Akhilesh Tilotia and Harsh Vardhan 
Transitioning to a high-efficiency, low-emission (HELE) power sector requires significant capital outlay, not only for new low-emission generation capacity but also for the necessary transmission infrastructure. In this post, we consolidate existing projections under various HELE scenarios and evaluate investment estimates across the different scenarios. We also review existing capital pools and their ability to support HELE investments within the current regulatory and policy framework. We conclude by presenting policy measures to boost HELE investments. and assess these against the available financial resources.
Demand for investment
Numerous studies have estimated the investment requirements for India’s transition to a HELE power sector, each based on three key assumptions:
i. Time horizon: The timelines align with India’s commitments under various international agreements
ii. Target specifications: These pertain to emission reduction goals and the power generation mix within the set timeframes
iii. Scope of estimates: This may range from power system investments (generation, transmission, storage, distribution) to broader investments in industries like steel and cement, vehicle electrification, and coal-based power abatement technologies such as carbon capture and storage.
Two prominent time horizons are 2030, the target year for India’s Nationally Determined Contributions (NDCs) for emission reduction, and 2070, the target year for net zero emissions. Estimates for 2030 are notably more precise than those for 2070.
By 2030, the investment goals align with India’s NDCs, which include a 45% reduction in emissions relative to 2005 levels and achieving a 50% share of power generation capacity from renewable sources. Estimates vary regarding the power generation mix, the scope of storage and transmission capacity, and the phase-out or abatement of coal capacity. The 2070 net zero target remains too distant for precise estimates; thus, our analysis focuses on the 2030 investment requirements, particularly within the power sector – the creation of renewable generation capacity, transmission, and storage – excluding investments in end-use sectors like vehicle electrification or industrial emission controls.
We have carefully reviewed estimates from reputable sources. Table 1 presents a summary of investment estimates from various agencies, reflecting the diversity of targets and scope. These estimates are comprehensive, covering both power systems and investments in end-use sectors like industrial emission controls and transport electrification, and they highlight the significant variation due to differences in targets and coverage. This table is selective, not exhaustive.
Table 1. Estimates of overall investments required for meeting climate related targets in India
| Agency | Target & Timeline | Investment Estimate |
| International Energy Agency (2023) | Net zero by 2070 | US$160 billion per annum |
| BloombergNEF (2023) | Net zero 2050; non fossil sources of energy with ~80% share of generation | Total US$4800 billion in power grid and generation (~US$192 billion per annum) |
| McKinsey & Company (2022) | Net Zero by 2070 | US$44 billion per annum until 2030 |
| US$154 billion per annum 2030 onwards, and US$440 billion per annum from 2040 onwards | ||
| Central Electricity Authority – National Electricity Plan (2023) | NDC by 2030 | Total Rs. 17 trillion (US$200 billion at current exchange rate) or ~US$50 billion per annum |
For our base case on power generation investments through 2030, we rely on estimates from the Central Electricity Authority (CEA) under the National Electricity Plan (2023). This plan outlines investments across generation, transmission, and storage, with generation investment estimates rooted in the NDC target of achieving a 50% renewable share in the power mix. The phasing of these investments considers the current status of ongoing projects.
Beyond generation, substantial investments in the transmission network are necessary to efficiently evacuate power generated by new renewable sources. The CEA estimates that approximately 50,000 circuit kilometres of additional transmission lines will be needed to support the targeted 2030 renewable capacity. The investment required for this expansion is projected at around Rs. 2,100 billion, averaging Rs. 420 billion per year (approximately US$26 billion at the current exchange rate, or US$5.2 billion annually). An additional Rs. 300 billion will be required to support offshore wind generation, should it come online by 2030.
Given the intermittent nature of renewable energy sources like solar and wind, increasing generation capacity also necessitates investments in storage systems to ensure efficient utilisation. Focusing on the current technological and economic landscape, we consider two primary models of energy storage: pumped storage plants (PSPs) and battery energy storage systems (BESS). We rely on the National Electricity Plan’s investment estimates for both PSPs and BESSs through the financial year 2030 (FY30). Table 2 below summarises the investment requirements for the power system – generation, transmission, and storage – from FY25 to FY30.
Table 2. Estimate of investment requirement in power generation, transmission and storage, FY25-FY30
| Investment Destination | FY25 | FY26 | FY27 | FY28 | FY29 | FY30 | Cumulative |
| (Rs. Billion) | |||||||
| Generation | |||||||
| Solar | 1,467 | 1,571 | 1,720 | 1,821 | 1,915 | 1,972 | 10,466 |
| Wind | 548 | 556 | 531 | 613 | 711 | 787 | 3,746 |
| Hydro | 150 | 103 | 95 | 299 | 333 | 316 | 1,296 |
| Bio | 50 | 52 | 54 | 55 | 57 | 59 | 327 |
| Sub-total | 2,215 | 2,282 | 2,400 | 2,788 | 3,016 | 3,134 | 15,835 |
| Transmission and Storage | |||||||
| Transmission | 350 | 350 | 350 | 350 | 350 | 350 | 2,100 |
| Battery Capacity (BESS) | 566 | 1450 | 840 | 225 | 3,081 | ||
| Pumped Storage Plants (PSPS) | 47 | 154 | 282 | 297 | 251 | 154 | 1,185 |
| Sub-total | 397 | 504 | 1,198 | 2,097 | 1,441 | 729 | 6,366 |
Source: National Electricity Plan – Vol. 1 (2023) by Central Electricity Authority, and Ministry of New and Renewable Energy (MNRE).
The table indicates that the cumulative five-year investment required is approximately Rs. 22,621 billion (around US$275 billion). Roughly 70% of this capital will be directed toward developing new renewable generation capacity, predominantly solar (50%) and wind (17%). Investment in the transmission network is projected to account for about 11% of the total.
These figures underscore the substantial financial commitment required to meet India’s 2030 NDCs. On average, annual investments of Rs. 3,700 billion (or US$45 billion) will be needed in the power sector. This estimate excludes additional investments required for emission abatement in existing fossil fuel generators and in end-use sectors like industrial production and transportation.
Supply of capital
The bulk of investment in the power sector is expected to come from corporations, both private and State-owned, with capital flowing in as either debt or equity. Assuming that most investments will be corporate-led (including government-owned entities), we assess the necessary mix of equity and debt at a 3:1 debt-to-equity ratio, deemed commercially viable. This implies that at least 25% of the investment must be equity, while 75% can be financed through debt. Based on these assumptions, an annual infusion of Rs. 900 billion (approximately US$11 billion) in equity and Rs. 2,800 billion (around US$44.5 billion) in debt will be required from FY25 to FY30 to achieve the 2030 targets.
Debt capital
Debt capital can be sourced through two primary channels: institutional lenders (such as banks and non-bank financial companies(NBFCs)) and debt capital markets, whether domestic or global. Historically, India’s banking system has been the largest provider of credit to businesses. Recently, NBFCs have also emerged as significant institutional providers of debt capital. Notably, three government-owned NBFCs – Power Finance Corporation (PFC), Rural Electrification Corporation (REC), and Indian Renewable Energy Development Agency (IREDA) – have become key sources of debt capital, particularly for the renewable power sector.
Table 3 summarises the credit extended to the power sector in India by the banking system and the three government-owned NBFCs.
Table 3. Institutional credit to power sector in India
| FY19 | FY20 | FY 21 | FY 22 | FY 23 | FY 24 | |
| (Rs. Billion) | ||||||
| Credit from the banking sector | 5,690 | 5,709 | 5,706 | 6,108 | 6,208 | 6,454 |
| Credit from PSU NBFCs | 9,235 | 10,508 | 11,870 | 12,202 | 13,928 | 16,240 |
| Total institutional credit | 14,925 | 16,217 | 17,576 | 18,310 | 20,136 | 22,694 |
| Annual incremental credit | 1,292 | 1,359 | 734 | 1,826 | 2,558 |
Source: Reserve Bank of India (RBI), Company disclosures.The data show that annual incremental debt from banks and NBFCs over the last five financial years (2020-2024) ranged from Rs. 725 billion to Rs. 2,556 billion. This credit encompasses the entire power sector, including conventional fossil fuel-based energy and renewables. Although precise figures are elusive, it is estimated that less than 30% of this credit has been directed toward renewables, implying that cumulative institutional credit to the renewable energy sector over this period is unlikely to have exceeded Rs. 2,400 billion.
In addition to institutional credit, debt capital can also be raised through the bond market. The Indian bond market has grown substantially over the past decade, particularly in corporate bond issuance. From 2020 to 2024, cumulative net bond issuance in the Indian market reached approximately Rs. 18,500 billion, with about 70% of these issuances from financial institutions, predominantly NBFCs. Notably, Securities and Exchange Board of India (SEBI) data reveal that bond issuances are heavily weighted toward high-rated borrowers, with those rated AA and above accounting for over 80% by value of all bonds issued.
Within the broader category of corporate bonds, Indian regulations also recognise “green bonds,” which can be issued by both government entities and corporations to fund climate-related initiatives. During 2020-2024, green bonds totalling Rs. 455 billion were issued, with nearly 80% of these bonds by value issued by the government (mainly the central government and some municipal corporations). Private corporations accounted for only 8% of green bond issuance, amounting to Rs. 33 billion (BloombergNEF, 2023).
These data suggest that while the Indian bond market has developed considerable depth, with annual net bond issuance reaching Rs. 4,000 billion, the portion accessible for HELE power systems remains limited. Even the creation of the green bond category has not significantly expanded this debt capital pool. It is evident from the analysis that the current domestic debt capital available – from both institutions and markets – falls well short of the annual estimated demand of Rs. 2,800 billion. The 2023 BloombergNEF Report also notes that “India’s domestic banks may not be able to match the scale or speed required to meet the financing needs of the net zero transition.”
Equity capital
While government support for the HELE power transition is anticipated, most required investments are expected to come from corporations, both private and State-owned. These entities will need to deploy equity capital as part of their investments. Earlier estimates pegged the demand for equity capital at Rs. 900 billion annually over the next five FYs, up to 2030.
Equity capital can be sourced either from internally generated funds, such as retained earnings, or from public and private equity markets. National Stock Exchange (NSE) data show that, over the five years from 2020 to 2025, Indian companies raised Rs. 4,743 billion in equity through public markets, via initial public offerings and rights issues. Renewable energy companies, particularly Adani Green Energy and ReNew Power, have been significant contributors to this pool. However, this amount falls short of the annual requirement of US$900 billion over the next five years.
The capacity of companies to meet the equity demand is limited. In recent years, the profitability of many Indian companies, including those in the renewable energy sector, has been modest. Retained earnings alone are unlikely to meet the required levels of equity, necessitating greater reliance on public and private equity markets.
In the global context, India’s renewable energy sector is seen as an attractive investment destination, with a number of international equity investors, particularly private equity firms and sovereign wealth funds, showing interest. However, their investments to date have been modest, especially when considering the capital needs of the HELE transition. In 2023, private equity and venture capital investments in the Indian renewables sector amounted to around US$1.4 billion (Rs. 112 billion), reflecting only a small fraction of the required equity capital.
This analysis suggests that, while India’s capital markets have expanded and diversified over the past decade, they may still fall short in meeting the equity and debt needs of the HELE transition.
Policy options to enhance capital flow into HELE investments
To bridge the gap between the capital required for the HELE transition and the available supply, a mix of policy interventions is essential. These include:
- Regulatory reforms: Streamlining and simplifying the regulatory framework governing capital markets can encourage greater participation by both domestic and international investors.
- Incentives for green bonds: Expanding the scope and incentives for green bond issuance could increase the pool of debt capital available for HELE investments. This could include tax incentives or credit enhancement mechanisms for green bond issuers.
- Public-private partnerships (PPP): Facilitating PPPs can attract more private sector investment into the power sector, leveraging government funding to de-risk projects and improve returns for private investors.
- Sovereign green bonds: The government could consider issuing sovereign green bonds to fund HELE projects, particularly in areas where private capital is scarce or risk averse.
- International funding mechanisms: Engaging with international financial institutions, such as the World Bank or the Asian Development Bank, can provide concessional funding or guarantees to support HELE investments in India.
- Blended finance models: Utilising blended finance models, which combine concessional finance with private capital, can lower the overall cost of capital for HELE projects, making them more attractive to investors.
- Strengthening domestic financial institutions: Enhancing the capacity and mandate of domestic financial institutions, such as IREDA, PFC, and REC, to finance HELE projects can ensure a steady flow of capital to this sector.
Figure 1. Capital structures evolve as sectors mature
Conclusion
India’s transition to a HELE power sector presents a monumental challenge, particularly in terms of securing the necessary investment. While substantial capital is required, the current supply of both debt and equity capital falls short of the projected demand. Addressing this gap will require a concerted effort by policymakers to create an enabling environment that attracts and mobilises the necessary financial resources. By implementing a mix of regulatory reforms, incentives, and innovative financing mechanisms, India can enhance its ability to finance the HELE transition, ensuring that the country meets its ambitious climate goals while continuing to foster economic growth.
This article is based on a chapter which will be included in the forthcoming India Infrastructure Report.
This article first appeared on Ideas For India.