India’s Solar PV Sector to Attract more Investment In the Country

In recent years, India has surpassed China to become the world’s most populous country, with a population of over 1.4 billion people. Alongside this demographic expansion, India has also emerged as the fastest-growing major economy globally. However, sustaining this economic and population growth relies heavily on meeting the increasing energy demand. The Indian government is actively focused on boosting the contribution of renewable energy sources to become a net-zero economy by 2070. To achieve this, they have updated their targets, aiming for around 50% of cumulative electric power installed capacity to come from non-fossil fuel-based resources by 2030. Read More Business News on our website.

Will India Become a leader in Solar PV Sector?

According to the Central Electricity Authority, India’s installed power capacity is expected to reach 800 GW by 2029-30, with more than 500 GW coming from non-fossil fuel sources. Solar power is projected to play a significant role, accounting for over 270 GW of capacity. To support this growth, the government has introduced the Production-Linked Incentive (PLI) scheme, which aims to attract solar manufacturing to India. As a result, both domestic and international investors are actively participating in the solar sector in India.

Globally, the investor community has become increasingly aware of climate change and sustainability concerns. Since the Paris Accord, there has been a rise in sustainable financing taxonomies, which help investors identify activities aligned with sustainable goals. Sustainability has become a criterion for investment decisions, leading to more capital flowing into renewable energy compared to fossil fuels.

Despite tightening liquidity conditions in the global economy, renewables continue to attract investments. In 2021, global new investment in renewable power and fuels reached USD 366 billion, with solar PV accounting for 56% of the total. India followed this trend, with total new investments in renewables reaching USD 11.3 billion, and solar PV accounting for approximately 66% of that.

Raising funds for solar projects in India offers an attractive business proposition. Cash flows from solar assets can be predicted with a higher degree of certainty compared to traditional infrastructure projects. Moreover, risks related to power offtake can be managed through long-term Power Purchase Agreements (PPAs) with Public Sector Undertakings (PSUs) and highly-rated corporates.

These projects offer value to both fixed-income and equity investors. On the debt side, power sector-focused financing institutions, domestic banks, and Non-Banking Financial Companies (NBFCs) find the solar sector attractive for term lending opportunities. Renewable energy projects, especially solar plants, have shorter gestation periods, lower execution risks, government policy support, and long-term offtake arrangements, making them a unique proposition for lenders.

Various financing options are available for solar projects, such as green bonds. Although more popular in developed markets, green bonds are gaining traction in India. As of September 2022, 15 Indian entities have issued green bonds, raising over INR 4,500 crores, many of which are from the renewable energy sector, particularly solar PV generators or financers. The Government of India has also announced the issuance of sovereign green bonds, providing a boost to renewable energy projects undertaken by the public sector. Infrastructure investment trusts are another structure that can be utilized to monetize operational solar PV assets.

In terms of equity, the Indian solar PV sector has attracted interest from financial investors, including sovereign wealth funds, pension funds, and private equity funds, seeking long-term returns in the energy transition theme. Strategic investors, such as oil and gas companies and thermal power generators, view solar PV as an extension of their existing business and a pathway to maintain their leadership in the future fossil-free energy sector. Moreover, global multinational corporations are heavily investing in the Indian solar sector to decarbonize their operational footprint and achieve net-zero targets.

The solar PV sector in India has significant growth potential, driven by the global energy transition, climate-sensitive and sustainable investment frameworks, government regulatory support, and favorable economic and demographic factors. Within the broader renewable energy space in India, the solar sector is likely to remain a preferred choice for both domestic and international investors.