Plugging into a more efficient power sector

In the budget for the financial year 2022-23, the finance minister laid the foundation for the economy during the Amrit Kaal, the 25 years ending in the 100th year of independence. A main pillar is sustainable development through a transition to clean energy and climate action. This meant a significant focus in the budget on the power sector, including enhancing manufacturing for the power ecosystem.

The government has announced a production-linked incentive (PLI) scheme to encourage manufacturing in 14 key sectors. PLIs will create national manufacturing champions, generate youth employment opportunities and help to achieve the vision of the Atmanirbhar Bharat Abhiyaan or self-reliant India campaign. To achieve the target of 280 gigawatts of installed solar capacity by 2030, the budget proposes an additional INR19.5 billion for the PLI for the manufacture of high-efficiency modules. Priority will be given to fully integrated manufacturing units from polysilicon to solar photovoltaic modules.

To overcome space constraints in urban areas for setting up the electric vehicle (EV) charging infrastructure and to improve EV ecosystem efficiency, the government will introduce a battery swapping policy and formulate interoperability standards. It aims to encourage the private sector to develop sustainable and innovative business models for battery or energy as a service. Besides enabling long-distance EV travel, this initiative will make EVs affordable for all by reducing the upfront cost of batteries in total EV costs.

As part of a low carbon development strategy, 5% to 7% of fuel in thermal power plants will consist of biomass pellets, resulting in a reduction of 38 million tonnes of CO2 annually. The budget promotes energy efficiency in large commercial buildings through the energy service company business model. This will help with capacity building and awareness for energy audits, performance contracts and common measurement and verification protocols. Four pilot projects will be set up for coal gasification and the conversion of coal into chemicals, enabling the industry to achieve technical and financial viability. The budget prioritises clean energy agendas across various sectors.

Many government initiatives, such as Gati Shakti, an integrated multimodal infrastructure connectivity initiative for roads, railways and waterways and Saksham Anganwadis, a new generation of anganwadis, or rural child care centres, with better facilities, will be powered by clean energy. The government is encouraging the shift to public transport through cleantech and governance solutions, and by creating special mobility zones with zero fossil fuel policies and using EVs. Four hundred new-generation high-speed trains with better energy efficiency will be introduced. To reduce the carbon footprint of the economy, the government will issue sovereign green bonds to attract investment in green infrastructure.

Power sector reforms have been the bane of previous governments. The finance minister will allow state governments to run fiscal deficits of 4% of gross state domestic products, of which 0.5% will be tied to power sector reform. The first schedule to the Customs Tariffs Act, 1975, which has already seen customs duties on solar cells increased from 20% to 25%, will be amended to increase the duty on solar modules from 20% to 40%. The increase will apply from 1 April 2022. The increases follow the government’s encouragement of production under the Make in India programme. In the short term, they may adversely impact solar power developers, but they should persuade manufacturers to step up.

The finance minister ignored some key demands of the electricity sector. The Electricity (Amendment) Bill has long been stalled. The last attempt to enact the amendment in 2020 was shelved in the wake of the farmers’ protests. Perhaps discussions can start on passing non-controversial aspects of the amendment. The sector hoped for clarification on long-standing demands to include electricity supply in the goods and services tax (GST) regime. This could have encouraged the GST Council to agree to such demands. Perhaps ongoing elections and the precarious financial position of the states were the obstacles.

Abhishek Tripathi is a managing partner and Shivika Agarwal is an associate at Sarthak Advocates & Solicitors