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The country is gearing up for Finance Minister Nirmala Sitharaman’s sixth budget in a row. With budget expectations soaring, people are hoping for benefits in a host of sectors. As India cranks up its green energy game, the energy sector is crossing its fingers for the upcoming ‘People’s Budget’. The industry hopes the Union Budget will seriously reassess GST rates across the renewable energy supply chain and some tax goodies. Read on as we discuss all about the upcoming budget power sector 2024!
India is zooming towards becoming the world’s third-largest economy soon. With rapid economic growth and a booming population, the energy demand is skyrocketing. This is prompting a transformation in the power sector. After all, energy is the turbo fuel keeping this growth engine roaring!
Although India ranks third globally in total power consumption, it lags in per capita consumption. This gap signals significant growth potential, as the new economic expansion generates a steady demand for power. Additionally, more Indians are gaining access to reliable electricity, fueling increased demand across all aspects of life.
The Indian power sector is one of the most diversified in the world. However, thermal power (mostly coal) still takes the spotlight, rocking a 74% share in 2022-23. While coal's dominance persists, its share has gradually decreased due to the growing focus on renewable energy grooving from 3.7% in 2008-09 to a cool 12.5% in 2022-23.4
The Indian power energy sector is like the beating heart of a young nation on the move, sprinting to achieve its global goals. Looking ahead at the upcoming budget power sector needs to lead the charge, not just supplying electricity, but creating a dynamic ecosystem that fuels innovation, efficiency, and a better tomorrow. Let’s discuss.
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The power sector is an important component of the whole infrastructure. Despite playing a crucial role in boosting the economic development of the whole country, it continues to face the following challenges:
Fuel Concerns
One of the prominent concerns that lead to a power deficit in the country is inadequate power generation. While the generation capacity has increased in the last few years owing to the participation of private players, it still hasn't been able to match the demand.
Challenges of State Discoms
State Discoms struggle with poor financial health because of several reasons. Daunting tariff rates and schemes, operational challenges, and state debts make it difficult for state discoms to function properly, thus negatively affecting the power sector.
Ill-maintained Power Plants
The timeline for the construction of most of the power plants and other associated infrastructure was around the independence days. Thus, most of the current serving plants are old and inefficient. This is one of the major reasons why the electricity generation in the country is low and severely affected.
Policy Challenges
Several challenging policies and bidding guidelines are not in harmony with other frameworks like the National Electricity Policy or the Electricity Act. Such policy conflicts cause severe hindrances in the smooth growth and development of the power sector.
Ministry Coordination Challenges
The energy sector in the current scenario involves several ministries. This involvement of different ministries sometimes results in coordination issues and other problems. This is also one of the reasons that impacts energy generation and the power sector.
The Government of India sees the power energy sector as a key sector for the country’s growth and infrastructure development. Here are some of the initiatives laid by the government for the power sector in the previous budget and their impact on the power sector:
The 2024 interim budget has allocated 50% higher funds to the power sector initiatives. This includes funds for green hydrogen, green-energy corridors, renewable energy, and more. This leads to the development of sustainable sources of energy generation.
The 2022-2023 budget made ₹7, 327 crores allocation for the solar power sector leading to enhanced solar power generation and employment opportunities.
The Pradhan Mantri “Saubhagya” Yojana was launched resulting in electrification of 2. 82 crore households as of March 2021.
As the FM prepares to present the Union Budget 2024-25 on July 23, industry leaders from the energy sector have shared their expectations for key reforms and policy support.
They highlight the need for strategic measures to boost India's global competitiveness and drive sustainability
Experts emphasise the need for ecosystem-positive measures in the critical materials sector
The power energy sector hopes for comprehensive measures to overhaul discoms and advocates extending the full ISTS (inter-state transmission system) waiver for two more years. 5
The power industry is calling for strategic moves to supercharge India's global competitiveness and sustainability.
It also anticipates policies that can enable global sourcing of competitive components, integrate extensive energy storage solutions, and dive into Small Modular Nuclear Reactors (SMRs).
With the soon-approaching Union Budget share market has a keen eye on the developments in the power sector. Here are some of the potential impacts that are expected:
Keeping in mind the economic growth, the upcoming budget power sector in India will surely be at the government’s focus. By 2030, the country is hoping for a whopping 500 GW of renewable energy and 85 GW of additional thermal capacities by the year 2023.1
With significant transformation and a global push towards sustainability, renewable energy sources such as wind, solar, and hydropower are being increasingly favoured. This shift has a profound impact on power sector stocks and investments.
The power energy sector expects an investment of over ₹17 lakh crore in the next 7 years and has already brought ₹20 lakh crore investment in the last 9 years. 2
From an investment perspective, the sector's appeal lies in its persistent supply-demand mismatch, unaffected by global risks. With India adding 15 GW/year of evening supply and demand exceeding expectations, evening power shortages will likely continue.
It is expected that generation capex might more than double, combining thermal energy and storage to balance renewables.3
India's power consumption is set to nearly double by 2040, driven by urbanisation, economic growth, and higher incomes. This surge is pulling in investments from all corners, positioning India as a big player in the global energy scene.
With government initiatives, rising energy demand, and a shift towards renewables, the Indian power sector is undergoing a dramatic makeover. This means the budget expectations may lead to some exciting opportunities for both local and international investors.
If you can handle the ups and downs, investing in top Indian energy stocks in the Indian stock market could be a goldmine. To dodge the wild swinging of the energy market, spread your bets across different segments like traditional energy, renewables, and power distribution companies. Diversification can be your secret weapon. Sure, these stocks can be a bit of a rollercoaster, but the potential for big returns can make it worth the ride.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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