India has been extremely successful in attracting investment into its domestic renewable energy sector, with efforts underpinned by strong government support. That said, concerns over tariff feasibility, grid bottlenecks and the leadership’s lingering commitment to coal-fired power are underappreciated risks that have the potential to dampen investor sentiment and temper the country’s renewable expansion.


India’s renewable energy market has registered significant growth in recent years. Total installed non-hydro renewables capacity doubled between 2015 and 2018 to over 70 GW. This has resulted in the country’s emergence as a leading global market for renewable energy deployment, ranking fourth globally in terms of market size in 2018 (behind China, the US and Germany).


Supportive government policy a key driver of renewable energy growth

Strong support from the government has underpinned the sector’s expansion, aided by Prime Minister Narendra Modi’s persistent enthusiasm for renewable energy. His election in 2014 paved the way for the adoption of ambitious targets (175 GW of installed renewable energy capacity by 2022) and the roll-out of a number of favourable policies to encourage investment into the sector. These included the introduction of competitive auctions, utility quotas, tax incentives and various financing mechanisms, along with the establishment of designated areas of land exclusively for the development of large-scale projects, such as the Ultra Mega Solar Power Projects. The plots of land made available on this scheme are already prepared with transmission connectivity, land acquisition clearance, road infrastructure and a communication network. This reduces costs and project implementation time for developers.

These support mechanisms have been largely successful: investment into India’s renewable power sector has doubled over the last five years, totalling nearly $20bn in 2018.[1]


Underappreciated risks facing renewables expansion

Rhetoric surrounding the Indian renewable energy market has typically been overwhelmingly positive, propagated by frequent announcements regarding record low tariff prices, high installation rates and government tendering plans. While India will certainly maintain its position as one of the largest renewable energy markets globally over the coming years, there are a number of underappreciated risks facing the market that have the potential to dampen investor sentiment and temper the country’s renewable expansion.

Tariff feasibility risks: The rapid decline of renewable energy tariff prices has been a key driver of sector growth. However, there are concerns that tariffs have fallen to unfeasibly low levels, whereby developers will not be able to recover costs and make a return. Establishing viable tariffs, which are attractive to developers, but also not unacceptably high for distributors (who purchase the electricity), is increasingly challenging.

A number of solar and wind auctions were cancelled or undersubscribed to in the first half of 2019 and in 2018, due to unattractively high tariff bids offered by developers, or a too-low upper tariff ceiling set for tenders. For example, in May of this year the several-times delayed 1-GW Gujarat solar photovoltaic tender was undersubscribed by 700 MW. The project received only two bids for a cumulative 300 MW of capacity, suggesting that the upper tariff ceiling was too low and deterred developer interest.

Setting feasible tariffs has been complicated by the government’s introduction of 25% safeguarding duties on solar product imports from China and Malaysia in July 2018 that will fall progressively to 15% over a two-year period. This measure was brought in to bolster domestic manufacturing of solar equipment, in line with the government’s “Make in India” campaign. However, China and Malaysia have historically accounted for around 90% of cell imports coming into India and domestic capacity is too limited at present to pick up the slack. As such, project development costs are likely to rise as component costs increase. Or investors will hold off committing to projects until the duties have expired.

Grid bottlenecks: Integrating vast renewable energy capacity into the Indian grid system has already proved difficult, particularly given that electricity trading between individual states is not widespread. Grid curtailment has been a particular problem for the wind sector, as new wind capacity additions have been concentrated in a relatively small number of states, which have consequently been unable to handle the influx.

The rise of inter-state trading and the government’s continued focus on investment into the transmission and distribution network will help mitigate these issues. However, the variable nature of renewable energy generation and the impact it has on grid stability will be an ongoing issue hindering renewable energy expansion.

Coal project pipeline still strong: The gradual commissioning of a vast coal project pipeline could undermine demand for additional renewable energy capacity. Despite the government’s efforts to expand low-carbon sources in the power mix, the electricity system is still based predominantly around coal, which accounted for over 70% of total generation in 2018. The heavy reliance on coal is unlikely to lessen significantly over the coming decade given that the government still view coal as a secure and relatively low-cost option for power generation, particularly in light of the vast domestic coal supplies in the country.

The government’s lingering commitment to coal is highlighted by the robust project pipeline for coal facilities in the country. According to data from the Global Energy Monitor, India had nearly 37 GW of coal capacity under construction and another 49 GW in early stages of development as of July this year. This represents the second-largest coal project pipeline globally, after China.



Although the government has taken some steps to reduce the coal project pipeline, this has in large part been to address overcapacity in the coal market as opposed to an overarching strategy to shift the domestic energy policy away from coal or adhere to increasing international environmental pressure. In fact, India refrained from setting a standalone emissions reduction goal as part of the UN Paris Agreement and instead opted for a carbon intensity target (see table above), highlighting the general reluctance of the government to wean itself off coal.


Georgina Hayden is an energy consultant and co-founder of research and analysis firm, North Shore Analysis. She has a special interest in the low carbon economy, and the challenges and opportunities facing stakeholders operating in an increasingly digitalised, decarbonised and decentralised energy system. Before that, she was Head of Power & Renewables Research at Fitch Solutions. She holds a master’s degree in Geopolitics, Territory and Security from King’s College London.


[1] IEA World Energy Investment 2019

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