Sector Spotlight: India’s Renewable Energy Industry – Opportunities and Risks for Investors
India’s vast and growing renewable energy sector is the world’s fourth largest behind Brazil, the US and China. Data published by India’s government shows that the country has a combined installed capacity of roughly 195 gigawatts from renewable energy sources. Most of this capacity comes from solar, wind, and hydropower projects in the states of Rajasthan, Gujarat, Andhra Pradesh, Karnataka and Tamil Nadu. Increasing renewable energy capacity in the country has become a national imperative to combat the effects of climate change – which have become more visible in recent years – and to meet India’s soaring energy demands. India is already the world’s third-largest energy consumer, with some analysts estimating that its requirements will double by 2050, fuelled by population growth, a strong economy and increased industrialisation.
Prime Minister Narendra Modi and the ruling Bharatiya Janata Party (BJP) have made India’s renewable energy transition a key focus of their agenda, setting ambitious green energy and sustainability targets. At the 2021 COP26 summit in Glasgow, Modi pledged to make India carbon neutral – to cut its emissions to net zero – by 2070. He also announced that India will meet 50% of its energy requirements from renewable energy by 2030.
The Modi government has implemented several policies to advance its green energy aims, including incentives to promote solar power. These will continue following the BJP’s most recent general election victory earlier in the year when it won a third consecutive term (albeit with a reduced majority). The 2024-2025 budget by Finance Minister Nirmala Sitharaman in July showed a reinforced commitment to promoting India’s renewable energy and sustainability goals. It included a 46% increase in funds for India’s Ministry of New and Renewable Energy, as well as policies to promote the domestic manufacture of solar cells and panels. Modi and the BJP’s approach to renewable energy is positive, standing in contrast to some of their more divisive and discriminatory policies, including those targeting Muslims and other minorities.
Growth and Opportunities Await
India’s renewable energy transition is moving fast. During the 2023-2024 fiscal year, the country recorded its highest annual installed renewable energy capacity, with green energy comprising over 70% of new power generated. According to the International Energy Agency, an intergovernmental organisation focused on the global energy sector, renewable electricity is growing quicker in India than any other comparable economy. Data from the same source states that India’s market for low-carbon technologies, such as green hydrogen and renewable batteries, could be worth USD 80 billion by 2030. Overall, analysts estimate that India will have to spend more than USD 380 billion to grow the sector and meet its renewable energy targets by the turn of the decade.
Significant opportunities for investors abound, whether providing long-term capital, manufacturing equipment and components used in the renewable energy value chain, supporting infrastructure development and grid modernisation, or engaging in technology collaboration. Several high-profile investments in the sector in recent years underscore its potential, including global energy giant Shell’s USD 1.55 billion acquisition of Sprng Energy, an Indian renewable energy platform, in 2022. More recently in July 2024, Canadian asset management firm Brookfield announced an equity investment of USD 550 million in Leap Green Energy, an Indian power generating company headquartered in Tamil Nadu. Other recent investments in facilities include US-based solar panel maker First Solar’s USD 700 million investment in an integrated solar manufacturing plant also in Tamil Nadu, inaugurated in January 2024. India is also witnessing heightened interests in its growing green hydrogen and ammonia sectors, with large scale investments in domestic facilities in recent years from the likes of the French petroleum major TotalEnergies, the Malaysian multinational oil and gas company Petronas, and the sovereign wealth funds of Singapore and Abu Dhabi.
Risks Remain for Investors
Despite the many sectoral opportunities, there are endemic risks that investors should keep in mind. Bribery, nepotism and favouritism are commonplace in the industry, including when bidding for public contracts for renewable projects, obtaining land, and agreeing on prices to supply electricity to state utility companies under long-term contracts.
Issues around land acquisition in India are often legally complex. This includes instances of corruption and fraud, as well as local opposition – in the form of protests by local stakeholders and litigation – to the allotment of state land to power producers. That said, transparency in government land sales has improved in recent years due to digitisation, with many land-related processes now being carried out online. This limits potential touchpoints between developers and government officials where wrongdoing could take place. Other risks include exposure via supply chains to human and labour rights violations – for example, many Indian solar companies source components (both directly and indirectly) from manufacturers in Xinjiang, a Chinese territory where the government has long been accused of committing widespread human rights violations, such as forced labour, against ethnic minority communities, particularly the Uyghur population.
Understanding your counterparties and gathering informed insight on them – including their beneficial ownership, market reputation, political connections, and regulatory track record – is key to managing these risks during the investment cycle. Our South Asia team supports clients with integrity due diligence, stakeholder mapping, human rights advisory and political risk, having assisted multiple clients in the renewables space over the years. Please do get in touch to learn more.