In an attempt to reach its target of 450 GW of clean energy capacity by the end of the decade, India's renewables industry will need to raise investments of about US$500 billion.
According to a recent study by the Institute of Energy Economics and Financial Analysis, which argues that US$300 billion will have to be put aside for the development of wind and solar projects, US$50 billion for grid-stabilizing technology such as battery storage and US$150 billion for 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”.
In the past year, a number of prominent figures in the power industry have chosen to invest in Indian ventures. By purchasing a 20 percent stake in Indian PV developer Adani Green Energy Limited (AGEL), energy company Total kicked off 2021, while the Indian government agreed in November to a funding package that involves INR45 billion (US$618 million) of investment over five years to finance the local development of high-efficiency PV modules. Via investments in local IPPs, sovereign wealth funds and energy firms such as the Abu Dhabi Investment Authority, Masdar Clean Energy, the Singapore GIG and the Qatar Investment Authority have also shown interest in the renewable energy sector in the region.
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”. Last December, India reported a new record low solar tariff of INR1.99/kWh (US$0.027/kWh), an 18 percent year-on-year decrease. The study also noted that the cost of the solar module has dropped in the country by 20 percent year-on-year.
As it moves away from fossil fuels and recovers from COVID-19 disruptions, the study comes on the basis of a rise in deployments across the nation. According to JMK Research & Analytics, approximately 500MW of solar capacity was built in India last December, while Prime Minister Narendra Modi said the country's renewable capacity is projected to hit 220GW by 2022, exceeding its original goal of 175GW.
However, in order to achieve the renewables goal, there is some disagreement about India's funding requirements. The International Energy Agency (IEA) has said that in order to ensure sustainable progress, the country's renewable energy sector will require US$1.4 trillion in additional investments.
The co-author of the IEEFA report, Saurabh Trivedi, argued that India's IPPs cannot depend entirely on raising funding for new projects, and should also attempt to recycle existing resources. 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.