The Budget 2025 is set to be a pivotal moment for India’s energy sector, with the government poised to make decisive moves that could reshape the landscape of green energy and infrastructure development. The year 2023-2024 marked a significant milestone with India’s G20 Presidency, underscoring the nation’s growing influence in the global energy transition. The government’s commitment to advancing infrastructure, particularly green energy initiatives, aligns with the ambitious target of achieving net-zero emissions by 2070. This includes a goal to derive 50% of installed energy capacity from non-fossil fuel sources and reduce GDP emission intensity by 45% by 2030.
The National Electricity Plan (NEP) 2023 highlights the critical role of Energy Storage Systems (ESS) in maintaining grid stability and ensuring an uninterrupted power supply. The Central Electricity Authority (CEA) projects that energy storage capacity requirements will surge from 82.37 GWh in 2026-27 to 411.4 GWh by 2031-32. This escalating demand underscores the necessity for robust ESS to support the integration of renewable energy sources. The Ministry of Power’s long-term trajectory for Energy Storage Obligations (ESO) is a step in the right direction, aiming to increase ESO from 1% in FY 2023-24 to 4% by FY 2029-30. However, the success of these initiatives hinges on attracting substantial investments and fostering a conducive regulatory environment.
The Ministry of New and Renewable Energy, under the National Green Hydrogen Mission, has proposed an outlay of INR 17,490 crore up to 2029-2030 to encourage the production of green hydrogen. This initiative aims to develop infrastructure for green hydrogen hubs, with plans to establish at least two hubs initially. An outlay of ₹400 crore is allocated for these hubs and other projects up to 2025-26. While many states have provided incentives for green hydrogen production, including capital subsidies and waivers of state levy taxes and duties, there is a pressing need for additional incentives from an income tax and regulatory perspective to further bolster these sectors.
The upcoming Budget 2025 presents a golden opportunity for the Indian Government to implement strategic measures that can attract investments in ESS and Green Hydrogen projects. One significant step could be the inclusion of Green Hydrogen Production Projects in the Harmonized Master List of Infrastructure. This move would attract foreign capital through the Foreign Venture Capital Investor (FVCI) route, which offers regulatory exemptions and a streamlined registration process. According to RBI guidelines, FVCIs are permitted to invest in infrastructure subsectors listed in the Harmonized Master List. Adding Green Hydrogen Production Projects to this list would likely draw substantial foreign capital into these emerging green initiatives.
Moreover, the inclusion of Green Hydrogen Production and Storage sectors in the Master List would make it “Invitable,” allowing access to investments by institutional investors and the public at large through Infrastructure Investment Trusts (InvITs). InvITs, structured as pass-through entities, ensure tax neutrality by allowing income generated from underlying infrastructure projects to flow directly to unit holders. This makes InvITs an attractive investment option for both individual and institutional investors. Additionally, Sovereign Wealth Funds (SWFs) and Pension Funds (PFs) established by overseas governments could be incentivized to invest in these sectors, further driving long-term capital inflows.
The Budget 2025 could also extend the sunset date for commencing manufacturing/power generating activities to avail concessional tax rates under Section 115BAB of the Income Tax Act. This section offers a concessional tax rate of 15% on total income, with a 10% surcharge cap and a 4% health and education cess, resulting in an effective tax rate of 17.16%. If extended, it would be prudent to include ESS under Section 115BAB to incentivize renewable energy storage. Additionally, expanding the additional depreciation benefit under Section 32(1)(iia) to encompass ESS projects will drive increased investments in plant and machinery, enabling businesses to enhance their capacity and accelerate production.
By implementing these strategic measures, the Indian Government can position India as a global leader in the renewable energy sector, fostering innovation, attracting investments, and driving sustainable development. The energy sector is on the cusp of a transformative era, and the decisions made in Budget 2025 will undoubtedly shape its trajectory for years to come. The government’s proactive stance in combating climate change and promoting
