Budget 2023: Does it move the needle enough for the green energy sector?

Budget 2023 came with proposals for whopping investments towards ‘Green Growth’ which was recognised as one of the Saptarishis (seven priorities) to lead India into Amrit Kaal (auspicious period for new opportunities). The government’s initiatives towards a net zero energy transition are a hearty welcome specially for the renewable sector. The sector has the much-needed push in terms of the government’s objectives pointing towards overall development of a green ecosystem.

The government’s objective of ‘Make in India’ is evident even for the coming fiscal. Budget 2023 announces an outlay of Rs 19,700 crore for the recently approved Green Hydrogen Mission which targets domestic manufacturing of electrolysers. With Rs 297 crore earmarked for 2023-24, the anticipated extension of the Production Linked Incentive (PLI) scheme for manufacturing of electrolysers was absent from the Budget 2023 speech. The industry demand for reduction in import duty on electrolytes also remains unaddressed.

One of the key focus areas of the Green Hydrogen Mission is to gradually replace the usage of fossil fuels by industries like steel manufacturing, transport, shipping etc. However, the immediate focus seems to be for India to become one of the largest exporters of Green Hydrogen in the global space. It is only in the forthcoming months that this variance between domestic consumption and exports will clear up. The question that runs apace is also as to when will India be ready for a Green Hydrogen Purchase Obligation.

Another divergent stance has been towards promotion of ‘Electric Vehicle’ (EV) manufacturing while maintaining the position on import of solar modules and cells. Budget 2023 has extended customs duty exemption towards machinery used for lithium-ion cells batteries however the Basic Customs Duty (BCD) was not relaxed for solar modules and cells – kept intact in line with last year’s Budget announcements. At present the Solar industry is facing a huge demand supply gap where adequate domestically manufactured modules and cells are yet to be operationalised.
In 2019, Ministry of New and Renewable Energy (MNRE) notified ‘Approved List of Models and Manufacturers’ (ALMM) which is a list of eligible manufacturers of Indian solar cells and modules complying with the Bureau of Indian Standards (BIS) certification. Though it was seen as a welcome step, it has led to high costs of manufacturing resulting in overall project cost driving up the tariff. Budget 2023 turns a deaf ear to industry’s sincere expectation for some relaxation on BCD to balance out the difficulties faced by Solar developers. There is also no barrier on exports by ALMM which leave Solar developers stranded without adequate supply of domestic modules and cells at competitive rates.

Adding to the cost of Solar Projects is also the borrowing cost which at present is 8-12% for large projects depending on various factors including credit worthiness. The borrowing cost takes a steep rise in case of rooftop Solar projects i.e. @14-15%. Any future policy initiative to reduce the borrowing cost and turn around time by the lenders would also be a much needed measure towards a green ecosystem.

Last, the initiative towards Round the Clock (RTC) renewable energy is visible through impetus given to Battery Energy Storage Systems (BESS). However in order to truly tailwind the objective of carbon neutrality, the government ought to initiate measures to curtail emissions from battery dumping post usage.

Sengupta is Partner and Bhatnagar is Associate at J Sagar Associates.

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