Reinforcing India's Blueprint for Sustainable Energy Production

India, the world's third-largest consumer of energy, is making significant strides in the renewable energy sector. The Indian government has set ambitious goals to reduce carbon emissions and achieve net zero by 2070, with at least 50% of the cumulative electric power installed capacity coming from non-fossil fuel-based sources by 2030.

To drive this transition, the government supports renewable energy projects through agencies like the Solar Energy Corporation of India (SECI), which oversees renewable energy auctions and capacity additions. The focus is primarily on the solar and wind sectors, with most ongoing investment expected in these areas.

The renewable energy sector in India faces challenges, such as intermittency and grid stability, transmission and distribution infrastructure, land acquisition and environmental concerns, technological challenges, energy storage limitations, and high costs. However, the Indian government is working to mitigate these issues and create a conducive environment for private power producers.

One of the ways the government is doing this is by absorbing risk in the ecosystem to encourage private participation in the renewable energy market. For instance, building renewable energy projects is capital-intensive, and the government aims to alleviate this burden by providing support.

The process of developing renewable energy projects in India involves several stages. During the development stage, power purchase agreements (PPAs) are signed between power producers and offtakers, obligating the offtaker to purchase a predetermined amount of power at a fixed price. Once the plant is found fit for use and power generation starts, the operations stage begins, during which long-term project finance is raised to repay pre-construction loans.

Bridge funding is secured during the construction stage to meet the project's requirements for bank guarantees, letters of credit, and term loans. Lenders assess various risks during the renewable energy project lifecycle, including approval failures, delays, cost overruns, technological or design faults, geopolitical risk, regulatory risk, and debt tie-up and credit risk of off-takers.

The tender bidding process for renewable energy projects involves the government issuing tenders for power projects with different locations and output levels. The winning bidder is awarded the tender and provided land for project construction.

As of October 2024, renewable energy-based electricity generation in India accounts for more than 46.3% of the country's total installed capacity. This significant figure indicates ongoing investment in the sector, although specific information on loans issued by banks in India for renewable energy projects in 2024 is not readily available.

The estimated cost of energy storage, grid energy, and renewable energy generation in India by 2030 under the 14 National Electricity Plan could range from US$450bn to US$500bn. Despite the challenges and costs, the value chain of renewable energy projects in India is considered quite robust.

Examples of banks that provide credit to power producers for renewable energy projects in India include Deutsche Bank. The Indian government also supports renewable energy projects through policy frameworks, such as the National Solar Mission.

India's potential for solar energy is around 748GW, assuming 3% of India's waste land is covered by solar photovoltaic (PV) modules. With its ambitious goals and supportive policies, India is well on its way to becoming a global leader in renewable energy.