Budget 2026: India’s renewable energy sector demands infrastructure over headlines

India’s renewable energy industry wants Union Budget 2026 to stop chasing capacity numbers and start fixing the actual problems that keep the lights from staying on.

The sector added a record 44.5 GW of renewable capacity in 2025, pushing total non-fossil fuel capacity past 253 GW. But industry leaders say these figures mask a deeper crisis: the infrastructure to actually use this power doesn’t exist, distribution companies (discoms) are drowning in debt, and transmission lines are years behind schedule.

The sector’s Budget 2026 expectations read less like the usual demands for subsidies and more like an emergency repair manual for India’s power system. The focus has shifted from how much renewable capacity India can install to whether the existing grid can actually handle it.

The discom crisis nobody wants to talk about

Discoms recorded their first profit in a decade—Rs 2,701 crore for FY25, reversing the Rs 25,553 crore loss from the year before. States like Punjab, Bihar, Kerala, Himachal Pradesh, and Madhya Pradesh all turned profitable.

But discoms still carry accumulated losses of Rs 6.47 trillion (6,47,000 crore). Recent profitability came from automatic fuel cost pass-through recovering 70-80 per cent of expenses, smart metering surging from 4,000 to 115,000 installations daily cutting power theft, and the Revamped Distribution Sector Scheme tying funding to performance. The gap between supply costs and revenue shrank from 65 paise per unit to 6 paise. Losses dropped from 22.6 per cent to 15.04 per cent.

The problem is what happens next. Most states still provide free or heavily subsidised power to farmers, with costs buried in state budgets. Punjab raised agricultural tariffs but the state absorbed the increase—farmers still pay nothing. To cover this burden, states jack up industrial and commercial tariffs, making India’s manufacturing less competitive.

Nearly 50 GW of signed power purchase agreements remain in limbo. Banks remain cautious when the underlying subsidy structure could shift with any election.

Budget 2026 needs to address this fundamental challenge. India’s power distribution runs on a model where some consumers subsidise others, agricultural power remains a fiscal burden disguised as social policy, and the actual cost of electricity gets obscured by political expedience. Until that changes, renewable developers will face payment uncertainty, and the 500 GW target will remain hostage to distribution sector politics.

Manufacturing independence: The China problem

India imports over 80 per cent of its solar manufacturing equipment from China. The industry wants enhanced Production Linked Incentive (PLI) schemes covering the entire solar value chain—polysilicon, ingots, wafers, cells, and modules—with R&D support and zero customs duties and GST for five years on equipment. The industry wants 80 per cent accelerated depreciation restored for new manufacturing facilities. Solar module capacity stands at 144 GW, while cell capacity reached 25 GW.

For batteries: extend PLI schemes to balance-of-system components and grid-scale storage, reduce customs duties on lithium-ion batteries from 10 per cent to 5 per cent, and secure critical minerals. Battery storage capacity is projected to jump from 507 MWh in 2025 to 5 GWh in 2026.

Energy storage: The missing link

You can’t run a power grid on sunshine and wind alone. When the sun sets and wind stops, energy storage fills the gap—and India doesn’t have nearly enough.

The industry wants Viability Gap Funding for grid-connected battery systems enabling round-the-clock renewable integration, energy storage treated as a grid asset under system-operator control, storage-linked procurement incentives for battery and pumped hydro storage, and GST exemptions.

Without storage, renewable energy remains unreliable. Grid operators can’t dispatch power when needed. Industrial customers can’t commit to renewable power without 24/7 availability. Energy storage transforms intermittent generation into dependable baseload power. Countries successfully integrating high percentages of renewable energy all invested heavily in storage infrastructure.

Grid modernisation: The not-so-attractive essential

Transmission infrastructure doesn’t generate headlines, but without it, renewable energy from Rajasthan’s deserts can’t reach Maharashtra’s factories or Karnataka’s data centres. The industry wants higher allocations for inter-state transmission systems and green energy corridors, single-window clearances, and dedicated funding.

Digital grid management—SCADA systems and AI-driven predictive maintenance—could help manage renewable energy variability. When power swings wildly based on weather, grid operators need sophisticated forecasting and real-time control to maintain stability.

Transmission constraints and connectivity delays create bottlenecks, wasting already-installed capacity. Projects sit idle waiting for transmission lines. Land acquisition and right-of-way issues compound the problem, with transmission infrastructure taking longer to build than the renewable projects themselves.

Green hydrogen: The long shot

Green hydrogen gets significant attention, though commercial viability remains questionable at current costs. The industry wants PLI schemes extended to electrolysers, GST reduced from 18 per cent to 5 per cent, mandates for demand across refining, fertilisers, shipping, and mobility, VGF support for hard-to-abate industrial sectors, and doubled National Green Hydrogen Mission budget allocation.

Without demand guarantees, the massive investments needed won’t materialise. Refineries, fertiliser plants, steel mills, and cement factories need regulatory push or financial incentives to switch from grey hydrogen. Green hydrogen faces a chicken-and-egg problem: costs won’t drop without scale, scale won’t come without guaranteed demand, and demand won’t materialise without lower costs.

Decentralised energy: The Rooftop Revolution

The sector argues Budget 2026 should prioritise decentralised energy, particularly rooftop solar. Distributed generation strengthens grid resilience, cuts transmission losses, and improves energy access.

The PM Surya Ghar Muft Bijli Yojana targets one crore households for rooftop solar. The industry wants interest subvention, simplified GST, faster approvals, and support for digital energy platforms. Rooftop solar eliminates transmission and distribution losses running as high as 20-25 per cent in some states.

The regulatory framework remains complicated. Net metering policies vary by state, approvals take months, and grid connectivity standards differ across utilities. Budget 2026 needs standardised regulations and streamlined processes.

Green Finance: Show me the money

The industry wants 200 per cent green credits for renewable energy investments, a dedicated Green Finance Institution offering credit guarantees and concessional finance, low-cost long-tenor funding through blended finance, and preferential lending for solar manufacturing. Specific asks include easing land acquisition thresholds and waiving refinancing prepayment penalties. The tax wishlist: accelerated depreciation for renewable equipment, reduced corporate tax for solar manufacturers, and rationalised GST.

Rising global interest rates have increased capital costs. Concessional finance and credit guarantees can level the playing field. The sector also wants tax credits and guarantees for low-carbon technologies in steel and cement, industries with significant emissions but limited decarbonisation options.

What success actually looks like

Industry consensus frames Budget 2026 as pivotal for strengthening the plumbing of India’s energy system: transmission capacity that works, storage systems keeping lights on, discom finances allowing agreements to move forward, and manufacturing capabilities reducing import dependence.

The renewable sector has grown from 76 GW in 2014 to over 250 GW by 2025. India ranks fourth globally in wind, solar, and overall renewable capacity, surpassing Japan as the world’s third-largest solar producer. Investment hit Rs 2 trillion (200,000 crore) in 2025. Renewable energy’s share of generation is projected to rise from 18 per cent in 2022 to 44 per cent by 2030.

But the industry’s Budget expectations reveal gaps between installed capacity and actual performance. You can have 500 GW and still face shortages if transmission lines don’t exist, storage systems aren’t there, and distribution companies can’t pay their bills.

The shift from megawatts to reliability marks sector maturation. Delayed discom payments undermine project bankability. Developers can’t get financing without payment certainty. Banks won’t lend against uncertain cash flows. R&D funding for smart grids, forecasting systems, AI-driven grid management, and improved storage remains on the wishlist. Land acquisition challenges plague large-scale projects—solar and wind farms need vast tracts of land, and assembling landholdings can take years.

Budget 2026 will show whether policymakers grasp that India’s renewable challenge has shifted from installation to integration. The next phase depends on infrastructure that doesn’t photograph well and policies that don’t fit soundbites. System readiness, financial health, complete value chains, and policy certainty determine whether India reaches 500 GW by 2030, or whether the renewable story stalls at impressive but insufficient capacity numbers.