Navigating Risks And Unlocking Investments To Achieve India’s 500 GW Renewable Energy Target By 2030 – EMBER Report

India has set an ambitious target of achieving 500 GW of renewable energy capacity by 2030, requiring unprecedented investment in solar, wind, storage, and grid infrastructure. To meet this goal, a total investment of $300 billion will be necessary by 2032, with annual financing needing to grow by 20% per year. However, high financing costs and associated risks could slow down renewable energy growth. The cost of capital, a key factor in renewable energy development, could increase by 400 basis points (bps) due to project delays, policy uncertainties, and market risks, potentially causing India to miss its 2030 target by 100 GW.

Project commissioning delays are a major concern, often caused by land acquisition difficulties, grid connectivity issues, and regulatory hurdles. These delays increase costs for developers due to extended loan interest payments and penalties under Power Purchase Agreements (PPAs). On average, renewable energy projects in India experience a delay of 17 months, with extreme cases extending beyond two years. Addressing these delays through streamlined policies, improved coordination, and expedited regulatory approvals is crucial for maintaining investor confidence.

Another key risk is the underperformance of solar and wind power generation. Renewable energy output is highly dependent on weather conditions, and deviations from expected generation levels can impact project revenues. The introduction of stricter Deviation Settlement Mechanism (DSM) regulations has further increased financial risks for developers, as penalties for under-generation have become more severe. The integration of energy storage can help mitigate these risks by ensuring a more stable power supply and reducing exposure to DSM penalties.

The growing adoption of Firm and Dispatchable Renewable Energy (FDRE) tenders presents new challenges. FDRE projects require developers to ensure a consistent power supply through storage or overcapacity. However, these projects are exposed to market price fluctuations, regulatory uncertainties, and technological risks associated with battery performance. Meeting demand fulfillment targets is costly, as it requires significant investment in oversized capacity and storage infrastructure. Additionally, price cannibalization in the power market, where an oversupply of renewable energy drives down prices, poses a risk to revenue generation from excess electricity sales.

Battery energy storage is expected to play a crucial role in future renewable energy projects. However, uncertainties around battery costs and replacement expenses remain a concern. Batteries typically need to be replaced within 10 to 12 years, and any deviation from projected cost reductions could increase overall project expenses. Recent tenders have mandated higher storage requirements, with battery storage now accounting for up to 38% of total project costs. Managing these costs effectively will be essential for ensuring the financial viability of FDRE projects.

The financial health of distribution companies (DISCOMs) also poses a significant risk to renewable energy investments. Many DISCOMs face liquidity challenges due to inefficiencies in revenue collection, delays in government subsidy disbursements, and high power purchase costs. On average, DISCOMs incur losses of ₹0.55 per unit of electricity sold, leading to accumulated debt of over ₹6.84 lakh crore. These financial difficulties result in delayed payments to renewable energy developers, increasing counterparty risks and discouraging investment in new projects.

Addressing these financing risks is crucial for unlocking the necessary capital to achieve India’s renewable energy targets. Measures such as streamlining land acquisition, expanding transmission infrastructure, improving forecasting for renewable energy generation, and implementing regulatory reforms can help reduce project risks and lower the cost of capital. Additionally, mechanisms like Contracts for Difference (CfDs) can provide revenue stability for renewable energy projects by protecting developers from market price fluctuations.

Ensuring the successful realization of India’s 500 GW renewable energy target requires a collaborative approach involving policymakers, investors, and project developers. By implementing targeted risk mitigation strategies and fostering a stable investment environment, India can accelerate its clean energy transition while maintaining affordable electricity prices for consumers.