India’s Blueprint for Financing Energy Transition: How India’s Policies Accelerated Private Sector Investments

India is the world’s 5th largest country today in terms of installed Solar capacity with 71000 MW installations as on July 31, 2023 trailing Germany by 3 GW. India’s solar capacity grew over 23 times in the last 9 years from 3000 MW in 2014 to 71000 in 2023 (July) and attracted investments in the multitude of 60 billion USD in the last 7 years.

November 21, 2023. By News Bureau

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G20 Energy Transition Ministers Meeting in Goa in July identified 5 key pillars of Energy Transition being ‘Sustainable’, ‘Affordable’, ‘Reliable’, ‘Resilient’ and ‘Cleaner’. The G20 outcome document also laid a greater emphasis on accessible and affordable capital while calling for innovative instruments for low-cost finance to accelerate energy transition. Private sector investments have been and will continue to play an integral role in shaping a nation’s energy transition trajectory. India, the President of G20 this year, has seen a phenomenal growth in its own Renewable Energy Sector. India’s success story in Renewables is an example worth emulating across the globe including both the developed and developing nations. It is therefore worth looking at the blueprint of India’s RE policy that propelled private sector investments into the sector.

Where India Stands
India is the world’s 5th largest country today in terms of installed Solar capacity with 71000 MW installations as on July 31, 2023 trailing Germany by 3 GW. India’s solar capacity grew over 23 times in the last 9 years from 3000 MW in 2014 to 71000 in 2023 (July) and attracted investments in the multitude of 60 billion USD in the last 7 years. On a closer look at India’s renewable energy policy, one can find 5 key elements that attracted International as well as domestic investors.

Visibility: Visibility in the policy follows private sector investments. Indian government’s ability to set targets (and include private sector in consultations) and provide a trajectory is one of the primary reasons to the country’s accelerated growth in the RE sector. India’s solar target initially was set at 20 GW by 2022 under the then Jawaharlal Nehru National Solar Mission (JNNSM). In 2014, the target has been revised to 100 GW. Despite the pandemic affecting all the sectors for 2 years, India achieved 63 GW of Installations and is poised to breach the 100 GW mark by mid-2024 according to NSEFI Market Outlook. Keeping in view India’s target of 500 GW of RE installations by 2030, earlier this year, the Ministry of New and Renewable Energy came out with a trajectory document that outlines bids for the next 5 years until FY 28 with around 50 GW per annum and later announced quarter wise bid trajectory for wind and solar (including round-the-clock, hybrid) projects. The government’s commitment to an ambitious yet pragmatic target is an enabler for Investor confidence (as can be seen from the results of auctions in the last 2 quarters).

Framework and Regulations: Comprehensive framework for policies and regulations play a pivotal role in the growth of any sector. Starting with declaring solar energy as ‘must run’ to standard bidding guidelines for streamlining the process of bidding for wind, solar and recent announcement of such guidelines for hybrid, round-the-clock power, India’ RE policy framework has evolved with comprehensive attention to details that can ease investors’ worries. On the other hand, India’s strong regulatory framework of central and state level regulatory commissions has not only ensured the regulations adapt according to the requirements of the dynamic RE sector but when tested with circumstances that had the potential to catapult the sanctity of contracts, these quasi-judicial bodies reinstated the trust of investors on Indian market.

Infrastructure: There is no transition without transmission and India’s success in attracting investments in RE sector can be alluded to its dedicated focus on creating evacuating infrastructure. India which is home to one of the world’s largest high voltage synchronous grids, is also housing Green Energy Corridor - a dedicated transmission infrastructure to evacuate renewables. Around 12,700 ckm (circuit kilometers) length of Green Energy Corridor already exists and another 10,750 ckm is in pipeline, which can accommodate around 20 GW of renewable generation. With One Nation-One Grid-One Frequency achieved in India, renewable energy can be generated at any location and can be seamlessly consumed across the nation. This helps in states with less potential of solar/wind in leveraging the RE power produced in any high potential state.

Innovation: India is known for its frugal innovation and RE sector isn’t an exception. Today, India is home to robust and innovative applications across the spectrum of renewables. From distributed livelihood applications like solar powered iron cart, solar powered cold storage or bulk milk chilling machine to solarizing agriculture feeders, co-locating solar with agriculture via pumps, India has set a global benchmark for application driven proliferation of renewable energy. When it comes to bids, India’s innovative round-the-clock and peak power tender – which was also the world’s first of its kind, India turned the tables on the way renewable power is perceived by off-takers. Today, most bids in India comprise solely of renewables, with a promise of firm and dispatchable power to DISCOMs, which at one point of time was perceived to be impossible. While the world talks about hybrid and roundthe-clock RE power in KWs and MWs, India quietly graduated to GWs.

Incentives: India was one of the few countries to come out with a dedicated incentive scheme for promoting domestic manufacturing through Production Linked Incentives (PLI). PLI, likened with Inflation Reduction Act (IRA) (total outlay of 26 billion USD for 14 sectors), with a total outlay of 24000 crores (~3 billion USD) for solar (4500 crores in PLI 1 and 19500 crores in PLI 2) is one of its kind incentives to promote high efficiency domestic manufacturing in India. Through PLI, India aims to become a global hub for solar manufacturing with over 100 GW module capacity by 2027. On other hand, a new portal for Solar rooftop subsidy disbursal was launched by Prime Minister Narendra Modi in July 2022. Through this portal subsidy for residential rooftop systems will be directly disbursed to the consumers within 30 days.

India, which is the world’s 5th largest economy today, with a growing overall demand, demographic dividend coupled with ambitious targets and strong political will provides investors with a scale in capital deployment that is unprecedented. However, these investments will only materialize if there’s a clear, comprehensive, consistent and cohesive policy commitment from the governments. India is a case-in-point on how to create an ecosystem with enabling policy and regulatory mechanisms coupled with a clear trajectory, intertwined with dedicated incentives in place along with hand-holding, if necessary, for investors so that private sector (and their investments) thrive.

- Chintan Shah, Principal Advisor, NSEFI; Subrahmanyam Pulipaka, Chief Executive Officer, NSEFI