GREENING THE GRID: HOW POLICY FRAMEWORKS AND TAX BENEFITS ACCELERATE RENEWABLE ENERGY ADOPTION

ABSTRACT

India’s transition to renewable energy is driven by a strong legal and policy framework, including key legislation like the Electricity Act, 2003, and initiatives such as the National Solar Mission. Tax incentives under Section 80-IA and 100% FDI allowances further boost private and foreign investments. Judicial interventions like Hindustan Zinc Ltd. v. RERC have empowered regulators to enforce Renewable Purchase Obligations. Proposed innovations like the Energy Credit Card (ECC) system and schemes like PM Surya Ghar Muft Bijli Yojana aim to enhance public participation and reduce emissions. However, policy clarity, public awareness, and passing pending legislation like the National Renewable Energy Bill, 2015, are essential to meet the 2030 goal of 500 GW from non-fossil sources. A just, inclusive, and technology-driven approach is key to a sustainable energy future.

INTRODUCTION

The energy conservation act,2022 defines energy as “any form of energy derived from fossil fuels or non-fossil sources or renewable sources.” Renewable energy is considered one of the enablers of sustainable and inclusive growth and development in India. India is blessed with abundant renewable resources ranging from Solar, Wind, hydro energy to the latest biomass. These sources of energy are now accessible even in the rural areas and the people use it to pursue their routine tasks. As per 2024 report of government, India’s renewable energy capacity has surpassed 200W, a surge of 13.5% from last year. A few policy and tax initiatives by the government are in place, and they go hand in hand with each other benefitting not only the consumer but also the investor. So, if an investor chooses to invest through an automatic route, 100% FDI is permitted. These initiatives not only encourage startups but also private players in this sector. “Further, some goals set forth by the government include 500 GW from non-fossil sources by 2030 and estimated 1TW by 20235 but due to some lacunas and no proper implementation this goal seems to be a daunting task of the future.”

RENEWABLE ENERGY LEGAL AND POLICY FOUNDATIONS

Looking at the Indian renewable energy policies scenario, it is a constantly developing framework. What enabled the country to start its renewable energy quest was the oil shock wave of 1973, while the whole world was suffering from the consequences a sense of urgency was injected in India as well to make use of its in-exhaustible energy sources. The nation was completely dependent on oil import, with an embargo imposed the nation did not get any anticipated favorable treatment from OPEC nations. Moreover, the forex reserves started to deplete and 40% of export earnings were spent on it, along with this increased expenditure there was steep rise in inflation. In order to mitigate the effects of these conditions, it was seeped into the 6th five-year plan after the Stockholm conference to consider the alternatives of the persisting fossil fuel and energy, though there was not a standard policy and ministry formulated at that time. India's renewable energy policy framework is regulated by a combination of central and state-level policies. Nevertheless, a significant challenge comes in the form of ineffective coordination between the government levels, which frequently leads to inconsistent and tardy implementation of the policies. Although National Action Plan on Climate Change (NAPCC) and State Action Plans on Climate Change (SAPCCs) are ambitious in their objectives, they are often undermined by lax enforcement mechanisms—especially with regard to monitoring and enforcement of Renewable Purchase Obligations (RPOs).

Additionally, the existing legal frameworks are not sufficiently revised to account for the fast pace of technological evolution and changing energy requirements. There is also sparse attention towards decentralizing access to renewable energy, particularly in rural and disadvantaged areas, hindering inclusive growth. Public-private partnerships need to be consolidated to fill the financing and infrastructure gaps, and efforts towards public awareness and skill development need to be stepped up to create an aware and skilled renewable energy community. The Income Tax Act, 1961 section 80-IA offers income tax exemptions for infrastructure projects, including renewable energy undertakings, for 10 consecutive years. “The National Renewable Energy Policy (2009)”, established targets for renewable capacity expansion and institutionalized mechanisms like Renewable Purchase Obligations (RPOs) which permit the energy companies to procure a certain energy percentage from renewable sources and Renewable Energy Certificates (RECs) that enable market-based compliance through tradable certificates. “The National Renewable Energy bill, 2015 was introduced by the Ministry of New and Renewable Energy to establish a comprehensive legal framework aimed at accelerating the renewable energy (RE) deployment across the country. The primary purpose of the act was to reduce dependence on fossil fuels, and mitigating GHGs consequentially switching to RE energy. The key provisions of draft include creation of, “Renewable Energy Investment Zones (REIZs) to attract investment, the establishment of a Renewable Energy Fund to finance RE projects, and the formation of a National Renewable Energy Committee and Advisory Group” to facilitate inter-ministerial coordination and provide expert assistance. But due to some conflicting policy interests it is still a missing piece in India’s renewable energy puzzle.”

TAX INCENTIVES AND FINANCIAL SCHEMES IN INDIA

The Indian renewable energy regulatory framework is multi-ministerial and multi-agency. The planning and promotion of renewable energy programs are mainly the responsibility of the Ministry of New and Renewable Energy (MNRE). The Ministry of Power is responsible for electricity generation and transmission, and the Ministry of Finance is responsible for allocating funds and tax policies. Moreover, project financing is assisted by agencies such as the Indian Renewable Energy Development Agency (IREDA), and regulatory supervision is assisted by the Central Electricity Regulatory Commission (CERC). One specialized financial organization that offers funding for renewable energy initiatives is the “Indian Renewable Energy Development Agency (IREDA).” FDI makes it possible for REG projects to be fully funded under the 2003 Electricity Act. Custom duty or duty-free concessions on some of the materials needed for the projects are allowed, and no prior regulatory body clearance is needed for the same. India had set a target of achieving 175 GW of renewable energy capacity by 2022, encompassing 100 GW from solar, 60 GW from wind, 10 GW from bio-power, and 5 GW from small hydro. While substantial progress was made, the target was not fully met by the deadline. As of January 2025, India's total renewable energy capacity reached 217.62 GW, with solar energy accounting for 47% of the total installed capacity. Buildings get different ratings depending upon the points they attain. Five to one star will be given to the buildings earning points ranging from 50 to 60, 61 to 70, 71 to 80, 81 to 90, and 91 to 100, respectively. Akshay Urja shop is one of the schemes that offers for energy conservation in commercial buildings and residential homes. In Hindustan Zinc Ltd. v. Rajasthan Electricity Regulatory Commission, the petitioner (Hindustan Zinc) objected to the application of Renewable Purchase Obligations (RPOs) to captive power plants pursuant to Section 86(1)(e) of the Electricity Act, 2003. It contended that self-consumption out of captive generation ought to be exempt and imposing RPO on captive power consumption restricted their freedom to carry on business by compelling them to ‘Purchase renewable energy or certificates’ impeding their basic right under Article 19(1)(g). The Supreme Court upheld the validity of RPOs stating that ‘the regulations framed were to achieve the constitutional duties of state under article 48 and 51A(g) as it promotes a larger public interest. Against the petitioner’s argument, it was also noted that these are not in any manner regarded as a restriction on Fundamental Right.  This holding gave the regulatory commissions the strength to promote renewable integration.

PROPOSED INCENTIVE AND POLICY INTERVENTIONS

The renewable energy policy landscape in India is evolving to incorporate innovative mechanisms aimed at reducing carbon emissions and promoting sustainable practices. One such policy idea is the Integrated Energy Credit Card (ECC) system, this aims to incentivize energy efficiency among various stakeholders. The traditional credit cards are what it is modeled after: to reward individuals and organizations in form of credits points for adopting measures to save energy, such as using renewable energy sources or implementing technologies for energy saving. The points can then be redeemed for benefits such as discounts on utility bills. Fuel or other services, hence encouraging widespread participation. For example, R&D organisations can receive extra ECC points for promoting research in their field and for lowering electricity loads through the use of energy-efficient techniques. ECC can also receive rewards for its efforts to lower CO2 emissions. Given that agriculture continues to provide livelihood support to about 42.3% of India's population, implementing targeted reforms in this sector is essential to ensure inclusive and sustainable economic growth.  In the agriculture sector, a good practice that significantly lowers methane emissions is the System of Rice Intensification (SRI) method, which was introduced in 199 Indian districts by the National Food Security Mission (NFSM). This technique has been shown to increase yield while minimally impacting the environment so the farmers who employ this method may be eligible for incentives and subsidies in accordance with the credits earned. Many consumer-focused incentives are also needed in addition to the existing ones, such as the “PM Surya Ghar Muft Bijli Yojana” which provides financial assistance for installing solar panels on residential homes' roofs and using solar energy to generate electricity, which lowers electricity costs for homeowners. To ensure that there is no financial strain on the public, it provides generous bank loans and valuable subsidies straight into people's bank accounts, thereby reducing dependence on conventional energy sources and lowering electricity costs.

Another way to provide incentive to the producer can be through ‘Feed-in-tariff (FIT)’ a form of grid connection whereby the government can provide the producers special benefits for a specified amount of energy produced, this mechanism guarantees fixed payments to producers for electricity generated hence furthering promoting RE. By inclusion of subsidies there will be higher possibility and chances that more investment will be made, paving way for promotion of REG. Collectively, these initiatives and incentives if implemented will reinforce India’s commitment to a multifaceted approach in achieving its target, resultingly lowering emissions and enhancing renewable energy generation.

CONCLUSION

Besides granting modern amenities to millions of citizens who still fall below the poverty line, India is also experiencing unprecedented economic development. The draft National renewable Energy Act,2015 seeks to establish a comprehensive legal framework by institution of bodies such as National Renewable Energy Committee and the National Renewable Energy Advisory group, both of these targets to enhance inter-ministerial coordination and the expert guidance. Moreover, the creation of Renewable Energy Fund as proposed under it, is a step ahead in direction to achieve goal of 500GW from non-fossil sources by 2030. Providing financial incentives play a major role in promotion of RE adoption. The government must focus on offering grid connection incentives, capital subsidy, and tax relief to solar and wind initiatives. Some existing tax benefits, such as for the project developers and Companies relaxation is granted under Income tax act.

Additionally, the waiver of interstate transmission charges encourage investments in renewable energy. Decentralized energy systems are introduced to achieve energy access and sustainable development goals, so as to reduce dependence on the conventional energy sources. Despite all these efforts, public awareness stands as a significant barrier to the adoption of RE energy plans. Misconceptions lurking around the operational and installation cost deter the common people from engaging, therefore it is essential to dispel the myths and highlight the long-term benefits of this source of energy. Judicial interventions, have reinforced the principle of sustainable development, emphasizing state’s duty to protect environment and promote clean energy. These validations underscore necessity of integration of sustainability into national policies and development plans.

In conclusion, India’s aspiration to become a global leader in this energy sector depends upon a multifaceted approach that combines legal reforms, financial incentives, development in infrastructure, public engagement, technological innovation. An energy transition which is just, inclusive, and transparent in law and policy will ultimately determine the sustainability and equity of India’s energy future.

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This post is authored by Subrat Ashish Khare and Bhumika Mahajan, 3rd and 2nd year law students at DSNLU, Visakhapatnam.