Distributive policy

With a policy strongly focused on renewable energies, measures remain positive to support investments

Union budget 2022-23: Sovereign green bonds for public sector projects remain positive for core public sector companies

Rooftop solar system installed in a private institution. image creditAjinkya Machale

The policy of the Government of India (GoI) focused on renewable energy (RE) investments and reducing the carbon footprint in the country remains strong. At the policy level, the Indian government recently announced a path to net zero carbon emissions by 2070 and stepped up its plan to further increase non-fossil fuel based capacity to 500 GW (from the previously announced level of 450 GW) by 2030 from 150 GW currently, to meet 50% of energy needs from renewable sources by 2030. Budget 2022 measures are therefore aligned with policy guidance and remain positive to support investment needs in renewable energies.

The measures announced in the budget to introduce sovereign green bonds for public sector projects remain positive for central public sector enterprises (CPSUs). This will also allow them to meet their renewable energy investment financing needs in a competitive manner. The overall investment potential to achieve the policy target of 500 GW of capacity by 2030 has been estimated at Rs 20-22 trillion. Additional investment of around Rs. 12-15 trillion may be required by 2030 to increase transmission network and storage capacity.

Focusing on domestic manufacturing of cells and modules under the Atmanirbhar initiative to reduce long-term import dependency, various policy measures have been announced over the past 18-24 months . These include the Production Linked Incentives (PLI) scheme, the CPSU scheme as well as duty protection through a Basic Customs Duty (BCD).

It is estimated that the increased PLI program spending of Rs 195 billion in the budget will support additional new investment in embedded module manufacturing facilities of around 40 GW in the medium term. Nevertheless, reliance on imported inputs is expected to continue for most domestic module manufacturers over the next two to three years. This, in turn, would contribute to increasing national capabilities for the manufacture of integrated modules. The timely implementation of such a measure, as well as the execution of manufacturing capabilities under the program by successful bidders under the PLI program, would also remain an auditable key.

The inclusion of energy storage systems in the infrastructure category is also a positive step, which should further encourage investment in storage systems by facilitating the availability of credit for them. This is important given that storage capacity is key to ensuring efficient integration of renewable energy generation into the grid, especially with an increasing share of renewables in the country’s energy mix, in the future.

The emphasis on clean technologies in transport and measures to support the adoption of electric vehicles (EVs) are also positive for the renewable energy sector. In addition, the extension of the production start-up deadline for the concessional tax regime at 15% to March 31, 2024, from March 31, 2023, is positive for new electricity production units. This would further support new investments in the renewable energy sector. In addition, the increased allocation of government capital expenditure in the budget is expected to boost the growth of energy demand in the country, which is estimated at around 6.0-6.5% for FY2023. .

On the other hand, the low financial profile of distribution utilities (discoms) continues to remain a major concern for the entire power sector value chain. Achieving a sustainable financial recovery of public discoms therefore remains essential to achieve the RE capacity targets announced by the government. This would require a proactive initiative by state discoms on improving operational efficiency and the ability to pass on cost changes through tariffs to consumers in a timely manner.

In this context, the provision of 0.5% budget deficit for the States (linked to the reforms of the electricity sector) should allow them to undertake reform measures to improve the financial situation of the public distribution services. In this context, the timely implementation of investment measures to strengthen the distribution network under the “reform-based and results-related” program by public discoms remains essential.

The author is Senior Vice President and Co-Group Head – Business Valuations, ICRA Limited. Views are personal.

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