Ambitious Targets and Challenges
Over the past two years, India has published two volumes of the National Electricity Plan (NEP), outlining strategies for electricity generation and transmission from 2022 to 2032. Under the NEP, India aims to reach a total installed generation capacity of over 900 GW by FY32, including approximately 285 GW from fossil fuels and 615 GW from non-fossil sources.
Within the fossil fuel category, about 260 GW from coal and 25 GW from gas are likely installed capacities. In the non-fossil category, the anticipated contributions are 364 GW from solar energy, 122 GW from wind energy, 62 GW from large hydropower projects, 20 GW from nuclear power and others. Supported by 74 GW of storage systems with 27 GW of pumped storage, and over 47 GW from battery energy storage systems (BESS) capacities. This is a tall ask given India’s installed generation capacity was 457 GW as of November 2024, thereby needing a doubling of the installed capacity in over 8 years.
Meeting the renewable energy targets set for the end of 2024 will be quite challenging. The goal is to achieve 98 GW of solar power and 48 GW of wind power. By 2032, the planned capacities are significantly higher—364 GW for solar, which is 3.6 times the current capacity, and over 122 GW for wind, more than 2.5 times the current capacity. This means the country needs to add nearly 45 to 50 GW of new renewable energy capacity yearly during this period. Achieving this will be difficult, considering that India has only added a maximum of 30 GW of renewable energy (including both wind and solar) in any single year, according to the Ministry of New and Renewable Energy (MNRE).
The Transmission Conundrum
Meeting renewable energy targets is only part of the challenge. Equally critical is transmitting electricity from generation points to consumption centres. India’s transmission landscape must evolve to accommodate a higher share of renewable energy. Larger renewable energy developments are expected in western and southern states, such as Gujarat, Rajasthan, Karnataka, Tamil Nadu, and Maharashtra. Meanwhile, major electricity-consuming states like Uttar Pradesh, Bihar, and Odisha will require enhanced interregional networks to meet growing demand. According to the NEP, India needs to increase its transmission lines by 1.9 lakh circuit kilometres (ckm) and add over 1,270 gigavolt-amperes (GVA) of transmission capacity by 2032. As of March 2022, India had 4.5 lakh ckm of transmission lines and 1,104 GVA of transmission capacity. Achieving this will require robust planning and execution within tight timelines, as transmission projects typically take 3 to 5 years from concept to commissioning.
Financing the Energy Transition
India faces a significant challenge in financing the investments needed to meet its electricity generation targets. The Central Electricity Authority (CEA) estimates that around INR 33.6 trillion (USD 395 billion) will be required for new generation capacity, alongside INR 9.1 trillion (USD 108 billion) for transmission. Notably, electricity distribution is expected to account for two-thirds of the transmission financing, which demands about USD 70 billion.
By 2032, India will need approximately USD 570 billion invested in the electricity sector. This challenge is compounded by the fact that infrastructure investments typically rely on long-term debt financing through company structuring for a majority of their finance needs. As of FY24, the Indian banking system’s exposure to the power sector was around USD 200 billion. With much of this being long-term, the banking sector may struggle to provide the necessary annual funding of USD 50-60 billion to meet these targets.
Budgetary Recommendations
To reduce reliance on existing financial institutions to meet these needs, establishing a dedicated financial institution similar to India’s development bank NaBFID could be beneficial. Such an institution could help meet the long-term financing requirements for all three aspects of the electricity business. Moreover, this new or alternative institution could facilitate access to India’s USD 2.6 trillion bond market for the renewable energy sector. This would assist banks in refinancing loans for RE entities, alleviating issues such as group exposure limits for banks and non-banking entities. Additionally, we can expect dedicated announcements in upcoming budgets aimed at addressing financing requirements for new and emerging businesses, as well as adjusting the budgetary allocations for existing initiatives, such as the Green Corridors project.
A Collective Responsibility
If the projects envisioned under the NEP proceed as planned, India could significantly reduce its emission intensity to 0.43 kg of CO2 per unit by FY32, a 40% reduction from FY23 levels of 0.71 kg of CO2 per unit. This would represent a substantial step towards achieving India’s climate commitments under the Paris Agreement. However, achieving these goals requires a collective effort from policymakers, financial institutions, and private investors. Beyond government initiatives, international cooperation and private-sector participation will be crucial to bridging the financing gap and fostering innovation.
India’s electricity transformation is not just an opportunity—it’s a necessity. By addressing financing gaps, streamlining processes, and fostering innovation, the nation can ensure that the lights of progress and sustainability shine bright by 2032.
By Vaibhav Pratap Singh, Executive Director, Climate and Sustainability Initiative (Views are personal)
Originally published in Business World Magazine – February Edition
