India needs $385 bn to meet 500GW renewable energy target

India will need to spend about $385 billion to achieve the country’s target of 500 gigawatt (GW) renewable energy capacity by 2030, according to Moody’s.

To meet the 500GW target, India requires an annual capacity addition of around 44GW.

Moody’s estimates that the total investment needed to add the necessary 310GW of additional renewable energy capacity over the next seven years will be $190 billion to $215 billion, or $32 billion to $36 billion annually.

“We expect that the total grid investments (including storage) needed to optimally use the new generation capacity will be in the range of $150 billion to $170 billion over the same period,” the rating agency says in its outlook on India’s power sector.

Access to low-cost, long-term capital from the public and private sectors will be vital to achieving these goals, it says.

The share of renewable energy in the overall capacity mix will continue to increase beyond 2030, given the Indian government's plans to reach net-zero emissions by 2070. The country's power sector is the largest driver of greenhouse gas emissions.

India’s experience of adding renewable energy and increasing the share of non-fossil fuels in overall capacity is one of the strongest in Asia. The country’s renewable capacity has grown at a compound annual growth rate of 10% over last 10 years.

India is very likely to meet its 2030 target of having more than 50% cumulative electric power installed capacity from non-fossil fuel based resources (renewable energy and nuclear), according to Moody’s.

As of March 2024, non-fossil fuel capacity contributed 45% of installed power generation capacity. Strong policy support has helped India increase the share of renewable energy in its power capacity mix to around 43% in 2023-24.

While the strong growth in India's renewable energy capacity is likely to continue, coal will remain an important source of electricity generation in the next 8-10 years, which mitigates stranding risks for coal-based power assets, notes Moody’s.

“We expect India to add 40GW-50GW of coal-based capacity over the next five to six years to help meet power demand, which is likely to grow by 5%-6% annually over this period,” the rating agency says. The utilisation rate for coal-based capacity is likely to remain high at around 65%-70% despite these additions, it forecasts.

Renewable energy and electricity transmission will form the bulk of investments in India's power sector over the next six to seven years, as per Moody’s. The significant increase in capital spending for renewable energy companies, which is largely funded by debt, will lead to high financial leverage over the next three years, a credit negative, it cautions.

Most renewable energy companies in India have aggressive expansion plans, and projects are largely funded by debt and therefore have high financial leverage. Between the fiscal year ended March 2017 and fiscal 2023-24, total installed capacity of Greenko Energy Holdings, Renew Power Private Limited and Adani Green Energy Limited grew from 5GW to 25GW (compound annual growth rate of 26%) through a combination of greenfield development and acquisitions.

NHPC Limited has a complex capital spending programme to more than double its installed capacity over the next few years. The additional debt required to fund the substantial capital spending programme will strain NHPC's financial profile over the next few years, says Moody’s.