In Short : Budget 2024 expectations emphasize that the power sector’s decarbonization hinges on renewables. Prioritizing investments in renewable energy infrastructure and technology is essential for reducing carbon emissions and achieving sustainable energy goals.
In Detail : Budget 2024 expectations: For India to achieve its net-zero goal, the power sector will have to play a pivotal role as it is a significant contributor to emissions. According to The Energy and Resources Institute (TERI) estimates, power generation accounted for ~45% of the country’s annual CO2 emissions, largely because coal-based generation continued to comprise 74% of overall power generation as of fiscal 2024.
That is the reason the government’s agenda has been driven by power decarbonisation and renewable energy integration for some time now.
As part of its UN Climate Change Conference in Glasgow (COP 26) Nationally Determined Contribution goals, India has committed to a five-pronged plan called Panchamrit, which includes a commitment to increase the share of power generation from clean fuels to 50% by 2030.
The main challenge is these Panchamrit goals need to be implemented against a backdrop of soaring power demand, which clocked a compound annual growth rate of 8.4% between fiscals 2021 and 2024. Instant surges in power requirement are also on the rise, as indicated by peak demand hitting an all-time high of 250 GW in fiscal 2025 (April – May) compared with ~184 GW in 2020.
As of fiscal 2024, solar and wind technologies (the main clean fuel sources in India) accounted for 11% of total generation. Add hydropower capacity and the share would rise to 19%.
Covering the gap between 19% renewable power generation and the 50% target is a tall order as efficiency levels of power generation through coal could be ~70%, while that of solar and wind are only 25-35% as on date.
To wit, solar and wind capacity will have to increase by 3x to match the power generation of a single coal plant, leading to high land and transmission requirements. Hydropower has its own set of challenges such as long gestation timelines, a large social and environmental impact and usage of shared water resources.
That said, the Indian government has propelled growth in the renewable energy sector through agile policy making and critical routine interventions. For instance, the Production Linked Incentive scheme aims to foster the battery ecosystem and production of high-efficiency modules.
The Viability Gap Funding scheme aims to support critical segments such as power storage and new areas such as offshore wind. The Revamped Distribution Sector Scheme, on its part, targets to improve the operational efficiency and financial sustainability of power distribution companies.
Further, regulators are constantly updating bidding guidelines to resolve sectoral issues and providing extensions to key projects to sustain the sector’s momentum.
Against this backdrop, CRISIL MI&A expects the power installed base to surge from ~442 GW as of fiscal 2024 to 715-720 GW by fiscal 2029. Solar, wind, storage and hydro will cumulatively account for ~60% of the total installed base, indicating a 2.7-fold increase in installed capacity compared with the combined base of 156 GW as of fiscal 2024 and a rise in the share renewables, including hydro and storage, to 35-40% of total generation by fiscal 2029.
Given escalating demand and the intermittent nature of power supply from clean energy sources such as solar and wind, regulators are planning to supplement renewable power generation with storage support. CRISIL expects 35-37 GW of storage support to be available by fiscal 2029 to maintain a stable power system, mainly through battery and pumped storage plant technologies.
Cumulatively, this implies an investment of Rs 10-10.5 trillion on renewables (solar and wind), out of a total investment of Rs 17-17.5 trillion in the generation segment over fiscal 2025-2029, as other fuels continue to witness moderate additions considering demand dynamics.
The clean energy push will impact not only generation but also transmission and distribution segments, as grid augmentation and grid stability support mechanisms have to be in place to ensure power systems are able to absorb such high levels of renewable capacity addition. These segments have to regularly upgrade and expand their capacity to cater to rising power needs. Consequently, investments of Rs 6.5-7 trillion are expected to be made on grid augmentation and grid stability support over fiscals 2025-2029.
In the milieu, the Budget can look at providing support to specific segments.
Within the clean energy spectrum, hydro is an important alternative being looked at, especially with multiple announcements on pumped storage projects. Government support is crucial to mitigate challenges in execution of hydro projects as it could pare high capital costs and pique the private sector’s interest.
On the power distribution front, implementation of the Revamped Distribution Sector Scheme could be enhanced by providing further financing support to utilities.
To provide interim relief to solar developers while domestic supply chains are stabilising, trade policy related nuances require a close look – especially for solar photovoltaics – in view of a significant shift in procurement dynamics in the recent past.
Overall, policy push has been a key factor in the power segment’s clean energy transition. Spurred by renewables, this transformation is set to pick up pace over the rest of the decade. Continued investor interest and private sector participation, too, are critical levers to enhance this transition.
