India needs $101bn additional financing to reach net-zero targets

As per the recent report by the global think tank Ember, India is on a trajectory to more than triple its renewable energy capacity by 2030 as outlined in the country’s 14th National Electricity Plan (NEP14).

However, achieving this ambitious goal necessitates a substantial investment of $293 billion. Furthermore, if India aims to align with the net-zero scenario proposed by the International Energy Agency (IEA), an additional financing of $101 billion would be required.

Despite investment risks, India needs financing to build capacity in renewables, storage and transmission to even meet the NEP14 targets. To further step up ambitions to match a global net-zero pathway, securing significantly more financing at competitive rates will be vital to ensure the viability for India to reach the goal. Access to this finance is critical for India to avoid building new coal capacity to meet its growing demand in this decade.

Neshwin Rodrigues India Electricity Policy analyst, Ember

Beyond tripling of renewables capacity

The president of COP28 has advocated for a global agreement to triple renewable energy capacity by 2030. While the implications of this global target for individual countries remain uncertain, India’s 14th National Electricity Plan (NEP14) already plans for a significant increase in renewables, making the tripling of capacity by 2030 a feasible goal, as per the report.

However, to align with the net-zero pathway suggested by the International Energy Agency (IEA), India may need to set higher targets than its current plan. This would necessitate India to generate approximately 32% of its energy from solar and 12% from wind by 2030, as suggested by the report.

To achieve these generation levels from solar and wind, the report estimates that India would need to build an additional capacity of 115 GW of solar and 9 GW of wind by 2030, beyond the solar and wind target outlined in its NEP14 plan. This would elevate India’s total renewable capacity to 448 GW of solar and 122GW of wind by 2030.

Pressing financing needs

Securing the necessary funding for India's ambitious renewable energy targets poses a significant challenge, according to the latest analysis spanning 2023 to 2030. The report indicates a required investment of $293 billion during this period to meet the existing solar and wind targets, paving the way for a substantial increase in renewable capacity by the 2030s.

However, to align with the International Energy Agency's (IEA) net-zero pathway and further elevate India's renewable capacity goals, an additional $101 billion in financing is deemed essential. This funding is earmarked for bolstering capacity in solar, wind, storage, and transmission infrastructure.

The analysis underscores the existing hurdles faced by renewable projects in India, ranging from payment delays to regulatory challenges, which contribute to financing barriers. The financial demands to achieve both the National Electricity Policy 2014 (NEP14) target and the IEA net-zero scenario far surpass the current investment capacities within India.

To realize this heightened ambition, the report emphasizes the imperative for India's financing capacity to nearly triple by 2030, a considerable increase from the average investment capacity of approximately $75 billion observed over the previous eight years.

Neshwin Rodrigues, Ember’s India Electricity Policy Analyst, underscores the critical need for financing despite inherent investment risks. He stresses that India must secure substantial funding at competitive rates not only to meet NEP14 targets but also to align with global net-zero pathways. Access to this finance is deemed vital for India to avoid resorting to new coal capacity to meet the escalating demand in the current decade.

India's NZE challenge: Financing hurdles

Achieving the Net-Zero Emissions (NZE) targets outlined by the International Energy Agency (IEA) presents a formidable financial challenge for India, surpassing the current investment capacities. Our assessments project a need for approximately $293 billion in investments by 2030 to meet solar and wind capacity targets as per NEP14. This includes development costs, storage, and transmission essential for large-scale renewable energy integration.

To align with IEA NZE solar and wind share targets, an additional investment of $101 billion is necessary. This breaks down to around $68 billion for solar, $8 billion for wind, $14 billion for storage, and $11 billion for transmission capacity. The total investment under this scenario amounts to $394 billion, significantly surpassing the financial landscape observed in the previous 8 years, which averaged around $75 billion annually.

Renewable projects in India encounter substantial investment risks, ranging from regulatory and project risks to financing challenges. Issues such as payment delays, Power Purchase Agreement (PPA) renegotiations, and complexities in land acquisition pose hurdles. Effectively addressing these risks is crucial to attract the required investments, especially from foreign sources.

India requires an additional $96 billion in financing to meet IEA's NZE solar and wind targets, encompassing supplementary costs for storage and transmission. Securing this financing at competitive rates is essential for economic viability. The National Electricity Policy 2014 (NEP14) outlines a least-cost pathway, emphasizing the importance of favorable financing rates for maintaining cost-effectiveness.

It's noteworthy that the analysis doesn't include the costs of early decommissioning of coal power plants, a critical consideration in the shift towards renewable energy. To avoid unnecessary lock-ins and ensure cost-effectiveness, securing financing well in advance becomes imperative.

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