The coal production for 2022-23 is estimated to increase to 911 mt, a 17 per cent increase from the previous year.
The government has initiated various measures to achieve self-reliance in coal production, including private participation in coal production, foreign direct investment under the automatic route, auction of coal blocks for commercial production, expansion of existing mines and opening of new mines, greater use of mass production technology in mining, mechanisation of loading and development of evacuation infrastructure. The coal industry is expected to grow at 6-7 per cent annually to reach a production level of 1 billion tonnes (bt) by 2025-26 and 1.5 bt by 2030. The enhanced domestic coal production is expected to meet domestic coal demand, reduce substitutable imports, and increase exports.
In the power sector, the proposed projects are expected to help ease transportation constraints (rail, road, port) to ensure improved coal inventory. Further, continued fiscal support to states will help them undertake power distribution reforms. The reforms will help distribution companies upgrade their network and metering, leading to a reduction in aggregate technical and commercial losses.
In the renewable energy segment, the proposals are expected to incentivise the development of utility-scale storage projects as the VGF will improve its cost competitiveness. Further, focus on PSPs will ensure smoother integration of renewables in the grid. The proposed green energy evacuation infrastructure will ensure the grid integration of 13 GW of renewable energy and increase renewable energy share in the overall mix.
In the EV segment, the proposals will help lower capital costs for setting up EV manufacturing facilities in India, thereby making EVs produced in India more cost competitive. It will bring down the cost of manufacturing Li-ion batteries in India, which is expected to moderately boost demand for new vehicles.
Overall, the budget proposals are expected to further advance the green growth trajectory, with plans for green hydrogen, BESS and PSPs, renewable energy evacuation infrastructure and green mobility. The plans will not only promote energy security, but also help India meet its climate change commitments.