India’s Union Budget 2021 provides significant boost to power sector, says GlobalData

Following the news that the India’s Union Budget 2021, presented on 1 February, contains several key announcements related to the power sector, which is a core infrastructure sector; 

Harminder Singh, Director of Power at GlobalData, a leading data and analytics company, offers his view:

“One of the key areas ailing the power sector in India has been the weak finances of state-owned power distribution companies (discoms). The budget has announced a scheme to assist discoms for infrastructure building, by creating a fund of INR3,000bn over five years. Importantly, the scheme will be tied to financial improvements. The reforms of discoms will be a significant upside for the power sector and will help generate investments not only in distribution but also in the generation and transmission sectors.

“The budget has also announced putting in place a framework to give consumers alternatives to choose from more than one distribution company. If this is implemented in the right spirit, it will bring about true competition in the power distribution sector and make it more efficient. However, the details of the framework remain to be seen to understand its impact on the sector.

“The budget has provided a higher allocation of INR25bn to the two agencies focused on renewable energy development – Solar Energy Corporation of India (SECI) and Indian Renewable Energy Development Agency (IREDA). This will provide a significant boost to the renewable energy sector, which suffered from dismal capacity addition in 2020 owing to the COVID-19 pandemic. According to GlobalData estimates, India has added around 5GW of solar PV and 1.7GW of wind power capacity has been added in 2020. To encourage domestic production of solar power, the duty on solar invertors has been increased from 5% to 20% and on solar lanterns from 5% to 15%.

“The budget has also announced the launch of a Hydrogen Energy Mission in 2020-21 for generating hydrogen from renewable energy sources. This will bring the country at the forefront of the energy transition.

“In the transmission sector, assets worth INR70bn will be transferred to Power Grid Infrastructure Investment Trust (InvIT) for monetization of these assets. This will help in financing income-generating infrastructure projects like inter-state transmission networks, thus helping to create infrastructure in this critical area.

“Overall, the budget 2021 has hit the right spots, which are the growth drivers of the power sector. It also reaffirms India’s commitment to climate goals, which will help in making the country a leader in the global community.”

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