New Delhi: To state that India is at the forefront of renewable energy conversations will not be an understatement. With the fourth-largest installed renewable energy capacity in the world and a target of 450 GW by 2030, India has been leading the global battle against climate change from the front. Ranked third in EY’s Renewable Energy Country Attractiveness Index, India has made great strides in making its renewable energy sector an attractive asset class for investment.
India’s renewable energy started on the support of lucrative government subsidies and benefits that attracted Indian tax paying companies and citizens to invest in the sector. Such domestic capital formed the base for India to build its first 20 GW of wind and solar power with wind taking the lion’s share of the investment. Over time, with improvements in technology and reduction in costs, the subsidies phased out and a transparent process of e-bidding was put into place. This radical change, along with a host of reforms, laid the foundation of what is arguably one of the most successful models for building utility-scale projects in India today. And numbers don’t lie! In just the last 6-7 years, India’s renewable capacity has grown over 250 per cent with solar alone growing over 15 times.
As of July 2021, the total installed renewable energy capacity in India stands at 98.8 GW. To achieve the high targets and ensure that we maintain the momentum of transition to RE, we need a continuous and increased inflow of year-on-year investment.
During his keynote session at the Accelerating Citizen Centric Energy Transition event, India’s Power Minister R K Singh shared that India has seen a total of $70-billion investment in seven years. By estimates, we currently need an investment of $500 billion to reach our 2030 renewable energy target. IEEFA estimates that out of the $500 billion, the sector needs $300 billion for wind and solar infrastructure, $50 billion for grid firming, and $150 billion for transmission and distribution. This becomes significant not only in view of our upcoming 2030 targets, but also as a gauge of the overall interest RE holds for investments. Also, lest we forget, the industry allows for a 100 per cent foreign direct investment. In just H1 2021, India’s RE sector saw $3.7 billion in M&A.
With globally renowned investors such as Brookfield, Goldman Sachs, CPPIB, ADIA, SembCorp, Total, Engie, and more already present, there are still many investors still queuing up to get a piece of pie. This is a testament to the promising returns the Indian renewable energy sector holds. With an ambitious Prime Minister leading the charge, the likely miss of the 2022 targets is bound to result in an increased push for the sector. However, while the sector has done exceedingly well on the utility segment, the sheer quantum of the capital required today has driven out the domestic capital base that helped build the sector from its infancy.
But, when one door shuts, the other one opens. Recently, India’s lagging rooftop sector has started showing sparks. In just 2020 (a pandemic year), the Indian rooftop sector added the capacity of 1.35 GW in the calendar year. This is an astonishing achievement considering India’s cumulative installed base prior to 2020 was only 3.2GW. This growth has continued onto 2021 with the first four months seeing 660 MW of capacity addition. And core to this growth is the domestic capital that the sector is attracting. Industrialists and home owners alike, now understand the solar segment better and are showing an increased interest due to its cost savings against the draconian state power tariffs. With innovative financing models, HNI investors are now able to invest in RE with ticket sizes ranging from $35,000 to $2 million. A renewable project delivers monthly cash in-flows at an Internal Rate of Return of 10–16 per cent over its lifetime.
With FD’s languishing at 5 per cent, the return from a RE project far outweighs the slight increase in risk. The foray of Mukesh Ambani into the sector has also proved that industry leaders are slowly understanding this opportunity and are keen to become an active part of India’s RE journey.
The golden period of renewable energy in India is here. As tenders get bigger and megawatts larger, so does the need for investments and the potential ROI. The question we should be seeking answers to is not what might stop investors from dipping their feet into renewable energy. The real question is who will move early and chart their success story.
https://energy.economictimes.indiatimes.com/news/renewable/opinion-the-new-asset-class-in-india-renewable-energy/87358530
