Budget 2022 – Energy Transition

By Prasenjit Dhar

Prime Minister Modi made bold positive announcements on India’s climate commitments and objectives at the COP26 Summit in Glasgow last October. Following those, everyone was expecting a clear steer from the Indian government on the direction of travel in terms of energy transition. The recently announced 2022-23 Indian Budget gives a clear indication about the government’s thinking.

The Indian Finance Minister, Nirmala Sitharaman, in her budget speech used the words ‘green’, ‘clean’, ‘sustainable’ and ‘carbon-neutral’ economy multiple times. This underlines the importance that India is attributing to its sustainability and decarbonisation goals.

In order to meet India’s ambitious target of 280 GW of installed solar capacity by 2030, the budget looks to support this through incentives for domestic solar panel manufacture in India. An allocation of around £1.95 billion has been made for Production Linked Incentives (PLI) schemes to help prioritise domestic manufacturing of high-efficiency PV modules and all major components that are used.

The budget also extensively emphasised on energy transition and clean energy missions through different schemes. In another first of its kind move, it has proposed that 5-7 per cent of biomass pellets will be co-fired in thermal plants resulting in equivalent carbon dioxide savings of 38 million metric tons annually. This will not only help reduce emissions, it will also provide an extra source of income to farmers, increase job opportunities for locals, and prevent the additional air pollution that India has been facing because of stubble burning in agricultural fields.

Another strong signal sent by the budget is support for accelerated adoption of electric vehicles. E-mobility is part of the solution to achieve sustainable development or decarbonisation and can be a major enabler to shift away from the dependency on fossil fuels. The allocation for e-mobility is expected to increase the use of electric vehicles through the creation of fossil fuel-free transportation zones and the proposed new policy for battery swapping. The introduction of a battery-swapping policy along with interoperability standards is an ambitious step.

As batteries account for a substantial share of the cost of an EV and the significant time it will take to create a country-wide public charging infrastructure, enabling batteries to be provided as a service through a swapping policy is likely to help unlock EV adoption. There has also been increased support announced for the Faster Adoption and Manufacturing of Electric Vehicles (FAME) in India scheme as well as an incentive scheme announced for a national programme for advanced cell technology development and manufacturing. Meanwhile, India has also started looking at electric buses for urban public road transport.

The budget has also signalled an intention to mobilise funds for climate and energy investments through several measures. These include (a) sovereign green bonds to mobilise finance for green public infrastructure projects; (b) promotion of thematic funds for blended finance, in which the public share will be 20%; (c) create a fund with blended capital for agricultural and rural startups; and (d) explore innovative finance mechanisms to scale up urban metro rail systems and other similar infrastructure. While details of the amounts to be raised and the modalities are still to be defined, experts feel that these steps (particularly the creation of green bonds), signals India’s increasing interest in mobilising finance for sustainable development and a recognition of the important role that the private sector will play in this area.

As you may be aware, the UK has been working closely with India on the energy transition, climate change and sustainability. Both the governments are very well aligned in key areas like technology collaboration, policy and regulatory exchanges and collaboration on funding mechanisms – all leading to increased business-to-business engagement. There are a number of programmes that are in place to support these areas.

One of the very recent programmes that has been launched by FCDO is the Smart Power and Renewable Energy (ASPiRE) technical assistance programme in India. We at UKIBC are a part of the consortium led by KPMG, that is supporting the delivery of this. I feel that there are significant commercial opportunities that are likely to arise as the programme starts to roll out. If you are interested in these areas and would like to understand more about the programme, please feel free to get in touch with me at prasenjit.dhar@ukibc.com.

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