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February 18, 2025
From Ambition to Action: India’s Blueprint for A Green Future
The 2025-26 Budget
focuses on expanding renewable energy through
nuclear power, rooftop solar, and incentives
for domestic manufacturing of green technologies. Significant challenges,
including regulatory delays and an investment
shortfall, need to be addressed, with private
sector involvement being key. Successful implementation
could position India as a global renewable energy
leader, driving economic growth and job creation,
but requires overcoming financial and regulatory
hurdles.
Coming into 2025, expectations for India’s
renewable energy budget were sky-high. After a year
of mixed progress in 2024, where solar and wind
capacity saw steady growth but challenges like funding
gaps and policy hurdles hindered the momentum, stakeholders
were looking for bold allocations to supercharge
the green transition.1 In 2024, the country
added 28.64 gigawatts (“GW”)
of renewable capacity, more than doubling the 13.05
GW added in 2023. As of December 2024, India’s
installed non-fossil fuel-based capacity stood at
225.8 GW, comprising 97.9 GW solar, 48.2 GW wind,
and 46.9 GW hydro.2
With India’s ambitious goal of 500 GW of
non-fossil fuel capacity by 2030, out of which 200
GW has already been achieved3, the Union
Budget for 2025-26 introduced on February 1, 20254
(the “Budget”) was
anticipated to provide the financial push needed
to accelerate investments, strengthen infrastructure,
and drive innovation.5 The Budget attempted
to address these expectations through key initiatives
which emphasize financial support, infrastructure
development, and innovation to accelerate India's
renewable energy transition.
Key Initiatives introduced by
the Budget
The Budget signals a powerful push towards a
sustainable, clean energy future. With several initiatives
aimed at expanding renewable energy capacity, reducing
emissions, and fostering green manufacturing and
clean technologies, the country is positioning itself
to meet ambitious energy goals and play a central
role in global decarbonization efforts and the supply
chain. The Indian government (“Government”)
has notably focused on a new participant in the
energy mix, i.e., nuclear energy, as a part of India’s
long term energy transition strategy, whereas before
there was more focus on traditional sectors such
as solar energy, as witnessed by the budget announcements
of the past.
Some of the key initiatives for renewable energy
growth are as follows:
Nuclear Energy
Mission for Viksit Bharat: The Government
has set an ambitious target of 100 GW nuclear
power capacity by 2047,6 and to meet
this it has launched a Nuclear Energy Mission
with an allocation of INR 200 billion (approx.
USD 2.3 billion). This initiative focuses on
the research and development of Small Modular
Reactors (“SMRs”).
India aims to develop and deploy 5 operational
SMRs by 2033, contributing an additional 1-2
GW of clean energy to the grid. Given nuclear
energy’s high-capacity factor (typically
above 90%), SMRs will provide stable, reliable
energy, complementing intermittent renewable
sources like solar and wind. This effort will
help reduce dependency on fossil fuels, and
the expected clean energy generation will offset
millions of tons of CO2 emissions, aiding India’s
long-term carbon neutrality goals.7
The Nuclear Energy Mission for Viksit Bharat
marks a shift in India's energy strategy, giving
a push to nuclear power alongside traditional renewables
and emphasizing on indigenous nuclear technology and public-private
collaborations. While the Union Budget 2024-25 mainly
funded research in nuclear energy, the Budget is
now pushing for real-world deployment, especially
through SMRs.
To facilitate private sector participation in
nuclear projects, the Government also plans to amend
the Atomic Energy Act and the Civil Liability for
Nuclear Damage Act. These amendments are expected
to encourage private sector investments in nuclear
power projects.8 However, given that
foreign investment is not permitted in the sector,
the avenues for expansion may be limited.
Pradhan Mantri
Surya Ghar Muft Bijli Yojana: A flagship
rooftop solar initiative, this scheme has been
allocated INR 200 billion (approx. USD 2.3 billion).
It aims to empower 10 million residential households
to get their own electricity, providing 300
units of free electricity every month. This
program is expected to add 3,600 MW of solar
power capacity to India's grid, furthering India’s
solar energy target of 280 GW by 20309.
In addition to reducing dependence on grid power,
the scheme will enable households to save on
electricity costs and promote energy independence.
It will also significantly contribute to decarbonization
by reducing the consumption of fossil fuel-based
power. As residential solar adoption grows,
it will alleviate grid pressure and contribute
to India’s overall renewable energy generation.
In the Union Budget 2024-25, the allocation for
solar projects was INR 73.27 billion (USD 843.6
million). The Budget significantly increases this
allocation, reflecting the Government's intensified
focus on expanding rooftop solar capacity.10
The scheme has been gaining traction, with about
1.4 crore registrations so far and approximately
2.6 million application submissions. Over 8,00,000
houses have been solarized under the scheme in just
one year, nearly surpassing the total solar growth
achieved in the previous decade.11
Production-Linked
Incentive (“PLI”) Scheme Extension:
The PLI scheme is a Government initiative designed
to boost domestic manufacturing by providing
financial incentives to companies based on their
incremental sales of products made in India.
Initially launched to strengthen sectors like
electronics and pharmaceuticals, the scheme
has been extended to the renewable energy sector
to enhance India's renewable energy infrastructure.
This extension emphasizes India's commitment
to enhancing its renewable energy infrastructure
domestically. By focusing on local production,
India can reduce its dependency on imports and
further drive down the cost of renewable energy
technologies.12
In the Union Budget 2024-25, the PLI scheme had
a smaller allocation for renewable energy, with
INR 15.4 billion (approx. USD 177.1 million) for
advanced battery storage and INR 195 billion (approx.
USD 2.24 billion) under Tranche-II for high-efficiency
solar PV modules. In contrast, the Budget significantly
expands the scheme with an additional INR 240 billion
(approx. USD 2.76 billion), focusing on domestic
manufacturing of solar photovoltaic cells, wind
turbines, batteries, and electrolysis. The increased
investment reflects the Government's shift from
early-stage incentives to large-scale industrialization,
aiming to enhance domestic capacity, reduce import
dependence, and accelerate India's transition toward
500 GW of renewable energy by 2030.
Tax Relief
and Incentives: The budget includes
tax relief for promotion of electric vehicle
production, and incentives for renewable energy.
The following measures aim to stimulate economic
growth and support the transition to a greener
economy.
Tax Holidays
for Solar Power Projects: The Government
has extended tax holidays for solar power projects
by an additional five years. This extension
aims to incentivize investments in the solar
sector, encouraging the development of renewable
energy infrastructure.13 Solar energy
remains the dominant contributor to India's
renewable energy growth, accounting for 47%
of the total installed renewable energy capacity.14
In contrast, other renewable sectors such as
wind energy, green hydrogen, and bioenergy have
not received similar tax holiday extensions,
highlighting the Government's strategic focus
on solar energy as the primary driver of India's
renewable energy expansion. Tax Relief
for Electric Vehicle Production: The
budget includes tax relief measures to promote
the production of electric vehicles which include
elimination of basic custom duty on lithium-ion
batteries used in electric vehicles and exemption
of custom duty on 35 capital goods essential
for battery production.15 This aims
to stimulate economic growth and support the
transition to a greener economy. The Indian
electric vehicles market is experiencing rapid
growth, with a valuation of approximately USD
14.18 billion in 2024 and an expected expansion
at a compound annual growth rate (CAGR) of 38.8%
from 2025 to 2030. Industry leaders
have welcomed these budgetary measures, anticipating
that the tax exemptions will reduce costs, boost
sustainability, and advance India's green economy
transition.16
Energy Transition
Policy and Green Hydrogen Mission:
A detailed energy transition policy is being
developed to chart a strategic course for reducing
emissions in traditionally high-carbon sectors.
Additionally, the National Green Hydrogen Mission
is receiving increased funding to establish
India as a key player in the global green hydrogen
market. Green hydrogen could replace fossil
fuels in these sectors, reducing emissions by
up to 10-15% in the long term.17
Furthermore, hydrogen production will help reduce
India’s reliance on imported energy sources,
promoting energy security while contributing
to global emission reduction efforts.
In the Budget, the National Green Hydrogen Mission
received an allocation of INR 6 billion (approx.
USD 69 million), doubling the previous year's revised
estimate of INR 3 billion (approx. USD 34.5 million).18
In contrast, the initial outlay for the mission,
approved in January 2023, was INR 197.44 billion
(approx. USD 2.27 billion), indicating a phased
funding approach over multiple years.19
Effectiveness of the Initiatives
proposed in the Budget
The Budget’s renewable energy initiatives
have sparked both optimism and concern among industry
stakeholders, reflecting the potential for significant
progress alongside substantial challenges.20
The INR 200 billion (approx. USD 2.3 billion)
investment in SMRs has been welcomed as a promising
addition to India's clean energy mix, offering reliable
power to complement intermittent renewables like
solar and wind. However, the nuclear energy sector
remains cautious about long development timelines,
high upfront costs, and public resistance to nuclear
projects, which could delay their scalability. The
challenges of regulatory approval and political
acceptance also persist as roadblocks.
Similarly, the rooftop solar initiative has been
hailed as a game-changer for increasing solar adoption
in India’s residential sector. While the scheme
is a crucial step toward meeting India’s solar
energy targets and contributing to the overall goal
of 280 GW of solar energy by 2030, the success of
the initiative will depend on overcoming significant
execution barriers such as regulatory delays, grid
integration challenges etc. Without adequate infrastructure
improvements and streamlined processes, the scheme
could face substantial hurdles in its implementation.
However, in order to meet India’s ambitious
renewable energy targets, an estimated INR 450 trillion
(approx. USD 5.175 trillion) investment will be
required, which is not reflected in the Budget allocations.
To meet this, it would be integral to rely on and
encourage investment from private players, raising
concerns about whether the current policy environment
is stable and attractive enough to sustain large-scale
private participation.21
Beyond budgetary allocations, Indian banks and
financial institutions have pledged major credit
lines for renewable projects. The State Bank of
India (SBI) has committed INR 3 lakh crore (approx.
USD 34.5 billion) in green financing by 2030, and
other public and private banks are expected to follow
suit.22 However, even with public and
institutional funding, a substantial gap remains,
requiring approximately INR 250 trillion (approx.
USD 5.175 trillion) from private investors to meet
the renewable energy targets.23
Private sector participation in India's power
sector has shown significant momentum, with the
third quarter of 2024 showcasing several high value
investments in energy projects. A notable transaction
is JSW Energy's acquisition of O2 Power's renewable
energy platform. JSW Neo Energy, a subsidiary of
JSW Energy, has entered into a definitive agreement
to acquire a 4,696 MW renewable energy platform
from O2 Power Pooling, a joint venture between EQT
Infrastructure and Temasek, for an enterprise valuation
of approximately USD 1.47 billion.24
However, sustained investment depends on a predictable
regulatory framework, simplified land acquisition,
and financial incentives that de-risk long-term
capital commitments. Challenges such as delayed
payments by power distribution companies (DISCOMs),
uncertainties in grid infrastructure, and policy
shifts remain hurdles for private investors. While
the Government’s push for energy transition
policies and increased research and development
funding in the Union Budget 2024-25 helped lay the
groundwork, the Budget shifts focus to operational
expansion, particularly in green hydrogen, offshore
wind, and nuclear energy.
Conclusion
The Budget takes a balanced approach, combining
public investment with incentives to attract private
capital. However, the success of India’s energy
transition hinges on ensuring policy stability,
improving infrastructure, and addressing financial
risks. While initiatives like PLI provide a strong
base, private investment will flow only if regulatory
challenges are addressed. If executed effectively,
India’s clean energy transition can drive
long-term economic growth, create millions of jobs,
and solidify the country’s position as a global
leader in renewable energy.
Authors
-
Palomita Sharma
and
Sach Chabria
You can direct your queries or comments
to the relevant member.
1Available at
https://www.fortuneindia.com/macro/indias-500-gw-renewable-energy-goal-faces-hurdles-in-financing-grid-infra-policy-execution/120222.
2Available at
https://economictimes.indiatimes.com/industry/renewables/budget-2025-what-industry-leaders-want-to-drive-indias-renewable-energy-future/articleshow/117771593.cms.
3Available at
https://pib.gov.in/PressNoteDetails.aspx?ModuleId=3&NoteId=153279
4Available at
https://www.indiabudget.gov.in/doc/budget_speech.pdf.
5Available at
https://www.cnbctv18.com/budget/budget-2025-what-the-energy-sector-expects-19548416.htm.
6Available at
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2099244
7Available at
https://www.outlookbusiness.com/opinions/union-budget-202425-sustainability-india-inc-takeaways-news-418185
8Available at
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2099244
9Available at
https://www.business-standard.com/india-news/india-s-renewable-energy-capacity-rises-16-to-nearly-210-gw-by-december-125011300968_1.html
10Available at
https://economictimes.indiatimes.com/industry/renewables/solar-energy-budget-2024-free-solar-electricity-scheme-to-encourage-people-to-install-solar-rooftop-says-fm-sitharaman/articleshow/111950497.cms
11Available at
https://rmi.org/insight/can-rooftop-solar-power-indias-cities/
12Available at
https://www.mercomindia.com/budget-reactions-industry-applauds-national-manufacturing-mission.
13Available at
https://www.manufacturingtodayindia.com/union-budget-2025-a-bright-future-for-indias-solar-industry.
14Available at
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2094992
15Available at
https://timesofindia.indiatimes.com/business/india-business/budget-2025-auto-industry-applauds-clean-tech-battery-manufacturing-and-ev-initiatives/articleshow/117827307.cms.
16Available at
https://www.reuters.com/world/india/reactions-indias-2025-26-budget-2025-02-01
17Available at
https://www.indiawaterportal.org/governance-and-policy/powering-indias-future.
18Available at
https://energy.economictimes.indiatimes.com/news/renewable/budget-2025-green-hydrogen-allocation-rises-100-per-cent-to-rs-600-cr/117828075
19Available at
https://pib.gov.in/PressReleseDetailm.aspx?PRID=2039091
20Available at
https://www.reuters.com/world/india/reactions-indias-2025-26-budget-2025-02-01.
21Available at
https://economictimes.indiatimes.com/industry/renewables/renewable-energy-top-priority-rs-30-lakh-cr-investment-expected-to-meet-500-gw-target-govt/articleshow/112324776.cms
22Available at
https://www.financialexpress.com/business/banking-finance-sbi-targets-making-7-5-of-domestic-loan-portfolio-green-by-2030-3517165
23Available at
https://www.livemint.com/news/india/banks-pledge-to-lend-25-trillion-by-2030-for-green-transition-11726496647514.html
24Available at
https://www.jswsteel.in/sites/default/files/assets/downloads/home-pr/Press-Release-JSW-Energy-Acquisition-of-O2-Power.pdf
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