Budget 2026 backs decarbonisation, clean energy supply chains

Union Budget 2026-27 lays out a long-term energy strategy focused on decarbonisation and supply chain resilience through CCUS funding, nuclear incentives, battery storage support, logistics upgrades

There are two key themes that have emerged from the provisions for the energy sector in the Union Budget for 2026-27. The themes - decarbonisation and supply chain strengthening - provide an insight into the government’s strategic blueprint for the development of the energy sector over the next few decades. They also reveal how the energy industry, considered the lifeline for growth and prosperity, is set for a major overhaul. 

CCUS funding signals long-term decarbonisation push 

The specific allocation of Rs 20,000 crore for Carbon Capture, Utilisation and Storage (CCUS) over five years, with Rs 500 crore allocated for 2026-27, has come as a surprise, given that the technology is yet to evolve to a stage where it can support commercial-scale projects in India. However, this Budget has sown the seed for its rapid uptake, clearing the way for its implementation across hard-to-abate sectors such as cement, fertiliser and steel, which account for a majority of India’s greenhouse gas emissions.

 

The Department of Science and Technology (DST) had in December 2025 released a roadmap, aiming to nurture CCUS technology through an emphasis on research and development and capacity building of both human resources as well as infrastructure, to develop technologies and methodologies that address issues related to high capital costs, safety, logistics and high auxiliary power consumption. This augments initiatives on CCU test beds in real industrial environments for power, steel and cement, leveraging innovative public-private partnership models.

 

Nuclear, SMRs and clean energy inputs get customs relief 

The other key focus area, which will promote the use of small modular reactors (SMRs), was another thread connected to the larger theme of decarbonisation. Finance Minister Nirmala Sitharaman extended the exemption on basic customs duty for imports of goods required for nuclear power projects till 2035, as India boosts its efforts to expand local nuclear power capacity manifold by 2047. Other clean energy inputs that received customs duty exemption in this Budget include sodium antimonate - used to make solar glass panels - and permanent magnets, which are used in wind power.

 

“This move is expected to support the government’s installed nuclear capacity target of 100 gigawatt by fiscal 2047, as it lowers input procurement costs for nuclear power plants. This is particularly relevant in the backdrop of the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Bill, 2025, which has opened the regulated nuclear power generation segment to private participation,” ratings agency Crisil said in a report.

 

Battery storage support strengthened through VGF expansion 

Another key area of intervention in the Budget — one that sits at the interface between decarbonisation and supply chains for clean energy technologies — is Battery Energy Storage Systems (BESS), which received increased viability gap funding (VGF) support from the government. The VGF scheme was initially introduced by the power ministry to further promote cost-effective, long-duration energy storage and renewable energy integration during peak grid hours.

 

The first tranche of the scheme, approved in March 2024, had a total outlay of Rs 9,400 crore, including Rs 3,760 crore of budgetary support to enable the installation of 13,220 megawatt hour (MWh) of BESS capacity, with central assistance capped at up to 30 per cent of capital cost or Rs 27 lakh per MWh, whichever was lower. The second tranche was launched in June 2025 to support an additional 30 GWh of BESS capacity with Rs 5,400 crore of financial support, which is expected to accelerate BESS deployment, particularly for stationary storage, and reinforce the trend of new power tenders being designed with storage components.

 

Experts believe this step is part of the larger focus on clean technology manufacturing to support decarbonisation and strengthen supply chains, especially for critical mineral processing.

 

“The basic customs duty (BCD) exemption, which previously applied to capital goods used in the manufacturing of lithium-ion cells for conventional batteries, has now been extended to capital equipment employed in the production of lithium-ion cells for BESS, aiding the manufacturing capability of the segment over the long run. Moreover, capital goods essential for the extraction, beneficiation and processing of critical minerals have been granted a similar BCD exemption, supporting domestic manufacturers in these strategic areas,” Crisil said in its report.

 

Waterways expansion to boost mineral logistics efficiency 

The Budget promises action on another crucial area for efficient transportation of critical minerals and improved logistics efficiency: waterways. The Budget has announced plans to operationalise 20 new national waterways, in addition to the existing 111. Of these, National Waterway-5 will get priority. These new waterways will connect mineral-rich districts such as Talcher and Angul, and industrial centres such as Kalinga Nagar, with deep-water ports such as Paradip and Dhamra. This single step holds the promise of boosting growth in the critical mineral sector.

 

Industry sees strong signal for clean energy manufacturing 

Domestic industry leaders said the Budget has sent a strong and timely signal for domestic manufacturing, particularly in renewable energy equipment and clean energy supply chains. Coupled with higher public capital expenditure, targeted customs duty exemptions for BESS and solar glass inputs are expected to strengthen the country’s manufacturing competitiveness.

 

“The emphasis on energy security, critical mineral processing, infrastructure-led growth, and ease of doing business also creates the right foundation for scale, technology adoption and localisation. For renewable equipment manufacturers, this policy clarity will encourage long-term investments, resilient supply chains and accelerated capacity expansion, supporting India’s transition towards a self-reliant, sustainable and globally integrated clean energy manufacturing ecosystem,” said Jitendra Agrawal, chief operating officer of Renewable Equipment Manufacturing Business (REM), ACME Group, a large renewable energy firm.