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Published: June 21, 2024
Updated: June 21, 2024

Budget 2024: Significant Capex Boost Expected for Renewable Energy Sector Renewable Energy Set for Major Investment

As the Union Budget 2024 approaches, the power and renewable energy sectors are poised to receive substantial capital expenditure (capex) allocations, potentially in the double digits. A CRISIL report projects that the renewable power capacity will reach 180 gigawatts (GW) by FY26, largely driven by solar energy.

Growth in Renewable Capacity

The renewable energy capacity in India was 72 GW in FY20 and saw a 35 percent increase to 97 GW by FY22. As of the end of FY24, the capacity has reached 130 GW. CRISIL's study highlights a robust executable pipeline of 75 GW, which is expected to account for 75 percent of the 50 GW addition in the coming years. The commercial and industrial (C&I) and rooftop segments are projected to contribute the remaining 25 percent by FY25 and FY26. Additionally, the auctioned capacity in FY24 increased to 35 GW from 12 GW in FY23.

Solar Rooftop Initiatives

A notable 12 GW of renewable energy additions is anticipated from solar rooftop and C&I sectors, driven by favorable policy changes. The rooftop solar scheme, with an outlay of Rs 75,000 crore, aims to install solar rooftops on 10 million households. The PM Surya Ghar online portal is expected to streamline the approval and implementation process, while supportive green open access policies and reduced open access charges in certain states will further accelerate this transition.

Challenges to Renewable Energy Adoption

However, high tariffs for storage and storage-linked capacities pose significant risks to the increased adoption of renewable energy. As of April 2024, 65 percent of auctioned capacity lacks power supply agreements. The tariffs for storage-linked projects are higher compared to pure solar or wind projects due to the need to store and discharge power as required. These tariffs should be benchmarked against thermal projects, which can provide continuous power supply. Additionally, the timely development of storage infrastructure is crucial to manage the intermittent nature of renewable energy generation.

Substantial Capital Requirements

The report emphasizes the need for substantial capital investment, estimated at around Rs 3 trillion over the next two years. Domestic banks are expected to play a significant role, with investments in FY24 amounting to Rs 1.8 trillion, of which domestic debt constituted 55-60 percent. International debt accounted for 15-20 percent, equity for 14-17 percent, and accruals for 6-8 percent. By FY26, debt is expected to make up 72-76 percent of investments, with equity and accruals each contributing 12-14 percent.

Monitoring Leverage and Equity Needs

Leverage is anticipated to remain stable at approximately 6.8-7.0 times, driven by consistent operational performance and stable receivables. Excluding capex, leverage for the operating portfolio is expected to be 5-5.5 times. However, the higher capex intensity could exert pressure, necessitating careful monitoring of equity raises.

The Union Budget 2024 is expected to provide a significant boost to the renewable energy sector through increased capex allocations and supportive policies. While challenges such as high storage tariffs and the need for substantial capital remain, the sector is well-positioned for robust growth, contributing significantly to India's energy transition.