National Council of Applied Economic Research
Opinion: Souryabrata Mohapatra.
The long road ahead to meaningful energy transition.
From bringing the power sector under GST with low rates to government support for MSMEs in the renewable energy space, a lot remains to be done
The impact of climate change is unmistakable, as seen in the rising number of heat-related illnesses and deaths in India and other regions across Asia, Europe, and North America, as also the intense rainfall in parts of the country this monsoon over short periods leading to flash floods and landslides.
Green development is not just a necessity but an opportunity for India to lead in the global fight against climate change. By 2030, India has pledged to install 500 GW of renewable energy capacity, produce 50 lakh tonnes of green hydrogen annually, achieve 30% EV sales, and cut CO2 emissions by 1 billion tonnes through enhanced energy efficiency. This year when the finance minister presented the budget, the government faced a critical question: What bold actions to take to meet these ambitious goals?
The government made significantly larger allocations to the ministry of new and renewable energy in the budget for this fiscal, compared to the revised estimates for 2023-24 — ₹19,100 crore versus ₹7,848 crore, respectively. Solar power grid saw a 79% rise in allocation, while the overall solar energy space saw this jump to ₹16,394.75 crore from ₹6,041.56 crore. The focus on energy transition was clear from major budgetary allocations in the clean energy space, as well as policy steps such as expansion of the list of exempted capital goods for the manufacture of solar cells and panels in the country as well as discontinuation of the customs-duty exemption on solar glass and tinned copper interconnects.
Despite the positive developments, there remain critical gaps that need to be addressed. As of now, India’s installed renewable energy capacity stands at approximately 150 GW, well short of the 2022 target of 175 GW. This shortfall indicates a significant lag that must be overcome to meet the 2030 goals.
The government had recently announced ₹7,453 crore in viability gap funding for two large-scale offshore wind projects totalling 1 GW. However, to foster a comprehensive green transition, more extensive support is necessary, especially for MSMEs. Estimates suggest that achieving the 500 GW target will require over ₹30 lakh crore in investment over the next decade. Is the government prepared to mobilise such massive resources?
India’s renewable energy sector has shown positive growth but remains behind the 2030 targets. Successful deployment and integration of renewable energy require a secure supply chain, smart grid infrastructure expansion, flexible generation sources, and innovative market mechanisms. Therefore, the renewable energy ecosystem needs further support, tax breaks, relief in import duties and tariff barriers, or tax credits to expedite development and attract essential investments.
To achieve energy independence and spearhead green development, India must boost R&D investment across all renewable sectors. The need is to incentivise R&D by offering tax rebates to local solar photovoltaic system manufacturers and encouraging significant investments from companies with smaller production capacities. Production-linked incentive schemes have been instrumental in boosting domestic manufacturing of solar modules, battery energy storage systems, EVs, green hydrogen, and electrolyzer manufacturing. These schemes should be delinked and disbursed separately for stage-wise production output and include support for ancillary components and the recycling of secondary materials.
Tax rationalisation is another essential measure. The power sector should be brought under the GST ambit, with a reduced GST rate for wind projects and energy storage infrastructure to promote EV and BESS adoption. Additionally, a five-year custom duty exemption for essential components of BESS and reduced GST for hydropower project components are necessary steps to lower costs and stimulate growth. The current GST rates of 18-28% on these components are excessively high and impede the sector’s growth
To enhance investment, the government must also raise sovereign-linked funds and increase equity infusion in organizations like the Indian Renewable Energy Development Agency. For the PM Suryoday scheme to succeed in expanding rooftop solar panels to 100 lakh homes, a robust credit enhancement scheme for MSME installers is vital. Special incentives for banks and non-banking financial companies offering rooftop solar-focused financing products are needed along with innovative financing structures such as infrastructure investment trusts or aggregated bonds. Moreover, the government must address the policy and regulatory hurdles that have slowed down the transition. Delays in land acquisition, grid. connectivity issues, and the lack of long-term financing options are significant barriers. The support announced is without doubt vital, but the road ahead will be far from smooth if the government doesn’t do a lot more of the heavy-lifting.
Souryabrata Mohapatra is a faculty member at NCAER in New Delhi. The views expressed are personal.