The great build-out

Throughout last year, India’s renewable energy sector – and solar in particular – captured much attention, thanks primarily to government’s ambitious targets and its commitment to meet them.

The country, which currently has over 4 gigawatts (GW) of solar capacity, aims to increase it to 100GW, and is envisaging some $100 billion of investment in the wider renewable energy sector over the next five years.

Investors are taking note, attracted by a set of unique features including scale, strong regulatory frameworks, high power prices and subtle non-financial forms of support. Given the size of the country’s energy deficit and the speed at which it wants to grow, it’s a given that renewable investments will increase.

MK Sinha, managing partner and chief executive of IDFC Alternatives, explains: “The price of coal will continue to increase, both in terms of coal as a non-renewable scarce commodity and in terms of the costs associated with the mitigation of environmental damage.” He adds that the cost of coal-fired generation at the margin is now more or less similar to wind. Likewise, subsidies in the solar sector are fast disappearing, with the quick decline in equipment prices.

Andrew Newman, co-founder of renewable investor Armstrong Energy Global (AEG), says AEG is bullish on Indian solar, highlighting the country’s very high irradiance and relatively high power prices. While there are other markets that have each of these characteristics, “there is the scale of the market in India, which is very exciting”.

AEG’s Newman also highlights the subtle, non-financial support given to solar producers. One such mechanism is the provision of monthly balancing facilities. Solar producers in some states are allowed to match supply and demand on a monthly basis, as opposed to doing so over shorter periods. 

This does away with the need to buy and/or sell power on the spot market, which can be expensive, in order to match supply and demand over shorter time frames, when the supply of solar energy can be unpredictable. Matching supply and demand over a longer one-month period provides suppliers with greater flexibility and predictability. 

“Then it doesn’t matter when in the month you generate the power and when they consume the power, as long as they consume the same amount of power in a month,” says Newman, referring to it as a “very clever, very subtle form of support that is absolutely non-financial and reduces risk”.


When it comes to wind power, which has over 20GW of installed capacity in India and a 60GW target by 2022, the sector’s maturity plays in its favour.

Sanjiv Aggarwal, Actis’ Asian head of energy investments, says the firm created Indian wind platform Ostro Energy “because wind is more or less at grid parity with thermal power and requires very little to no subsidy”. It’s also helped by a “reasonably robust” regulatory framework and the availability of turnkey solution providers, which means development risk can be allocated to equipment manufacturers. And finally, there is a good supply of projects, Aggarwal concludes.

But while the wind sector has matured, several issues are holding it back. One is India’s “woefully inadequate” transmission capacity. Sushi Shyamal, partner at Ernst & Young, says that potential wind sites are often located in remote locations, far from the cities where electricity is needed. “States such as Tamil Nadu, with large wind capacity, have already seen assets stranded due to a lack of [transmission] infrastructure,” he explains.

The grid also needs to be redesigned to handle ever-larger amounts of renewable energy. “India has generation capacity of about 250,000 megawatts (MW) and the bulk of it is thermal. Right now, 20,000MW of renewables can be handled, but as this increases, grid stability will becomes an issue,” Aggarwal argues.

And that, in a nutshell, neatly summarises India’s clean energy ambitions. There is enough evidence to suggest the government is well-intentioned and there is much it can and wants to do – the big question is whether it has the capacity to do it all.