Union Budget to focus on energy transition for combating climate change


Overview: In a welcome move this year the Union Budget has focused on clean energy transition in view of the changing climatic scenario. Union Finance Minister Nirmala Sitharaman presented the Budget 2022-23 which will continue to provide the impetus to the power sector with energy transition and climate action taking centre stage. The projected GDP growth of 9.2 per cent is primarily driven by clean energy interventions across sectors. The roadmap for Amrit Kaal (100 years of independence) technically acknowledges that energy transition and action on climate are the key pillars. The budget very logically provides the required ecosystem for sectoral growth with multiple mainstream and allied sector interventions.

Among the significant developments are the allocation of Rs 19,500 crore PLI for manufacturing of high-efficiency modules, battery swapping policy with interoperable standards, 38 MMT of Co2 to reduce biomass fuel-based intervention in thermal generation, issuing Sovereign Green Bonds for green infrastructure growth, and 0.5 per cent capping for power sector reforms in state borrowings are some of the positive announcements that will enable sectoral growth. These will most certainly provide a push and pull effect in order to promote cutting-edge cleaner technologies.

Another encouraging factor is that the clean energy agenda is not only complemented by sectoral interventions but also by a balanced and strategic set of initiatives across sectors such as 2,00,000 Saksham Aganwadis powered by clean energy, 400 energy-efficient Vande Bharat Trains, provisioning for decentralised renewable energy under vibrant village programmes, special mobility zones to promote EVs, a paradigm shift in policy to promote public mobility and transport systems implemented with cleantech and zero fossil fuel policy, etc.

To achieve the government’s target for energy it requires intensive capital infusion. The government has a facilitator role to play in capital infusion and has appropriately addressed by classifying climate action as a sunrise sector eligible for blended finance with government share limited to 20 per cent, according infrastructure status to energy storage systems including grid scaling battery system to financially complementing the clean energy policy and projects.

In the current fiscal year, when India has committed to net-zero goals, the power sector is witnessing major transformations like greater use of green hydrogen along with penetration of clean energy into buildings and industry segments. The Union Budget 2022-23 provides a consistent and balanced boost to promote the long-term growth and sustainability of energy goals.

Moreover, the current Union Budget also promises to take the issues of sustainability and climate change seriously. Moreover, its emphasis on these issues is promising and forward looking. For instance, it promises a lower carbon development strategy, tied to job creation, and perceives the climate change agenda as an opportunity.
The Union Finance Minister, in her Budget speech, uses the term ‘energy transition’ explicitly, and suggests that we ‘re-imagine’ our cities as centres of sustainable living. Additionally, green energy and clean mobility have been labelled as ‘sunrise opportunities’. The language of the speech, which is consistent throughout rather than, as in the past, being shoehorned into a section on sustainability or climate change, commits to an approach that takes the objective of thoroughly mainstreaming and integrating sustainability into India’s economy and social fabric in the days to come.

As I’ve mentioned earlier, the Union Budget underscores the energy transition by making it a part of the Amrit Kaal vision and an instrument for Atmanirbhar Bharat, simultaneously endorsing the Prime Minister’s Panchamrit narrative. Unfortunately, the fund allocation, thrust and incentives are not exactly consistent with this narrative.

Additional allocation of Rs 19,500 crore for Production Linked Incentive (PLI) for manufacturing high-efficiency modules, with focus on fully integrated production units from poly silicon to solar PV modules, is an important step. I must say that the Union Finance Minister rightly points out the significance of bringing together renewable energy promotion with job creation through domestic manufacturing, which has received insufficient importance in the past.

PLIs have worked to boost production. However, sustaining indigenous manufacturing will also depend on technology, intellectual property and availability of critical minerals and rare earths. Incentives for innovation through budgetary allocations for research and development would have been a significant complementary step.

Another very important pillar of energy transition and its growing demand will grow in direct proportion to the renewable energy capacity expansion. Including energy storage systems (dense charging infrastructure and grid-scale battery) in the harmonised list of infrastructure has been a welcome step that should facilitate access to credit availability for investment.

The nation’s energy transition goal will be incomplete without careful attention to the medium and long-term roles of coal utilisation in India’s energy sector. Despite the fact that India needs coal in the short-term plans, we also need to prepare for the future. Initiating a process of discussion on a long-term ‘transition’ among coal-dependent states that focused on alternative jobs and livelihoods, would have send an important signal. Moreover, despite the Union Finance Minister’s nudge in the earlier budgets for retirement and environmental compliance of old and polluting coal power plants, there has really been little action at the state level. Unfortunately, Union the budget missed an opportunity to create and enabling set of incentives for state level action.

However, budgetary allocation of Rs 7,566 crore for the Revamped Distribution Sector Scheme may fall well short for envisioned distribution network upgradation, which is critical for a transition to the 21st century energy. While against in the current backdrop, enabling energy transition requires far higher investment in the distribution grid, the current allocation remains at the same level with the past schemes. Thus, the burden of distribution network upgradation and smart metering risks being placed on the bankrupt discoms and cash-strapped states. The budgetary provision to allow the states a fiscal deficit of 0.5 per cent of GSDP, tied to power sector reforms, may help to meet part of the investment requirements, but this may aggravate the discoms’ debt crisis heavily in the short run.

Surprisingly, the current Union budget makes limited reference to green hydrogen, despite being frequently discussed in the build-up to the budget. This may be appropriate, as it is important to lay out a well-designed plan for a new technology push, such as green hydrogen, rather than issue impromptu pronouncements. The biggest take away from the Union Budget is the realisation that to lay the foundation for transformative clean tech innovation and in the coming years it would be helpful to initiative steps in this direction, leading to a substantive announcement in the future budgets.

Article by Arijit Nag
Arijit Nag is a freelance journalist who writes on various aspects of the economy and current affairs. Read more article of Arijit Nag