Financing the Energy Transition 2025

2.2 South Asia India, the region’s biggest economy, is one of the fastest-growing in the world, with GDP growth projected to exceed 6% per year until the end of the decade.11 Its population of more than 1.4 billion people ensures that India will remain one of the world’s largest energy consumers. Consequently, India’s energy transition is crucial given its scale and impact on the global economy and environment. India’s energy mix is heavily reliant on coal, accounting for about 70% of its electricity generation.12 However, significant transformations have been taking place in its energy systems, with the promotion of renewable energy. Its installed capacity of renewables nearly doubled to 200 GW by October 2024. The country is aiming for 500 GW of non-fossil fuel power capacity by 2030 and net- zero emissions by 2070. The IEA estimates that India needs to invest $160-200 billion every year to meet its targets13 – two or three times more than the current levels of investment, which reached $68 billion in 2023. Despite the strong potential for investment, offtake and currency risks hinder adequate investment levels. The higher financing costs related to these risks has resulted in, for example, a cost of capital for utility-scale solar photovoltaic projects in India that is 80% higher than in advanced economies.14 The Indian government has taken significant steps to incentivize investments in the energy transition, such as: –Allowing 100% foreign direct investment (FDI) under the “automatic route” (i.e. not requiring approval from the Government of India for the investment). –Waiving inter-state transmission charges for solar and wind power sales. –Implementing a renewable purchase obligation scheme, requiring power distribution companies to purchase a minimum amount of renewable energy on an annual basis. –Using highly rated central public sector enterprises as offtakers to reduce power purchase agreements’ counterparty risk. –Offering production-linked incentives and viability gap funding. –Issuing sovereign green bonds. –Creating a foreign-exchange platform to hedge against currency volatility. Significant equity investments have come from sovereign wealth funds, global pension funds, private equity, oil and gas majors and Indian conglomerates. From 2019 to 2021, foreign banks and financial institutions provided 50% of the debt for India’s renewable energy projects.15 India entered the green bonds market in 2015, issuing over $10 billion in green bonds for clean energy projects between 2016 and 2021. A green bond framework introduced in November 2022 aims to further mobilize private investors and strengthen the country’s green bond market. India needs to invest $160-200 billion every year to meet its targets – two or three times more than the current levels of investment, which reached $68 billion in 2023. For a world map denoting which countries fall within which regions, see Annex. Financing the Energy Transition: Meeting a Rapidly Evolving Electricity Demand 13