Insights
Why budget 2022 was a watershed for India’s renewable energy sector
February 22, 2022The Union Budget 2022-23 was tabled by the Finance Minister on 1 February 2022 with certain key goals which included energy transition & climate action and financing of investments. It was expected that the Budget would be the foundation for India’s ambitious energy transition commitments made at the 26th Conference of Parties (COP) held in November 2021. The key stakeholders of the industry also looked forward to clarifications with respect to proposed increase in imposition of customs duty on solar modules and cells. Further, an increase in the budgetary outlay for the Production Linked Incentive Scheme – ‘National Programme on High Efficiency Solar PV Modules’ (PLI Scheme) was awaited by the domestic module manufacturers.
The Budget appears to have delivered on some of these aspects. It has clarified that the proposed customs duty of 40% on solar modules and 25% on solar cells would be levied from 1 April 2022 onwards. Such basic customs duty will considerably reduce or eliminate the existing price gap between domestic and imported solar modules and cells. The Budget also approved an additional allocation of Rs 19,500 crore for the PLI Scheme with the vision of developing integrated manufacturing units equipped in producing raw materials such as polysilicon as well as the end product i.e., the solar PV modules. Accordingly, adding the Rs 4,500 Crore approved initially under the PLI Scheme, the Central Government will be providing incentives worth Rs 24,000 crores over a period of 5 years to the successful bidders undertaking such manufacturing units, post commissioning of their respective facilities. Through these initiatives, the Central Government has backed the domestic solar equipment manufacturing industry and accordingly move towards making the green energy sector self-sufficient in the country.
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As per the data available on the Ministry of New and Renewable Energy website, India has a solar PV cells’ manufacturing capacity of 3 GW per year and solar PV modules’ manufacturing capacity of 10 GW per year. Further, India has no manufacturing units for polysilicon, wafer, ingots (raw materials/intermediary products) etc. Given that the PLI Scheme provides a preference to manufacturers who set up a fully integrated solar PV manufacturing plant, the approval of the additional allocation will help in developing such raw materials and intermediary products. Further, with this increased allocation under the PLI Scheme, about 45-50 GW of manufacturing capacity will be added.
Another crucial declaration was the issuance of sovereign Green Bonds by the Central Government to raise funds which will be utilised in public sector projects that promote decarbonisation of the economy. These projects include renewable energy projects, clean transportation, climate resilient infrastructure projects or green business activities etc. Green Bond is a fixed-income financial instrument for raising capital from investors through the debt capital market. In India, several corporates such as Yes Bank, PNB Housing Finance etc. have previously issued green bonds. However, it is important to ensure that transparency is maintained in utilisation of the funds raised. SEBI had earlier in May 2017 issued a circular stating the disclosure requirements for issuance/listing of green securities. Therefore, regulatory certainty is crucial to attract the large pool of global investors willing to integrate their investment in environmental, social, and governance initiatives to participate in such sovereign Green Bonds.
On another important aspect relating to green energy, the biggest challenges for the electric vehicle industry to gain a foothold in the nation is the lack of adequate charging infrastructure and the long charging time associated with the electric vehicle models. The Central Government has sought to address this issue by promoting establishment of battery swapping stations in the country. The NITI Aayog is currently working on a policy which will set the standards for interoperable batteries and connector dimensions, that will allow a seamless battery swapping framework for electric vehicle users in the country. The policy will also encourage companies and start-ups to enter and infuse investment in this segment of the electric vehicle business.
Apart from the above, the Central Government has announced the following policies for promoting green energy: (i) decentralised renewable energy projects under the Vibrant Village scheme; (ii) deployment of biomass pellets in thermal stations; (iii) establishment of charging infrastructure for electric vehicles on a large scale etc. which will strengthen the overall green landscape in the country
This article was originally published in The Economic Times on 22 February 2022 Co-written by: Shashwat Kumar, Partner; Amitanshu Saxena, Associate. Click here for original article
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Contributed by: Shashwat Kumar, Partner; Amitanshu Saxena, Associate
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This is intended for general information purposes only. The views and opinions expressed in this article are those of the author/authors and does not necessarily reflect the views of the firm.
