De-Risking Can Boost Investment in India’s Renewable Energy Sector

India’s renewable energy sector is making significant strides in capacity expansion, de-risking measures and innovative business models to meet growing power demand. As developers focus on operational efficiency, storage solutions, vertical integration and financial stability, the sector offers robust opportunities for investors. 

India’s peak power demand is expected to rise to 458GW by 2032 from 250GW in 2024. To address this, the country has prioritised renewable energy installations, adding 22.4GW capacity in the first 10 months of 2024. 

However, a surge in renewable energy auctions has led to a backlog of unsigned power purchase agreements (PPAs), totalling 55GW, as of October 2024. Coupled with slow transmission network expansion and the financial challenges faced by state distribution companies (discoms), these issues have sparked concerns regarding the viability of renewable energy businesses.

De-Risking Renewables Development

De-risking renewable energy assets can help attract more financing and investments in the sector. Risks are being mitigated through conducive policy actions, favourable market tailwinds and strategies being adopted by renewable energy developers.

While operational and policy-related risks remain, addressing the following risks offers significant potential for de-risking, thereby increasing investor confidence.

Unsigned PPAs

Issues with unsigned PPAs [power purchase agreements] stem from specific discom needs rather than discovered power prices. The recent NVVN [NTPC Vidyut Vyapar Nigam] tender for a 1000MWh BESS [battery energy storage system] project saw tariffs drop 36% to Rs 2.37 lakh per MW per month, showcasing developers’ growing cost competitiveness. 

With rising power demand, unsigned PPAs are likely to find buyers as competitive pricing remains intact and peak demand keeps rising.

For each state discom, there is a renewable power obligation, which it has to achieve by 2030, failing which it will have to pay penalties—this also favours renewable energy PPAs. Developers, including NTPC, JSW Energy and SJVN, have highlighted as part of their second quarter results for the financial year 2025 that unsigned PPAs are currently not a risk for them.

Delay in Transmission Connectivity  

Transmission connectivity is improving but delays between renewable additions and transmission expansion is still an issue. To address this, India plans to invest $110bn in transmission infrastructure between financial years 2025 and 2032, expanding both interstate and intrastate lines.

Over the next 18 months, transmission capital expenditure worth $12bn is expected under bidding, aligning transmission growth with renewable energy capacity expansion.

Financial Health of Discoms

The financial condition of discoms has improved, thanks to the revamped distribution sector scheme. The all-India aggregate technical and commercial losses for state-owned discoms declined from 23% in financial year to 15.8% in financial year 2023.

The increasing pace of digital metering will further cut losses. Improved financial health will encourage discoms to sign new PPAs to meet demand.

De-Risking By Diversifying

Developers are also focusing on de-risking through business diversification and vertical integration.

Storage Assets: With battery costs plummeting by 66% over the past two years, storage solutions now provide arbitrage opportunities during peak and off-peak hours, enhancing power supply efficiency.

Projects like Asia’s largest BESS (1GWh) under construction by JSW Energy and NVVNs storage tender mentioned earlier, highlight the potential of these technologies. The viability gap funding (VGF) provided for BESS projects also helps cost competitiveness of the technology.

With peak demand rising in 2024, assets like pumped storage projects (PSPs) are crucial for firm renewable energy and market competitiveness for developers. India is investing in PSPs, with plans to add 39 GW by 2030.

JSW Energy signed a PPA for 12 GWh of PSP capacity, and AGEL has access to more than 20 GW PSP sites for future expansion. SJVN has been allocated a 2.5GW PSP project in Mizoram. 

Tata Power has signed 2.8 GW PSP memorandums of understanding (MoUs) and has received approval for its 8 GWh Maharashtra PSP project. Developers plan to integrate these capacities with renewable energy capacity to provide integrated power solutions.

Module Manufacturing: India’s solar module manufacturing capacity has reached 75 GW and is expected to double in the next two or three years. Large developers are vertically integrating to have better cost control over modules. Tata Power achieved 100% utilisation at its 4.3 GW module manufacturing unit and commissioned a 2 GW cell manufacturing unit recently, both of which cater to captive demand.

ReNew Power is scaling up production at its Jaipur (4 GW) and Dholera (2.4 GW) plants while Adani Solar’s 4GW capacity supports AGEL’s cost and supply stability.

Healthy Balance Sheets: Large developers maintain comfortable debt levels, reducing financing risks and enabling access to competitive rates. NTPC’s recently-listed green subsidiary has the same credit rating as the parent, and will have access to several ‘financial multilaterals’ focusing on green energy.

Tata Power has been deleveraging and recently got a rating upgrade to BBB-negative by S&P, equivalent to sovereign rating. AGEL redeemed its $750mn bond, resulting in deleveraging.

New business models: Business models like Energy-as-a-Service (EaaS) are enabling corporate PPAs and helping developers, such as AESL, ReNew Power and JSW Energy, diversify offtake profile beyond discoms. JSW, ReNew Power, NTPC and NLC are also venturing into green hydrogen production, complementing their renewable energy businesses and creating additional power offtake avenues.

These de-risking mechanisms are helping corporations diversify policy and market risks, thereby strengthening their investment case. 

Srivastava is research lead, sustainable finance and climate risk, South Asia, at the Institute of Energy Economics and Financial Analysis (IEEFA). Rana is an energy analyst at IEEFA