The critical role of infrastructure in driving economic growth is universally recognized. This understanding has spurred the Indian government's significant increase in capital expenditure on infrastructure, from 1.7% of GDP in 2014 to nearly 2.9% in 2022-23. This commitment continues in Budget 2023-24, with a threefold increase in infrastructure allocation compared to 2019, reaching Rs 10 lakh crore (3.3% of GDP).
At the heart of this infrastructure development lies power, a vital resource for sustained growth and economic transformation. Extensive research and empirical data across nations consistently demonstrate the critical role of adequate, reliable, and high-quality electricity. Recognizing this, the government has implemented a multi-pronged approach to revitalize the power sector.
From empowering state-run distribution companies to fostering diverse energy sources and setting ambitious renewable energy targets, these initiatives have borne fruit. India has transitioned from a power-deficit nation to a power-surplus one, showcasing the effectiveness of these efforts.
As of December 2023, India boasts a total installed power generation capacity of 4,28,299 MW. Remarkably, 51.3% of this capacity lies with the private sector, while 24.8% and 23.9% are held by the States and the Centre, respectively. Notably, 56% of the total capacity utilizes traditional fossil fuels like coal and natural gas, while the remaining 44% harnesses renewable and nuclear energy. Within the renewable space, hydro, wind, and solar power contribute 11%, 10.4%, and 17.1% of the capacity, respectively.
Budget 2024: A Focus on Renewables and Beyond
India has a vision of generating 500 GW non-fossil fuel-based energy by 2030 and continued policy push is expected to support this endeavour. The upcoming budget is expected to unveil significant incentives for the solar sector. Increased capital outlay, green initiative promotion, and a PLI scheme for domestic solar module manufacturing are potential avenues for boosting renewable energy adoption. Additionally, investments in battery storage infrastructure and potential customs duty reductions on solar cells could further accelerate this transition.
While coal-based thermal power might seem at odds with India's climate change goals, recent media reports stated that the government has asked power sector CPSEs to work on setting up thermal power plants (TPPs) near coal mines as well as strategise with Indian Railways to invest in coal logistics initiatives. All this is being done to meet India’s rising power demand, which is growing at six to seven per cent per annum. With direct support for thermal capacity expansion being unlikely, indirect support or policy nudges seem plausible. This approach would foster a self-sufficient power landscape while enabling the organic growth of solar and other renewable energy sources over time.
Natural gas is another area to watch, with IEA projections forecasting a 6% demand increase in 2024. With objectives like promoting gas-based thermal plants and the development of national gas pipeline grid, some policy announcement in the form of direct or indirect support could be expected on this front as well.
Outlook:
NTPC, NHPC, Tata Power, KPI Green, Borosil Renewables, Adani Green, Waree renewable, Gensol Engineering, REC & PFC are companies to keep an eye on as the budget unfolds, potentially benefiting from the government's focus on the power sector.