Budget 2020 highlights for the renewable energy industry and its future implications

With industry majors being positive about the government’s plans on meeting the target of 175 GW of installed clean energy capacity by 2022, Budget 2020 was rather a much-awaited affair for the renewable energy industry. To help us further understand the hits and misses (though not anticipated but, if any) of this year’s budget, KPMG analysts present a detailed overview of the key announcements made for the renewable energy sector and they imply about the future of the sector. (The details have been presented in a report prepared by KPMG India’s Energy and Natural Resources department.)

First, here’s a round-up of all the announcements made for the sustainable energy sector in FY21 Budget:

  • The Ministry of New and Renewable Energy (MNRE) received a major boost with budgetary allocation going up by 48% in comparison to the revised allocation in last fiscal.
  • In her budget speech, FM Nirmala Sitharaman, while presenting a 16 point action plan for the agriculture sector aimed at doubling farmers’ income by 2022, announced the allocation of Rs 1000 crore for extending the Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) scheme. This would aid farmers in adopting solar power for agricultural purposes and utilize barren/unproductive land for generating revenues.
  • During her speech, she also proposed setting up of large solar power capacity alongside rail tracks on land owned by the Railways.

Here are the implications these announcements might have on the future of the sector:

  • KPMG’s report suggests that the increased budgetary allocation for MNRE will improve financial assistance for various clean energy initiatives such as solar parks, roof-top solar, off-grid renewable energy, etc.
  • The Rs 1000 crore budget allocated for furthering the PM-KUSUM scheme can also have a major effect on the sector. The report states: “This kind of significant monetary allocation will help speed up implementation and could potentially result in 10-15 GW of new capacity creation if it materialises. This will be a big push for farmer’s income, but will in turn require lesser demand for grid scale power, targets for which then should be adjusted downwards.” Additionally, the report also suggests that banks will have to provide funding at an effective cost of interest to aid the implementation of renewable energy projects and the commission will have to consider for feed-in tariff after taking into account the cost of debt.
  • Lastly, the proposal to set up large solar capacity alongside railway tracks can help the Railways add about 18-20 GW capacity by utilising vacant land owned by the Indian Railways and reduce their power procurement cost.

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