India’s renewables sector will need to garner investments of around US$500 billion in order to meet its target of 450GW of clean energy capacity by the end of the decade.
That’s according to a new report from the Institute of Energy Economics and Financial Analysis, which claims that US$300 billion would need to be set aside for wind and solar project development, US$50 billion on grid stabilising technologies such as battery energy storage, and US$150 billion on transmission and distribution initiatives.
Private equity groups, pension funds, sovereign wealth funds, oil and gas majors, development banks, India’s state-owned entities and energy industry leaders could all play a “critical role in delivering on India’s renewable energy growth” according to the report, which outlined the fast-growing pool of capital that is going towards independent power producers (IPPs) in the country and what it “needs to fund its ambitious energy targets”.
A number of leading figures in the power sector have opted to invest in Indian projects in the past year. Energy giant Total kicked off 2021 by acquiring a 20% stake in Indian PV developer Adani Green Energy Limited (AGEL), while the Indian government agreed to a financing package in November that includes INR45 billion (US$618 million) of investment over five years to support the domestic development of high-efficiency PV modules. Sovereign wealth funds and energy companies such as Abu Dhabi Investment Authority, Masdar Clean Energy, Singapore’s GIG and Qatar Investment Authority have also shown interest in the country’s renewables sector by investing in local IPPs
Tim Buckley, IEEFA’s director of energy finance studies in South Asia, said that potential investors are “primed to deploy a wall of capital that India needs to fund its ambitious renewable energy targets,” adding that the solar sector’s ongoing expansion, lower solar tariffs and low interest rates “sends a strong signal to global investors about the vast scale of potential investment available in Indian renewable energy projects”. India recorded a new record low solar tariff of INR1.99/kWh (US$0.027/kWh) last December, an 18% decline year-on-year. The report also noted that solar module costs have fallen 20% year-on-year in the country.
The report comes on the back of a surge in deployments across the country as it transitions away from fossil fuels and recovers from COVID-19 disruptions. Roughly 500MW of solar capacity was installed in India last December, according to JMK Research & Analytics, while Prime Minister Narendra Modi has said that the country’s renewables capacity is expected to reach 220GW by 2022, exceeding its original 175GW target.
However, there is some dispute over India’s funding requirements in order to meet its renewables target. The International Energy Agency (IEA) has said the country’s clean energy sector may need US$1.4 trillion in additional investments to ensure sustainable growth.
Saurabh Trivedi, co-author of IEEFA’s report, argued that India’s IPPs cannot rely on attracting investment for new projects alone, and should also try to recycle existing capital. India’s renewables infrastructure, he says, has seen “significant” consolidation and green bond issuances, which has “helped to unlock and recycle the existing capital”, and enabling developers to take on larger tenders.