Reading India for a Renewable Future
Shishir Priyadarshi and Kalyani Shukla
The Union Budget 2024-25 marked significant strides in bolstering India’s power sector, with noteworthy allocations for both the Ministry of Power (MoP) and the Ministry of New and Renewable Energy (MNRE). The MoP was allocated ₹20,502 crore, reflecting a 16% increase over the previous year’s revised estimates. A major portion, 61%, was earmarked for the Revamped Distribution Sector Scheme (RDSS), emphasizing improved financial and operational efficiency in distribution companies, with a focus on prepaid smart meter installations. Meanwhile, the MNRE’s allocation soared by 143% to ₹19,100 crore, driven primarily by the recently approved PM Surya Ghar Muft Bijli Yojana, which is aimed to provide financial assistance for rooftop solar installations. Investments in grid-connected solar power projects were set to grow by 79%, underscoring India’s commitment to renewable energy. However, with capital expenditure accounting for only 5% of the MoP budget and a negligible 0.1% of the MNRE allocation, the budget highlights the need for enhanced focus on infrastructure development. These allocations present a critical opportunity to reassess priorities for the 2025 budget to ensure robust, sustainable growth in India’s power sector.
Owing to government initiatives, public awareness and international dialogue, India is actively aiming at diversifying its energy sources. As of the first quarter of 2024, fossil fuels, predominantly coal and oil & gas, contribute 56.8% (237 GW) of the total installed capacity, maintaining a significant share in the energy market. However, renewable energy sources, including solar, wind, hydro, waste-to-energy, and biomass, have surged to 41.4% (172.54 GW) of the installed capacity, highlighting substantial progress. This growth aligns with India’s ambitious targets for 2030, which include achieving 500 GW of installed capacity from non-fossil sources and ensuring 50% of total power capacity comes from non-fossil fuels. These goals, built on India’s Paris Agreement commitments to reduce emission intensity by 45% below 2005 levels by 2030. Notably, renewable energy capacity has grown by 128% since 2014, positioning India as the 4th largest globally in installed renewable capacity. With sustained government support, investment, and policy innovation, India is steadily advancing toward its net-zero carbon emissions goal by 2070, marking notable progress in reshaping its energy landscape.
Over the past year, the country has witnessed transformative changes in its energy sector, signalling a decisive shift toward clean and sustainable energy. Significant advancements have been made in green hydrogen, energy storage, and offshore wind projects, all of which are set to influence future policies. Under the National Green Hydrogen Mission, new guidelines have been introduced to incentivize domestic electrolyser manufacturing, lower hydrogen production costs, and enhance hydrogen production, with emission standards set at 2 kg CO2 equivalent per kg of hydrogen. Pilot projects in the steel and shipping sectors and a ₹7,453 crore allocation for a viability gap funding (VGF) scheme for 1,000 MW offshore wind projects in Gujarat and Tamil Nadu reflect the growing momentum in green hydrogen development, though mandates for demand creation are still
pending. In energy storage, initiatives such as guidelines for pumped storage projects (PSPs) and a VGF framework covering up to 40% of capital costs for 4,000 MWh of battery energy storage systems (BESS) aim to ensure grid stability and round-the-clock renewable energy availability. Offshore wind energy has also gained traction, with the introduction of the Offshore Wind Energy Lease Rules in December 2023 and tenders for major projects, including 4 GW in Tamil Nadu and a 500 MW inter-state transmission-connected project in Gujarat. With a target of 30 GW of offshore wind capacity by 2030, supported by a total outlay of ₹6,853 crore for VGF, and a comprehensive strategy featuring three development models, this sector is poised to play a critical role in India’s renewable energy transition. These developments highlight a commitment to achieving its clean energy goals while addressing challenges of scalability and integration.
To support these transitions and initiatives, policy and regulatory changes have also been devised in light of present and near-future promises. Waivers of inter-state transmission system (ISTS) charges have been introduced for renewable energy (RE) projects, including a 25-year waiver for RE generating stations (REGS), hybrid stations, and green hydrogen or ammonia plants commissioned by December 31, 2030, as well as a 12-year waiver for battery energy storage systems (BESS). The Approved Models and Manufacturers of Solar Photovoltaic Modules (ALMM) Order has been expanded to include solar cells by April 2026, promoting domestic solar manufacturing while granting exemptions for specific projects, such as SEZ/EOU-based RE projects supplying green hydrogen plants. Additionally, the Production Linked Incentive (PLI) Scheme has been bolstered, with ₹24,000 crore allocated for solar modules and ₹4,440 crore earmarked for electrolyser manufacturing under the SIGHT Programme. On the regulatory front, amendments to the Electricity Rules, 2005, redefined captive power consumption and ownership, while transmission and open access reforms simplified the licensing process and standardized charge calculations. The Green Energy Open Access Rules, 2022, lowered the eligibility threshold for consumers to 100 kW, encouraging greater adoption, with states like Karnataka, Maharashtra, and Punjab aligning their regulations. Other measures, such as the National Single Window System (NSWS) for streamlined project approvals and incentives for RE and green hydrogen projects at the state level, further underscore the government’s commitment to fostering a sustainable energy ecosystem. Despite these considerable strides in terms of initiatives and policy interventions, several shortcomings and challenges persist. The transition to clean energy remains hindered by an overreliance on fossil fuels, while renewable energy (RE) capacity addition has fallen short of targets. As of June 2024, solar and wind capacities stood at 85 GW and 47 GW, respectively, missing the 2022 targets of 100 GW and 60 GW, due to land acquisition issues, clearance delays, contractual disputes, and COVID-19-induced disruptions. Financing challenges exacerbate these issues, with a ₹1.5–2 lakh crore annual investment requirement for RE, against actual investments of ₹75,000 crore. The rooftop solar program also lags, achieving only 10.4 GW of its 40 GW target by 2023, plagued by grassroots-level information gaps, procedural delays, and subsidy issues. Similarly, the PM-KUSUM scheme has struggled to solarize agricultural pumps and add 10 GW of small solar plants, citing lack
of affordable finance and state subsidies. Storage capacity development, critical for integrating intermittent solar and wind power, is progressing slowly, with affordability and technology being key barriers despite policy initiatives like viability gap funding and PLI schemes. Furthermore, the PLF of coal-based plants has declined from 84% in 2009–10 to 57% in 2022–23, reflecting surplus capacity, low demand, and renewable energy penetration. Transmission infrastructure also lags, with only 81% of the targeted 1,10,281 ckm of transmission lines added between 2017–22, owing to right-of-way issues, land acquisition delays, and contractual disputes. These gaps highlight the need for more robust policy frameworks, financial mechanisms, and streamlined implementation to achieve the energy transition goals effectively.
To address these challenges and stay on track with our climate commitments, the upcoming budget should prioritize targeted interventions and innovative financial mechanisms. Fundamentally, increased allocation for renewable energy infrastructure, including subsidies for solar and wind projects, is critical to overcoming the central obstacles to efficient energy ecosystems, such as land acquisition deadlocks, clearance delays, and financing gaps. Expanding green financing options, such as green bonds and Renewable Finance Obligations for banks, can mobilize the ₹1.5–2 lakh crore annual investment needed for renewable energy. Strengthening state-level coordination under national initiatives like PM-KUSUM and PM Surya Ghar Muft Bijli Yojana with simplified procedures, timely subsidy disbursals, and awareness campaigns at the grassroots level will help boost adoption. Additionally, a focus on scaling domestic manufacturing of solar panels, advanced batteries and energy storage systems under the PLI scheme, along with addressing raw material dependency via global partnerships, can reduce reliance on imports while incentivizing innovation in advanced technologies.
Affordable energy storage is a critical issue, so the PLI scheme should be supplemented by new funds for a range of promising solutions, such as battery and pump storage systems, as well as VGF for large-scale storage projects. To address the declining PLF of coal plants, policies promoting flexible operations and gradual phasing out of surplus capacities can enhance efficiency. Furthermore, investments in the Green Energy Corridor and accelerated transmission infrastructure development, backed by streamlined approval processes and right-of-way solutions, will ensure better transmission of renewable energy. Subsequently, revising regulatory frameworks to address barriers in open access, ensure fair pricing, and improve grid transparency will encourage competition and provide consumers with more power procurement choices. These measures, combined with a cohesive long-term vision, can drive India’s clean energy transition and strengthen its power sector.
