Union Budget 2025-26 introduces a number of reforms and initiatives aimed at bolstering key segments in the power sector such as nuclear power, solar power and clean technology manufacturing. It also focuses on power sector reforms, linking state borrowing to the gross state domestic product (GSDP), which will incentivise improvements in electricity distribution and intra-state transmission. The government also continues the effort to promote value addition by reducing or exempting basic customs duty (BCD) on components, parts and capital goods.
Power Line takes a closer look at key budget announcements for the power and renewables sector…
Economic Survey 2024-25 highlights
The Economic Survey 2024-25, which was presented prior to the budget, took stock of the progress in the power sector during the past year. It highlights that non-fossil capacity’s share has grown from 38.6 per cent in financial year (FY) 2021 to 47.1 per cent in FY2025 (as of December 2024), while fossil-based capacity has declined from 61.4 per cent to 52.9 per cent.
The Economic Survey also underscores the government’s efforts to boost renewable energy in the country and green investments through schemes, policies, financial incentives and regulatory measures such as the PM-Surya Ghar: Muft Bijli Yojana, the National Bioenergy Programme, the National Green Hydrogen Mission and the Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyaan. The capacity addition in solar and wind power led to a 15.8 per cent year-on-year increase in renewable energy capacity by December 2024. The offshore wind segment has also received a fillip with a viability gap funding scheme, allocating Rs 74.53 billion for 1,000 MW of wind projects off the Gujarat and Tamil Nadu coasts.
According to the Economic Survey 2024-25, the government has invested Rs 1,850 billion in power distribution improvements through schemes such as the Deendayal Upadhyaya Gram Jyoti Yojana (introduced in 2014), the Integrated Power Development Scheme (2014) and the Pradhan Mantri Sahaj Bijli Har Ghar Yojana (2017). The Revamped Distribution Sector Scheme (RDSS) was launched in July 2021 with a total outlay of Rs 3 trillion, including Rs 976.31 billion as budgetary support. As per the Economic Survey, projects worth Rs 2,800 billion have been approved for distribution upgrades and smart metering.
With the implementation of the RDSS, the Economic Survey notes, the daily average power supply has improved from 22.1 hours in FY2014 to 23.4 hours in FY2024 in urban areas and from 12.5 hours to 21.9 hours in rural areas during the same period. The gap between energy demand and supply has also declined from 4.2 per cent in FY2014 to a mere 0.1 per cent by December 2024.
The survey also highlighted that the transmission segment added 7,844 circuit km (ckt km) of transmission lines in FY2024 (April-November), and 5,117 ckt km in FY2025 (April-November). Transmission line construction faced delays due to heavy monsoon conditions. Meanwhile, transformation capacity addition grew from 32,961 MVA in FY2024 (April-November) to 38,805 MVA in FY2025 (April-November).
Green energy corridors (GECs) continue to strengthen renewable integration, with GEC-I installing 9,136 ckt km of transmission lines and 21,413 MVA of substation capacity, while GEC-II is progressing to seven additional states.
Furthermore, the Scheme for the Development of Solar Parks and Ultra-mega Solar Power Projects sets a target of establishing 40,000 MW of capacity. As of December 31, 2024, 55 solar parks with a cumulative capacity of 39.9 GW have been sanctioned across 13 states. Notably, solar projects with a capacity of 12.2 GW have already been commissioned.
Budget 2025-26 announcements for power and renewables sectors
The budgetary allocations for the Ministry of New and Renewable Energy have seen a significant increase, rising from Rs 102.22 billion in 2023-24 to Rs 265.4 9 billion in 2025-26, reflecting the government’s commitment to accelerating renewable energy deployment. For the Ministry of Power, the budget allocation has been raised to Rs 218.47 billion, from the Rs 205.02 billion allocated in 2024-25.
A major highlight for the power sector is the Nuclear Energy Mission, which aims to augment research and development in small modular reactors (SMRs). A sum of Rs 200 billion has been allocated for this initiative. This mission plans to achieve 100 GW of nuclear capacity by 2047 and operationalise at least five indigenous SMRs by 2033. To facilitate the implementation of the Nuclear Energy Mission, amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act will be taken up by Parliament. As of January 2025, India’s nuclear capacity is 8,180 MW.
The RDSS received an allocation of Rs 160.21 billion in this year’s budget. Providing a major impetus to power distribution, in her budget speech, the finance minister also noted that they are planning to incentivise electricity distribution reforms. An additional borrowing space of up to 0.5 per cent of the GSDP is available to states, depending on the implementation of specific reforms by the states.
Clean energy continued to remain a major thrust area. The Pradhan Mantri Surya Ghar Muft Bijli Yojana, launched in February 2024 to boost India’s solar rooftop sector, aims to solarise 10 million households by providing free electricity of up to 300 units per month. The scheme has been allocated Rs 200 billion in this year’s budget, marking an 80 per cent increase from the previous budget allocation. This is in line with the target to achieve 30 GW of residential rooftop solar capacity by 2027.
Meanwhile, the PPM KUSUM Scheme, launched in 2019 to ensure energy security for farmers in India, has been allocated Rs 26 billion in the budget, marking a 3 per cent increase from the previous budget allocation. This is projected to result in a higher demand for solar components and solarised pumps and an increase in the outlay for feeder solarisation projects. Further, allocations for solar power (grid) have been pegged at Rs 15 billion in this year’s budget.
The green energy corridor (GEC), focusing on transmission infrastructure, has also received a significant allocation of Rs 6 billion. These funds will be utilised for the expansion of intra-state transmission infrastructure, with a cumulative capacity addition of 6,000 ckt km under the GEC project.
The National Green Hydrogen Mission Plan received an allocation of Rs 6 billion for 2025-26. The mission has a target to produce 5 million metric tonnes of green hydrogen annually by 2030.
Another highlight in this year’s budget is the setting up of the National Manufacturing Mission covering small, medium and large industries to bolster the Make in India initiative, providing policy support, execution road maps, and a governance and monitoring framework for central ministries and states. The mission will also support cleantech-related manufacturing. The aim is to improve domestic value addition and build an ecosystem for solar PV cells, electric vehicle (EV) batteries, motors and controllers, electrolysers, wind turbines, very high voltage transmission equipment and grid-scale batteries to support clean technology manufacturing.
The budget has also introduced revisions to customs duties for solar cells and modules. The BCD on solar cells has been revised to 20 per cent from 25 per cent, and on solar modules to 20 per cent from 40 per cent, effective from February 2, 2025.
Another key highlight of the budget is the complete exemption of BCD on over 25 critical minerals that are not available domestically. This includes exemptions for cobalt powder, lithium-ion battery scrap, lead and zinc, besides a policy to recover critical minerals from mining tailings. Also, the budget has shown commitment to lithium-ion battery manufacturing by adding 35 capital goods for EV battery production to the exempted list. The elimination of BCD on critical materials and capital goods required for EV manufacturing demonstrates the government’s strong commitment to accelerate EV adoption.
Furthermore, customs duty on smart meters has been reduced to 20 per cent from 25 per cent.
In terms of allocations to major public sector enterprises, NTPC Limited received an allocation of Rs 260 billion, Power Grid Corporation of India Limited Rs 250 billion, NHPC Limited Rs 130 billion, SJVN Limited Rs 120 billion, THDC Limited Rs 35.43 billion, the Damodar Valley Corporation Rs 33.95 billion and Power System Operation Corporation Limited Rs 3 billion.
Outlook
The government has pushed the pedal on the capital expenditure (capex) next fiscal and committed to maintaining infrastructure spending at 3.4 per cent of the gross domestic product. The effective capex is projected to rise to
Rs 15,480 billion from Rs 13,180 billion for FY2024-25. The total capex is set to increase to Rs 11.21 trillion in FY2025-26, approximately a 10.08 per cent rise over the revised estimate of Rs 10.18 trillion for FY2024-25.
Another proposed reform is the setting up of a high-level committee for regulatory reforms to review outdated regulations, improving ease of doing business and reducing unnecessary compliance burdens.
Overall, the budget for 2025-26 has been welcomed by the industry as it reflects a strong policy push towards clean energy and nuclear power expansion, domestic manufacturing and modernising the grid. Initiatives such as the 100 GW Nuclear Energy Mission and incentives for clean technology manufacturing will help build a policy impetus and foster private investment. The success of these allocations depends on streamlined implementation and stronger mechanisms to fast-track the proposed initiatives to ensure that funds are utilised properly.
