Budget To Boost Renewable Energy And Hydrogen Production

The Indian government is expected to unveil measures in its interim budget on February 1 to boost the renewable and clean energy sectors to achieve greater energy security in an election year. Analysts and industry insiders predict that the budget will include populist measures, but the policy direction will be reflected in the upcoming announcements.

According to Mohd. Sahil Ali, a senior sustainability analyst at S&P Global Commodity Insights, the budget may offer relief on the 40 percent import duty on solar modules to help India reach its target of 500 GW of additional renewable capacity by 2030.

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 tonnes per year of renewable hydrogen by 2030, he said.

At the G20 summit, it was announced that incentives could be expected for biofuels and allocations towards building a sea route for the India-Middle East-Europe Economic Corridor.

The upcoming budget may provide funds to the Bureau of Energy Efficiency for building infrastructure and capacity for the Indian Carbon Market. Additionally, capex subsidies and GST waivers might be introduced this year.

Ankita Chauhan, principal research analyst at S&P Global, welcomed these subsidy waivers and incentives for renewable hydrogen production. According to Platts, part of S&P Global Commodity Insights, Saudi Arabia's hydrogen produced via alkaline electrolysis was assessed at $2.40/kg on January 29, flat month on month.

On January 26, the price of hydrogen produced via alkaline electrolysis in Japan increased by 3.6 percent to $3.78/kg compared to the previous month. The hydrogen industry seeks more infrastructure financing and expects mandatory consumption targets for hydrogen consumers.

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 on January 23.

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

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 percent mandatory consumption target for renewable hydrogen for refineries in 2023–24, rising gradually to 50 percent by 2029–30.

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

The Indian government is also pushing low-emission energy for its energy security and decarbonisation, industry participants said.
The budget can be expected to incentivise measures for decarbonisation and carbon capture so that the hard-to-abate sectors also get started on energy transition and the fossil fuel reserves in India are utilised.

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

On January 24, the government approved a scheme for promoting coal and lignite gasification projects by government companies and the private sector with an outlay of Rs 85 billion.