For India’s Green Energy Sector, This Is Right Time To Capture The Opportunity

The COP29 conference concluded this week in Azerbaijan, with multiple stakeholders coming together to reaffirm their commitment towards multilateral climate action. Global decarbonization efforts are going through a challenging phase due to ongoing geopolitical uncertainty and cost of living crises. While the international consensus still holds for the need for decisive action on mitigation and adaptation, the next 4-5 years will be crucial in terms of the pace and intensity of energy transition in the largest economies of the world.

According to the Indian Government’s Press Information Bureau, India expressed serious concern about the progress made at COP29. India’s statement said, “Our part of the world is facing some of the worst impacts of climate change, with far lower capacity to recover from those impacts or to adapt to the changes to the climatic system for which we are not responsible.”

What does this scenario imply for India’s journey towards a cleaner energy future? India has made remarkable progress in the past 7-8 years, exceeding 140GW of solar and wind capacity addition. Unit economics are approaching grid parity as renewable energy has emerged as the lowest marginal cost source of electricity. Innovative models such as RTC, FDRE and peak power will further accelerate renewable penetration. Green hydrogen, though still in the early stage of development, can significantly help the decarbonization of hard-to-abate sectors.

India is the third largest renewable energy market globally, after China and the US. According to the International Energy Agency, during the 2024-30 period China is expected to add 3200GW of renewable capacity, US around 500GW and India around 350GW. The EU is collectively expected to add another 500+GW, but no single EU country is close to China, the US or India. Could potential uncertainty in global trends towards green energy create a leapfrog opportunity for India to accelerate our journey?

We see four areas of opportunity. Firstly, in the supply of capital equipment and materials. Manufacturing capacities have ramped up in solar, batteries, wind and other equipment in anticipation of upcoming growth in renewables. Any slowdown in renewables pipelines due to higher uncertainty or pull back of incentives could result in over supply of key equipment and consequent lower prices. India is also building a strong green manufacturing ecosystem, and this is the time to make it globally competitive.

The second opportunity is in mobilizing climate finance. Any potential slowdown of incentives in other countries might result in a corresponding portion of private capital looking for alternate avenues for deployment. Uncertainty in policy signals might further deter deployment of long-term capital into green energy and infrastructure. Much of this capital is with large pension funds, sovereign wealth funds and ESG funds with clear commitments to invest in climate and energy transition. At present only a small proportion of this capital is deployed in emerging markets. As one of the few at scale markets outside of China, India can be proactive in mobilizing this capital towards itself – by showcasing the size of the opportunity, proactivity of policies and regulation and demonstrating risk adjusted returns which are in line with investor expectations.

The third opportunity is for India to set the global benchmark for most competitive levelized cost of energy on an around the clock basis. India already has one of the lowest solar LCOEs at around 3 cents/KWH. The opportunity now is to reach an equivalent LCOE on a firm dispatchable basis. The recent tariff discovered for the Solar Energy Corporation of India's (SECI) firm and dispatchable renewable energy (FDRE) tender was Rs 4.98–4.99 (below 6 cents) per KWH, indicating that India can be well set on this path.

Competition in the Indian market has resulted in continuous compression of solar capex per MW. The scale of the Indian market, combined with India’s top notch engineering talent in design and management of large-scale renewable projects can help Indian developers further optimize capex and opex levels. The opportunity is now to pursue more aggressive investments in a wide range of technologies including energy storage (pumped hydro and batteries), grid flexibility, demand response solutions and development of ancillary services markets. Timely expansion of transmission connectivity is an important imperative to ensure that the full renewable capacity can be evacuated. With the recent impetus on rooftop solar and smart metering, energy grids have to evolve towards handling bi-directional flows and innovations such as peer to peer energy trading.

The fourth opportunity is to accelerate the transition of hard to abate sectors such as cement and steel. India will need substantial new capacities in these sectors to meet the needs of a growing economy. A combination of multiple technologies such renewables, waste heat recovery, green hydrogen and biofuels can set these sectors on a profitable as well as sustainable growth path. India has already announced plans for introducing a compliance carbon market which should provide additional signals for investment in these areas.

Capturing the above opportunities can provide India with a unique model of rapid economic growth, as well as decarbonization. We can expect further growth of renewable adoption in sectors such as data centres, electric mobility and process industries.

In the future, we can expect that Indian renewable companies will develop projects in other countries, leveraging their highly efficient execution model combined with global sources of capital. Lowest cost of firm renewable power will also form the basis of scaling up of green hydrogen, which can further help reduce imports of fossil fuels.

Every period of disruption and uncertainty can also be viewed as an opportunity. Certainly, India has the chance to accelerate its progress towards the 500GW renewable energy target by 2030 in the next 4 – 5 years and, potentially, meet the target ahead of schedule with more efficiency and higher returns for investors.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication.