Global Research
- Understand ESG

India Renewables: It’s time to soar … or stall

By Puneet Gulati, Akshay Malhotra, Evan Li and Sean McLoughlin

23 August 2022

Article

Article

We examine the key issues.

India’s renewable energy industry has come a long way in a very short time, making it increasingly attractive to overseas investors. Capacity has doubled in just five years – India now ranks fourth globally in terms of renewable capacity – and renewable power comprises 28% of total Indian power capacity, up from 13% in FY16.

This success story is down to sharp falls in tariffs, policy support, improved technology, growing demand for electricity, and greater access to capital. And there’s more to come. The government has set a super ambitious target for renewables, led by solar, to contribute 50% of the country’s energy supply by 2030. This is a part of the government’s climate change pledge of reaching net zero by 2070.

But challenges remain. Coal still accounts for 75% of power generated in India, so much needs to be done to ensure progress does not stall. One of the biggest challenges is debt-laden and loss-making state distribution companies, which often lack the financial muscle to buy power even if there is demand. This hinders the development of solar power, the driving force behind India’s renewable energy story. The electricity grid also needs to be upgraded if the 2030 target is to be achieved.

If these problems are handled properly, we see immense growth potential. And fresh opportunities like green hydrogen, cheaper batteries, and growing interest in renewables from large companies await.

We compare the leading renewable energy companies in order to understand the competitive dynamics of the industry and what it takes to win. Another important issue is the difference of opinion between investors and companies about what is the correct level of internal rate of return (IRR) and valuations to expect; we try to reconcile the two. And while Environmental, Social and Governance (ESG) issues are generally taken for granted in the renewables industry, we delve deeper to understand the progress being made by the market leaders.

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