Budget 2026: Infra Push & Tax Breaks Boost RE, Key Demands Unmet

Introduction: A Budget of Infrastructure Over Incentives

Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, has charted a course for India's renewable energy (RE) sector that prioritizes foundational infrastructure and domestic manufacturing over direct subsidies and short-term incentives. While the industry had a long wishlist focusing on financial relief and policy clarity, the budget responded with a massive capital expenditure outlay and targeted customs duty rationalizations. The key takeaway is a strategic shift from merely adding generation capacity to building a resilient ecosystem capable of integrating and sustaining it.

For financing institutions like the Indian Renewable Energy Development Agency (IREDA), the budget presents a mixed bag of expanded opportunities through a larger project pipeline, even as some measures that could have lowered the cost of capital remained on the drawing board.

The Headline: A ₹12.2 Lakh Crore Capex Push

The government's decision to increase its public capital expenditure to ₹12.2 lakh crore is the single most significant positive for the renewable energy sector. A core demand from the industry has been the urgent need to modernize and expand India's transmission and grid infrastructure to handle the intermittency of renewable power. This substantial allocation, while not exclusively for green energy, will fund the development of inter-state transmission systems (ISTS) and green energy corridors, which are critical for evacuating power from resource-rich states to demand centers. A stronger grid directly addresses issues of curtailment and ensures that installed renewable capacity is fully utilized, making projects more bankable.

Furthermore, the establishment of an Infrastructure Risk Guarantee Fund will help de-risk private investment in large-scale RE projects by providing partial credit guarantees to lenders, thereby improving investor confidence.

A Strategic Boost for Energy Storage Manufacturing

Recognizing that energy storage is the missing link for a reliable renewable-powered grid, Budget 2026 provided a crucial fillip to the domestic Battery Energy Storage System (BESS) ecosystem. The budget announced a basic customs duty (BCD) exemption on the import of capital goods and machinery required for manufacturing lithium-ion cells. This measure directly lowers the capital cost of setting up gigafactories in India, aligning with the 'Atmanirbhar Bharat' mission. While this falls short of the industry's demand for a dedicated Production-Linked Incentive (PLI) scheme for BESS and a GST reduction from 18% to 5%, it is a significant step towards building indigenous manufacturing capabilities.

Supporting the Broader Clean Energy Value Chain

The budget also included targeted measures to strengthen the domestic supply chain for solar and other clean technologies:

• Solar Manufacturing: To support solar glass production, a key component in modules, the budget exempted BCD on imported sodium antimonate.
• Critical Minerals: BCD exemption was also extended to capital goods required for processing critical minerals, which is vital for manufacturing permanent magnets used in wind turbines and EV motors.
• Biogas: In a boost to the waste-to-energy sector, the budget clarified that the value of biogas will be excluded when calculating central excise duty on biogas-blended CNG, making it more cost-competitive.

Table: Key Budget 2026 Announcements for the RE Sector

The Unaddressed Wishlist

Despite the positives, the budget was notably silent on several key industry demands, indicating a move away from direct financial support:

• No PLI for BESS: The much-anticipated PLI scheme for battery storage was not announced.
• No GST Reduction: The demand to lower GST on BESS from 18% to 5% to accelerate adoption was not met.
• Clarity on Delayed PPAs: The budget did not offer a specific resolution for the over 45 GW of renewable capacity stalled due to delays in signing Power Purchase Agreements (PPAs).
• Priority Sector Lending: The long-standing request to include renewable energy projects under the RBI's Priority Sector Lending (PSL) framework, which would unlock low-cost financing, was not addressed.
• Concessional Tax Rate: The demand to reintroduce the 15% concessional corporate tax rate for new manufacturing entities was overlooked.

Implications for IREDA and the Financing Landscape

The budget's focus on infrastructure and manufacturing creates a fertile ground for financing institutions like IREDA. The massive capex push will generate a larger pipeline of grid and transmission projects, while the support for BESS manufacturing will create new lending opportunities. However, the absence of PSL status for RE means the cost of capital will not see the reduction the industry had hoped for. The proposed restructuring of major power sector lenders like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) could also alter the competitive dynamics in the RE financing space.

Conclusion: Building Foundations for a Resilient Future

Union Budget 2026 marks a maturing of India's energy transition policy. The focus has clearly shifted from chasing capacity targets to building the robust infrastructure and domestic manufacturing capabilities required to support them. While the industry may be disappointed by the lack of direct fiscal sops, the long-term vision of creating a self-reliant and resilient clean energy ecosystem is unmistakable. The success of this strategy will now depend on the swift and efficient implementation of these foundational measures.