Breadcrumbs
Beyond Tripling: India needs $101bn additional financing for the net-zero pathway
In the next 8 years, $293 billion will be needed to meet the NEP14 target while meeting the IEA Net-Zero Emission Pathway would require $394 Billion. This investment is required in renewable energy generation, storage, and transmission capacity addition.
Highlights
$101bn
Investment India needs to align with IEA NZE target as compared to NEP14 pathway
+35%
Annual solar generation required on top of India’s existing targets by 2030 to align with IEA NZE target
5X
Increase in total solar and wind annual capacity addition by 2027 to align with IEA NZE target
About
This report is divided into two chapters.
Chapter 1 compares India’s solar and wind targets set out in the 14th National Electricity Plan (NEP14) with the International Energy Agency (IEA) Net-Zero Emissions (NZE) pathway. The comparative analysis delves into the contribution of solar and wind in terms of generation, examining the requisite capacity for solar and wind to achieve the targeted generation levels.
Chapter 2 explores the necessary capacity in investment and financing required for India to deliver on the 14th National Electricity Plan (NEP14) and to even consider increasing its solar and wind ambition to align with a global target.
Executive summary
India needs $101bn additional financing to meet IEA net-zero pathway
Neshwin Rodrigues India Electricity Policy analyst, Ember
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.
Unpacking “tripling renewables” for India
IEA Net Zero pathway requires India to step up ambition
Although the call to triple global renewableRE power generation capacity by 2030 does not mention India’s expected contribution, the IEA Net Zero Roadmap report presents one pathway i.e., IEA NZE pathway, which suggests that for India to contribute to the tripling target, around 32% of its electricity generation should come from solar and 10% from wind by 2030.
IEA NZE pathway requires India to substantially increase its planned annual solar build-rates.
To achieve 448 GW solar and 122GW wind capacity by 2030 and meet the IEA NZE share targets, the annual solar additions needs to increase almost five-folds from 12.8 GW/ year in FY 2023 to 64 GW/year by FY 2028, while wind additions need to increase from 2.28 GW/year in FY 2023 to 13.6 GW/year by FY 2028. This means that the combined annual solar and wind additions need to increase almost five folds by FY 2028.
Enhancing capacity in transmission and storage is also crucial for meeting the NEP14 target, and further scaling up is necessary to reach the IEA NZE pathway target for India
The build-up of transmission and storage is essential to balance variable renewable energy (VRE) generation from sources like solar and wind with demand, both temporally and spatially. As solar and wind generation increases, so does the cost of balancing, known as grid integration costs, adding approximately 0.50-0.60 Rs/kWh to the generation cost of solar and wind.
India aims to add 227 GW of Interstate Transmission System (ISTS) and 37 GW of Intra-State Transmission System (IRTS) to integrate RE, following NEP14 targets for FY 2030-31. Additionally, plans include 18 GW of pumped storage and 42 GW (5-hour) of battery storage. To meet the IEA NZE pathway target, India will have to further increase storage and transmission capacity, requiring an additional 48 GW of ISTS and at least an additional 14 GW (6-hour) of battery storage.
A significant year-on-year increase in capacity addition of storage would be required. India has installed around 4.7GW of pumped hydro storage and only around 37 MWh of BESS capacity as of FY 2023, which implies that battery storage capacity is far from the 210 GWh planned even as per the existing plans for FY 2030-31.
Investment requirement
India would need $101 bn additional financing to achieve IEA NZE solar and wind targets
India requires increased financing at competitive rates to set ambitious solar and wind targets aligned with the IEA NZE pathway, despite investment risks.
The financial requirements to achieve IEA NZE targets far exceed the current investment and funding capacities available today
Our estimates indicate that India will require approximately $293 billion in investments till 2030 to achieve its solar and wind capacity targets set out in NEP14. This figure encompasses not only the development of solar and wind projects ($211 billion) but also accounts for the essential costs associated with storage and transmission required to integrate renewable energy (RE) at this expansive scale.
Now, if India were to build the required solar, wind, transmission and storage capacities to achieve the IEA NZE solar and wind share targets, this would push up the investment requirement by US $101 billion. This involves an extra investment of approximately $68 billion for solar, $8 billion for wind, $14 billion for storage, and $11 billion for transmission capacity additions. This brings the total investment in this scenario to around $394 billion. The calculations for the same can be found here.
Comparatively, the financial landscape for solar and wind in the preceding 8 years, commencing in 2021, witnessed an investment capacity of approximately $75 billion. To meet the upcoming demands, the financing capacity must increase nearly threefold on average during the next 7-8 years. This heightened level of financial commitment is imperative for facilitating essential capacity expansions in electricity generation, energy storage, and transmission infrastructure.
Renewable projects in India face investment risks, which may be a significant barrier to mobilise investment
Despite the recent uptick in investments in solar and wind installations, individual RE projects in India remain exposed to substantial risks; categorised into regulatory risks, project risks, and financing risks. Some of these challenges include payment delays, renegotiation of Power Purchase Agreements (PPAs), and complexities related to land acquisition. Effectively addressing these risk factors and actively attracting investment, particularly from foreign sources despite these risks, is pivotal for ensuring the successful implementation of renewable energy projects.
Certain risks, such as payment delays and subsequent requests to renegotiate Power Purchase Agreements (PPAs), emerge from systemic challenges linked to prolonged cost recovery issues that demand extensive reforms over the span of decades to rectify. While many SECI projects incorporate a payment security mechanism, establishing this safeguard requires additional capital, often not factored into the overall investment estimate. Despite persistent efforts to minimise investment risks, the reality is that investments are still imperative, even in the presence of these challenges. Therefore, it is essential to explore and implement efficient mechanisms to effectively reduce or manage these risks, ensuring the resilience and success of renewable energy projects.
India will need to have access to substantially more financing capacity and at a competitive rate of financing, in a time bound manner to set solar and wind targets that are in line with the IEA NZE pathway.
India will need an additional $96 billion in financing to achieve the International Energy Agency’s (IEA) Net-Zero Emissions (NZE) solar and wind targets. This financial requirement encompasses the supplementary costs associated with storage and transmission essential for integrating renewable energy (RE) at a more ambitious level.
It is imperative that this financing is secured at competitive rates to ensure the economic viability of the ambitious targets. NEP14 aligns with an optimal capacity generation mix, indicating that the plan represents a least-cost pathway, considering the economic aspects of each technology, including solar, wind, and various storage options. While pursuing goals beyond the NEP14 targets, it’s crucial to recognize that deviating from this plan may not necessarily be the least-cost option. Therefore, to maintain the overall cost of generation in line with the least-cost pathway, the availability of financing at favourable rates becomes a critical factor.
Another thing to note here is that the estimates in this analysis do not include the costs of early decommissioning of coal power plants in India, a particularly pertinent consideration in a scenario where the anticipated increase in renewable energy (RE) is expected to displace generation from coal. In this context, having additional coal capacity beyond what is strictly necessary to meet peak power requirements could result in a lock-in situation. This lock-in has the potential to diminish the cost-effectiveness of expanding RE beyond the initially planned targets.To mitigate this risk and avoid unnecessary lock-ins, it becomes crucial to secure financing well in advance.
Overall, while India’s existing national targets will triple its renewable capacity by 2030, aligning with the IEA NZE tripling pathway will require building additional solar, wind, storage and transmission capacities just on the supply side. It might well be that India will need international financing to increase the ambition to levels necessary to meet the IEA NZE pathway. In the meanwhile, India cannot really afford to slip on the NEP 14 targets for renewables, especially solar and wind to stay as close as possible to aligning with the global goal of tripling renewables by 2030.
Supporting Material
Methodology
The analysis for the year 2030 is conducted based on the International Energy Agency’s (IEA) Net-Zero Emissions (NZE) pathway’s solar and wind generation targets. These targets are assumed while aligning the total generation with the National Energy Policy of 2014 (NEP14) projections.
The comparison is made against the NEP14 projections for technology-wise generation share for the financial year 2030-31. The generation share and capacity number for the financial year 2030-31 are estimated through linear interpolation between existing values of generation share (for FY2023) and installed capacity (as of September 2023) and the projected values per the NEP14 projection for FY 2031-32. Ember’s 2030 Global Renewable Target Tracker estimates for the NEP14 target assume a compounded growth rate, leading to a target of 319 GW of solar and 110 GW of wind by 2030.
Generation capacity estimates
The generation capacity estimates are derived from the percentage share targets for solar and wind as outlined in the IEA NZE pathway for India. These estimates assume the total generation projection and solar and wind capacity utilization factor (CUF) as per the NEP14. The annual capacity addition required for each of the two cases, NEP14 and IEA Net-Zero Emissions (NZE), is calculated by taking into account the current fiscal year (FY 2023) annual capacity addition. The analysis incorporates a growth rate in the annual addition until 2027. Beyond 2027, it is assumed that the annual capacity addition saturates to prevent exceeding the necessary capacity additions required to meet future targets.
This approach helps balance the need for continued growth in capacity addition to align with evolving energy targets and demand projections until 2027. However, by assuming saturation beyond this point, the analysis recognizes a strategic shift or stabilization in capacity addition to avoid overcommitting resources to annual installation capacity that may exceed future requirements.
Investment needs estimates
To estimate the investment required in the NEP14 scenario, we assume the capacities for each technology, including storage, in accordance with the NEP14 interpolated targets for the fiscal year 2030-31. Additionally, we incorporate the Central Electricity Authority’s (CEA) plan for the Transmission System, designed to accommodate the integration of 500 GW of Renewable Energy (RE) capacity by 2030.
In the context of the IEA Net-Zero Emissions (NZE) scenario, the methodology for estimating generation capacity is grounded in the percentage share targets for solar and wind outlined in the IEA NZE pathway for India, as previously mentioned. The calculation of storage capacity involves the use of an optimization model, constrained to achieve the percentage share targets for solar and wind as outlined in the IEA NZE pathway for India with the capacity for other technologies and other technical assumptions as per the NEP14 assumptions.
Transmission capacity estimates
The estimation of transmission capacity is conducted on a pro-rata basis, utilizing the existing plan as a foundation. This pro-rata calculation specifically addresses the additional transmission capacity necessary to integrate the increased solar and wind capacity required to achieve the percentage share targets outlined in the International Energy Agency’s Net-Zero Emissions (NZE) pathway for India.
The capital cost assumptions to estimate the financing/investment required is as per the capital cost assumptions in the NEP14 and CEA’s Indian Technology Catalogue for generation and storage.
The detailed calculations can be found here.
Acknowledgements
Contributors
Ye Yuan, Uni Lee, Reynaldo Dizon
Kindly peer reviewed by A.K. Saxena, Raghav Pachouri
Cover image
Workers at a 1 MW solar power station run by Tata power on the roof of an electricity company in Delhi, India.
Credit: Ashley Cooper pics / Alamy Stock Photo