India's interim 2024-25 budget seen incentivizing renewable, clean energy sectors

The Indian government is expected to announce measures aimed at boosting the renewable and clean energy sectors in its interim budget Feb. 1, as it strives for greater energy security in an election year likely to be packed with populist measures, analysts and industry participants said.

The interim budget will be firmed up by another budget announcement around July-August after a new government is formed, but analysts said the policy direction will be reflected in next week's announcements.

"India has prized its energy security while formulating its decarbonization strategy and this would mean it would rely on low-carbon, domestically produced fuels and electrifying of end-uses," said Mohd. Sahil Ali, senior sustainability analyst at S&P Global Commodity Insights.

"That really comes through with the spending on renewable energy, battery storage, biofuels, green hydrogen and all in all, shifting away from fossil fuels which would largely entail moving to EVs."

According to Ali, the budget could have some relief in the 40% import duty on solar modules as 2023 renewable power additions were less than expected, as the 500 GW 2030 renewables target draws closer.

It may also increase the funds allocated for renewable hydrogen, building upon last year's Indian Rupee 197 billion ($2.37 billion) subsidy plan under the National Green Hydrogen Mission plan that targeted production of 5 million metric tons/year of renewable hydrogen by 2030, he said.

Incentives could be expected for biofuels and allocations toward building a sea route for the India-Middle East-Europe Economic Corridor, announced at the G20 summit, he added. The budget could provide funds to the Bureau of Energy Efficiency for building infrastructure and capacity for the upcoming Indian Carbon Market.

While the last budget ushered in incentives for renewable hydrogen production, this year there may be capex subsidies and GST waivers, added Ankita Chauhan, principal research analyst at S&P Global.

"Increased budgetary support towards energy storage to reduce the cost of round-the-clock renewable electricity may help in reducing the cost of hydrogen production," Chauhan said.

Platts, part of S&P Global Commodity Insights, assessed Saudi Arabia hydrogen produced via alkaline electrolysis at $2.40/kg Jan. 29, flat month on month.

It assessed Japan hydrogen produced via alkaline electrolysis at $3.78/kg Jan. 26, up 3.6% from a month ago.

Industry demand

The nascent hydrogen industry is pushing for more financing to support the overall infrastructure and ecosystem, and not just production costs, and expects mandatory consumption targets for consumers of hydrogen.

India Hydrogen Alliance has submitted a budget wish list to the Finance Ministry asking for a $5 billion National Hydrogen Transition and Development Fund to support large hydrogen projects, hubs, supply chains and infrastructure, the trade body said Jan. 23.

Its five recommendations include co-development of at least five large national H2 hubs, beyond the two hubs planned in the existing National Green Hydrogen Mission. The body wants these hubs to be developed jointly by state governments and developers with offtake-linked incentives and contracts-for-difference funding, it said.

"Building a thriving green hydrogen and derivatives ecosystem demands a multi-pronged approach," Bikesh Ogra, Managing Director & CEO of India-based project developer Jakson Green told S&P Global.

"The true catalyst for widespread adoption lies in introducing green hydrogen and its derivatives' purchase obligations -- by guaranteeing demand, the purchase obligations will unlock the full potential of this game-changer, attracting investments, fueling technology advancements, and paving the way for a cleaner, more secure future."

Ogra said financial incentives like production subsidies and carbon credits bridge the initial cost gap, but must be followed up with robust R&D partnerships and a skilled workforce which are crucial for sustained innovation and cost competitiveness.

The Indian government's 2021 draft hydrogen strategy envisaged a 5% mandatory consumption target for renewable hydrogen for refineries in 2023-24, rising gradually to 50% by 2029-30.

Likewise, it had a 2% mandatory consumption target for the fuel for fertilizers in 2023-24 and 1.5% target for city gas distribution, gradually rising higher.

Clean energy, decarbonization

The Indian government is also seen pushing low emissions energy for its energy security and decarbonization, industry participants said.

"Green energy is great for talk, but if you actually analyze, clean energy as an intermediary fuel is the way forward," Balasaheb Darade, Managing Director at New Era Cleantech Solution, told S&P Global. "Until the cost of renewable fuels falls, low emissions fuels can be used as a complementary fuel."

Accordingly, Darade expects the budget to incentivize measures for decarbonization and carbon capture so that the hard-to-abate sectors also get started on energy transition and the fossil fuel reserves in India are utilized.

For instance, Darade said taxes such as a cess of Rupee 400/mt on coal could be removed if low-emissions technologies such as CCUS are involved in the coal project.

On Jan. 24, the government approved a scheme for promotion of coal/lignite gasification projects of government companies and private sector with an outlay of Rupee 85 billion.

"Coal is abundant in India and is akin to the Middle East's oil supply, so India is bound to use it."