Grid infrastructure delays India’s renewable energy projects

These additions take India’s total operational solar capacity to 81.8 GW. As a result, India needs to add another 103.8 GW of solar capacity over the next four years to achieve its target.

Moreover, in fiscal 2024, India more than tripled its utility-scale renewables bidding capacity to 69.8 GW, of which 48% came from solar PV. Of the nearly 70 GW of bidding capacity from April 1, 2023, to March 31, 2024, 40 GW was ultimately awarded, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research & Analytics.

While India boasts ambitious goals, it still faces numerous challenges in increasing its installed solar capacity, including those related to financing and grid infrastructure.

Network infrastructure

Vibhuti Garg, director for South Asia at the Institute for Energy Economics and Financial Analysis (IEEFA), says expanding grid infrastructure is key to installing solar projects.

“In the absence of grid infrastructure, renewable energy project launches will face delays. There is a lack of adequate substations to connect to the Inter State Transmission System (ISTS) grid and there is a lack of timely and smooth approvals for open access projects,” he says.

Interstate projects could face further delays because, in addition to providing ISTS connectivity, they also require obtaining the necessary approvals from both states.

Ali Imran Naqvi, CEO of solar energy consultancy Genso Group, says significant investments in grid infrastructure and energy storage solutions are needed to integrate the growing share of solar energy.

“The rapid influx of solar power has strained grid infrastructure in some states, leading to challenges in managing and integrating this variable energy source. Grid modernization, especially in rural areas, is essential to cope with the growth in solar power,” he says.

According to the Indian Power Ministry, the current inter-regional power transmission capacity of the National Grid is about 116.5 GW and the Indian government plans to expand this capacity to about 150 GW by the end of the decade at a cost of about INR 2,442 billion (US$ 29.2 billion). The required investments underscore the need for increased financing in the country.

Financing in India

Central banks around the world have raised interest rates to cope with inflation, which has made borrowing expensive for solar developers. But Naqvi says India’s key interest rates are set to fall significantly by the end of the year, allowing developers to access cheaper rupee-denominated debt and “breathe some life back into” project financing.

The Indian solar energy sector raised $1.55 billion last year, down 9% from $1.7 billion in 2022, according to a Geo Solar Energy report by market intelligence platform Tracxn.

Garg says private capital has driven the growth of renewables in India. “That will continue, but the public sector will also play an increasingly important role. Investment will continue in the form of equity infusions from sovereign wealth funds, infrastructure investment banks and sub-prime groups, venture capitalists and acquisitions,” he adds.

However, domestic institutional investors and banks also need to increase their commitment to low-carbon technologies to drive the growth of the solar industry in India.

“India is increasingly tapping into a growing pool of environmental, social and corporate (ESG) capital, including green bonds and sustainability-linked bonds, in addition to conventional sources such as banks and financial institutions,” Garg said.

Naqvi says funding sources in India are diversifying and moving beyond traditional debt and equity options.

“Commercial and industrial consumers are increasingly choosing renewable energy because of its cost-effectiveness and alignment with decarbonization goals. This demand is driving investment in both solar and wind, while hybrid models are gaining popularity due to their reliable power supply and lower balancing costs.

“Funding sources are diversifying beyond traditional debt and equity options. While these remain dominant, the clean energy sector is witnessing a maturing market exploring new avenues,” says Naqvi.

Investment is pouring into domestic solar equipment manufacturing tools. For example, US independent power producer (IPP) Enfinity Global has secured $135 million in financing for a 1.2 GW solar and wind portfolio in India. The projects in the portfolio span five states: Maharashtra, Delhi, Karnataka, Uttar Pradesh and the solar hotbed state of Rajasthan.

IPP says work on the portfolio is at an advanced stage and is scheduled to be completed in 2025–2026.

In the latest edition The power of photovoltaic technologywe will continue to analyze the current situation in the Indian solar market, discussing issues such as the reintroduction of the Approved Model and Manufacturer List (ALMM), federal and state policies, and challenges in achieving India’s renewable energy target.