India Needs USD 385 Billion to Meet Renewable Energy Target: Moody's Ratings

Moody's Ratings predicts that India will invest over USD 385 billion in its power sector over the next six to seven years to achieve a 500 GW renewable energy target. Despite this significant investment in renewables, the agency expects coal to remain the primary power generation source for the next decade.

To achieve this renewable energy target, India is expected to add 44 GW of non-fossil capacity annually, necessitating an investment of USD 190 billion to USD 215 billion. Furthermore, an additional USD 150 billion to USD 170 billion will be required for electricity transmission, distribution, and energy storage to support the increased renewable energy capacity.

Moody's observed that the substantial pipelines of announced projects are expected to maintain high financial leverage for rated renewable power companies over the next two to three years, which is deemed a credit negative. However, the leverage of government-related issuers is anticipated to remain moderate during the same period.

The rate at which India transitions away from coal will depend on the government's ability to balance energy affordability and reliability with its commitment to reducing emissions. Moody's anticipates that India will add 40 GW to 50 GW of coal-based capacity during this time.

“Renewable energy and electricity transmission will continue to drive investments in India’s power sector over the next six to seven years. Incremental coal-based generation capacity additions are also likely to supplement baseload requirements because we expect power demand to grow by 5-6 percent per annum over this period,” the report stated.

The agency believes that regulatory stability and policy support will continue to facilitate the energy transition for power companies. Vikram V, vice-president and co-group head of corporate ratings at ICRA, also highlighted that substantial investments in battery energy storage systems, generation, and transmission segments are expected after June and July.

Vikram stated that substantial investments are ongoing in both the generation and transmission sectors to address the increasing demand. He also highlighted the government's focus on revising projects and encouraging investments in the thermal sector. This strategy aims to ensure sufficient thermal capacity to meet demand until ample storage capacity is achieved.

Moody's identifies Power Grid Corporation of India and Adani Transmission Step-One as major players planning significant capital expenditures to expand their electricity transmission operations. However, state-owned electricity distribution companies will account for most investments in the distribution sector. The rating agency estimates that total grid investments, including storage, necessary to optimally utilise the new generation capacity will range from USD 150 billion to USD 170 billion.