Successful economies have several things in common, including a stable and reliable energy system with relatively affordable prices for households and businesses. This puts developing countries such as India in a difficult position as their infrastructure is mostly underdeveloped and production largely dependent on the marginal costs of fossil fuels. There seems to be momentum, however, in favor of decarbonizing developing countries from the perspective of investors. The Indian market is showing signs that it could be one of the largest benefactors of a movement that could boost renewables in the Asian country.
After China and the U.S., India is the third-largest emitter of greenhouse gasses. On a per capita level, its population of 1.36 billion people is relatively efficient when compared with most other countries. However, the prospect of India’s economic development and a growing population that will soon overtake China’s is a terrifying one. Therefore, the decarbonization of the South Asian country’s energy system is crucial in the fight against climate change.
India needs approximately $500 billion to invest in wind and solar infrastructure, grid expansion, and storage, to reach the 450 GW capacity target by 2030. The country is supposedly on track to reach its intermediary goal of 175 GW by 2022. According to the survey of the government in New Delhi, “additional investments in renewables up to the year 2022 would be about $80 billion.”
Source: Reuters
The developing and energy-hungry country requires billions to reach its stated goal of 40 percent renewables by 2030, or 500 GW. To show the magnitude of the challenge, India’s renewables sector currently accounts for 22 percent of the total installed capacity of about 357 GW. The country does enjoy favorable environmental circumstances such as an abundance of sunshine which is on average twice the amount southern Europe receives. As PVs have become substantially cheaper and costs are expected to decrease even further, the future looks bright for India’s solar energy sector.
Furthermore, the country suffers from an underdeveloped and underfunded transportation grid. This could work in India’s favor, however, as the yet-to-be-developed grid could be designed for a system with an abundance of decentralized sources. Developed countries are facing problems with their grid that was built for centralized power plants running on fossil fuel. These need to be adjusted to accommodate large volumes of solar and wind. India could avoid this problem in the design phase.
At the same time, India presents one of the largest investment opportunities globally due to the massive demand for electricity that is slated to grow even further coupled with the necessity to decarbonize. Investors are already flocking to the country such as sovereign and pension funds, as well as other institutional investors such as banks. The pie seems large enough for everyone, for now.
In the first four months of 2021, $6.6 billion was committed for the renewables sector which could easily overtake the record of $8.4 billion during the year up until Covid struck. Although this amount is a fraction of what is necessary until 2030, there seems to be a momentum that the government in New Delhi is supporting with sound policies. Investors have responded positively which can be seen in the number of investments. Also, industry experts note that the Indian renewable energy industry has significantly matured over the past 4-5 years.
According to Rahul Goswami, managing director of Greenstone Advisors, a boutique investment bank focused on the renewable sector, “there is more information available for investors to analyze in determining an appropriate view and strategy for the market. Over the past five years, we have seen consistency in several areas, including predictable payments from counterparties, regular actions, government support, access to debt financing, and increasing scale. Ultimately, this information allows new entrants to take a considered view.”
As India celebrated the milestone of 100 GW of renewables back in August, major challenges remain. Although significant progress has been achieved, coal remains the country’s most important source of electricity production as there are large coal deposits domestically. However, growing signs of climate change could increase the urgency to act.
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