Budget 2025: A deep dive into the measures for the Energy Sector

The Indian energy sector stands at the cusp of a transformative leap, driven by a robust policy framework and an ambitious vision for energy security, sustainability, and affordability. In the Financial budget announced for the year 2025-26, the Ministry of Power has been allocated INR 21,847 crores, up from INR 19,845 crores in 2024-25. Ministry of New and Renewable Energy sees a significant rise to INR 26,549 crores from INR 17,298 crores, reinforcing India’s commitment to substantial focus on green energy growth and sustainability. The recently unveiled budgetary allocations provide critical support for this transition, addressing key verticals including clean-tech manufacturing, nuclear energy expansion, financial stability of power utilities and critical minerals. These measures are poised to redefine the energy landscape, ensuring a resilient and self-reliant power sector for India.

Clean-Tech Manufacturing: Fostering Innovation, Technology, and Skills for Future Growth. To establish India as a global manufacturing hub in clean energy technologies, the government has launched a ‘National Manufacturing Mission’ with a strategic focus on solar PV cells, EV and grid scale batteries, wind turbines and electrolysers. This initiative is supported by significant budgetary increase including over 60% rise in solar energy funding to INR 24,100 crores (from INR 14,937 crores in FY25). A 100% increase in Green Hydrogen allocations to INR 600 crores (from INR 300 crores in FY25) and an 80% higher allocation to PM Surya Ghar to facilitate the installation of 5 million rooftop solar systems in FY26. This manufacturing push is set to generate nearly 3 million green jobs, strengthen India's position in solar exports under the ‘Make in India’ initiative, and enhance energy security by reducing import dependencies. Additionally, the reduction in Basic Customs Duty (BCD) on solar cells to 20% (earlier 25%) and on solar modules to 20% (earlier 40%) will improve affordability and market competitiveness, fostering a more robust clean energy ecosystem.

Nuclear Energy: A Mission to Deepen India’s Energy Capabilities

The Nuclear Energy Mission represents a pivotal stride toward India's clean energy transition, aiming to scale up nuclear power capacity from 8 GW in 2024 to 100 GW by 2047—a 12-fold increase over the next two decades. Recognising the need for technological innovation, the government has earmarked INR 20,000 crores for research and development in Small Modular Reactors (SMRs), with a target of developing at least five indigenous SMRs by 2033.

Despite a 3.5% reduction in the budgetary allocation for the Department of Atomic Energy (DAE) to INR 24,049 crores in FY26, the increased focus on SMRs, along with proposed amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act, is expected to encourage private sector participation. The shift in liability for nuclear accidents from equipment suppliers to nuclear plant operators is a crucial move that could attract global firms like GE-Hitachi and Westinghouse to invest in India's nuclear ecosystem.

The strategic benefits of nuclear power include a significant 0.097 metric tons of CO₂ emission reduction per hour when replacing thermal power, an investment potential of $169 billion, and over 110,000 direct employment opportunities from the installation of 100 GW of nuclear capacity. Additionally, nuclear energy is projected to be 15% more costeffective than solar plus battery storage systems ensuring affordable and reliable power for the country.

Bolstering the Financial and Operational Resilience of Power Utilities

One of the key takeaways from the budget is the continuation of the additional borrowing provision of 0.5% of the Gross State Domestic Product (GSDP) for states. This measure, initially introduced in 2021, aims to improve the operational and financial stability of power distribution companies (DISCOMs) and enhance the transmission infrastructure (InSTS).

With an estimated additional headroom of $16.09 billion, states can leverage these funds to address DISCOM losses, clear outstanding dues of $5.75 billion to generation companies (GENCOs) and expand transmission capacity by up to 70,000 circuit kilometers. Moreover, the Reforms-Linked Distribution Scheme has received a 26% increase in budgetary allocation, reaching INR 16,021 crores in FY26 from the INR 12,665 crores allocated in FY25. This enhanced funding will further reduce Aggregate Technical & Commercial (AT&C) losses and bridge the gap between Average Cost of Supply (ACS) and Average Revenue Realised (ARR), paving the way for a financially healthier distribution sector.

Critical Minerals and Domestic Battery Production: A Leap Towards Self-Sufficiency

India's transition to a clean energy economy hinge on access to critical minerals essential for manufacturing lithium-ion batteries, solar panels, and wind turbines. The budget has introduced 100% exemptions on Basic Customs Duty (BCD) for 25 critical minerals that are not available domestically, covering essential materials such as cobalt, lithium, zinc and lead.

Further, the Production-Linked Incentive (PLI) scheme for Advanced Chemistry Cell (ACC) battery storage has witnessed a significant boost with a 10 times increased allocation from INR 15.42 crores in FY25 to INR 155.76 crores in FY26. This substantial policy intervention is poised to drive transformational changes in the battery manufacturing ecosystem. The increased allocation is expected to lower EV battery manufacturing costs by 10-15% by reducing capital expenditure on imported machinery and technology thereby enhancing the competitiveness of domestically produced batteries. Additionally, this move will accelerate the development of large-scale battery manufacturing facilities, strengthening India's position as a global hub for energy storage solutions. Furthermore, the initiative will play a crucial role in boosting the domestic supply chain for battery production by facilitating the recovery of critical minerals from industrial tailings, ensuring sustainable resource utilisation, and reducing import dependence.

Powering Urban Sustainability: The Energy-Climate Imperative

India’s urban future hinges on energy efficiency and climate resilience. With the INR 1 lakh crore Urban Challenge Fund, cities now have the opportunity to modernise infrastructure with sustainable water, sanitation, and climate-friendly solutions. Smart energy systems, green buildings, and low-carbon transport must be at the core of urban transformation to cut emissions and enhance resilience. As climate risks intensify, this fund can be a game-changer in building cities that are not just livable but future-ready—where sustainability and efficiency drive economic growth and environmental security.

Conclusion: A Power-Packed Blueprint for the Future

The budgetary measures outlined for the energy sector reaffirm India’s commitment to financially stable utilities, clean energy expansion and a self-reliant manufacturing ecosystem. These policies lay the groundwork for achieving the nation’s ambitious energy goals while driving job creation, reducing carbon emissions, and ensuring affordable electricity for all. With zero tax liability on earnings up to INR 12 lakh (INR 12.75 lakh with standard deduction), middle-class taxpayers will have higher disposable income, potentially fueling demand for sustainable choices— energy-efficient appliances, solar rooftops, EVs and— driving grassroots climate action.

However, a notable miss in this year’s budget is the lack of emphasis on Carbon Capture, Utilisation, and Storage (CCUS), a critical technology in decarbonising industries and achieving long-term climate targets. Roadmap to utilise green hydrogen in ‘hard to abate’ industrial sectors starting with voluntary to mandatory use with ‘carrot and stick’ arrangement could have been more beneficial too. As India takes decisive steps towards a cleaner and more resilient energy sector, the overarching message is clear: strategic reforms, technological advancements, and fiscal prudence will define the country’s energy future.

This article was first published in The Economic Times on 7 February 2025.