Energy Sector Initiatives in Union Budget 2024-25 | Hiranmoy Roy and Anil Kumar

In the inaugural address of the Budget Session on 23rd July, Finance Minister Nirmala Sitharaman mentioned that people have given a unique opportunity to their government to take the country on the path of strong development and all-round prosperity. In the interim budget, the government promised to present a detailed roadmap during the full budget in July for the government’s pursuit of ‘Viksit Bharat’. In line with the strategy set out in the interim budget, she mentioned that this full budget envisages sustained efforts on the nine priorities out of which energy security is one of the important priorities for generating ample opportunities for all.

In the budget speech finance minister mentioned about minerals such as lithium, copper, cobalt and rare earth elements are critical for sectors like nuclear energy, renewable energy, space, defence, telecommunications, and high-tech electronics. She proposed to fully exempt customs duties on 25 critical minerals and reduce BCD on two of them. This will provide a major fillip to the processing and refining of such minerals and help secure their availability for these strategic and important sectors including the energy sector.

Solar energy transition is critical in the fight against climate change as mentioned by Sitharaman. This is also the top most priority of the present government to support energy transition. The finance minister proposed to expand the list of exempted capital goods for their use in the manufacture of solar cells and panels in the country. Further, in view of sufficient domestic manufacturing capacity of solar glass and tinned copper interconnect, she proposed not to extend the exemption of customs duties provided to them. These measures are expected to have huge ramifications in terms of reducing dependance of Indian power sector form Chinese imports. Indian power sector has been dependent on Chinese imports for a longer period of time.

In the interim budget, government had announced their strategy to sustain high and more resource-efficient economic growth, along with energy security in terms of availability, accessibility and affordability. Government gave a commitment to bring out a policy document on appropriate energy transition pathways that balances the imperatives of employment, growth and environmental sustainability. Clean energy is the most important catalyst to cleaner GDP which is the top most global agenda including India. Energy – GDP elasticity is the important energy indicator representing meaningful progress of country’s economy with environmental sustainability.

In line with the announcement in the interim budget, PM Surya Ghar Muft Bijli Yojana has been launched to install rooftop solar plants to enable one crore households obtain free electricity up to 300 units every month. The scheme has generated remarkable response with more than 1.28 crore registrations and 14 lakh applications, finance minister promised that they will further encourage it.

A policy for promoting pumped storage projects will be brought out for electricity storage and facilitating smooth integration of the growing share of renewable energy with its variable and intermittent nature in the overall energy mix. All these measures announced in the Union Budget are expected to gradually progress our energy sector towards the goal of sizable share of cleaner energy in our energy mix. These will also enable India to harness her solar energy potential to the maximum capacity with very low cost thereby widening the energy affordability to the masses. Moreover, nuclear energy is expected to form a very significant part of the energy mix for Viksit Bharat as per the announcements in the budget. Towards that pursuit, the government will partner with the private sector for setting up Bharat Small Reactors, research & development of Bharat Small Modular Reactor, and research & development of newer technologies for nuclear energy. The R&D funding announced in the interim budget will be made available for this sector. This is the one of the important announcements for huge allocation of R & D fund in the energy sector as energy sector is among one of the R&D prone sectors.

So far as thermal power sector is concerned, the development of indigenous technology for Advanced Ultra Super Critical (AUSC) thermal power plants with much higher efficiency has been completed. A joint venture between NTPC and BHEL will set up a full scale 800 MW commercial plant using AUSC technology. This is one of the latest technologies in thermal power sector. The government will provide the required fiscal support. Moving forward, development of indigenous capacity for the production of high-grade steel and other advanced metallurgy materials for these plants will result in strong spin-off benefits for the economy. Thus, improved efficiencies and focus can lead to higher value creation. Greater transparency and investors can directly invest in the entity that aligns with their preferences, leading to more market efficiency. In terms of tax benefit, generally, spin offs are structured to be tax-free for shareholders.

The most important roadmap for moving the ‘hard to abate’ industries from ‘energy efficiency’ targets to ‘emission targets’ will be formulated. Appropriate regulations for transition of these industries from the current ‘Perform, Achieve and Trade’ (PAT reform has been very successful in India in the recent past especially in the energy intensive sectors) the mode to ‘Indian Carbon Market’ mode will be put in place. These reforms are expected to bring out positive changes in the energy and environmental sustainability which is one of the prime agenda for the high growth countries like India.
The cleaner and environment friendly energy initiatives are also introduced for the first time for MSME sector. An investment-grade energy audit of traditional micro and small industries in sixty clusters, including brass and ceramic, will be facilitated. Financial support will be provided for shifting them to cleaner forms of energy and implementation of energy efficiency measures. The scheme will be replicated in another hundred clusters in the next phase as mentioned by Finance Minister.

Investment in energy projects by private sector will be promoted through viability gap funding (VGF) and enabling policies and regulations are among the major announcements in the budget. A market-based financing framework will be brought out soon.

Power sector distribution holds a significant prospect for the growth and stability of the sector. However, with the rising burden of demand on traditional energy sector, it’s a high time to shift the paradigm to alternate sources of renewable energy but sadly no such provisions were made in the budget announcements. Indeed, the emerging non-fossil fuel segment viz. solar, wind, electric vehicles, storage and hydro etc. also witnessed a negligence of fund allocation in the budget. Further, to our surprise, for the perspectives of green corridor, renewable energy, smart grid was also not allocated proper funds. For the purpose of manufacturing electrical equipment for solar plates and battery no major provision is being made. Without these provisions, energy transformation will not be possible. There are also no special announcements about nuclear energy.

(Authors: Hiranmoy Roy* and Anil Kumar** are from *Department of Economics, HNB Garhwal University **Scholl of Business, University of Petroleum and Energy Studies.)