India’s power sector will require an investment of $700 billion over the next decade to meet its 2070 net-zero commitment, according to a report from Moody’s Ratings released on Wednesday. The sector is responsible for approximately 37 per cent of India’s carbon emissions, and the rating agency stressed that investments in the power sector from fiscal years 2026-51 will need to account for 1.5 per cent to 2 per cent of GDP (with about 2 per cent for the next 10 years), a manageable target for India.
To achieve its emission reduction goals, the sector must make substantial investments in decarbonisation, as it remains heavily reliant on coal-fired power generation.
“Our expectation of strong economic growth over the next 10 years implies an expansion of India’s coal-based power generation capacity in that period, hindering carbon transition,” it said.
In a recent note, Moody’s estimated that the power sector will need annual investments ranging from Rs 4.5 lakh crore to Rs 6.4 lakh crore ($53 billion to $76 billion) until fiscal 2034-35 (ending March 2035). Beyond that, the sector will require approximately Rs 6 lakh crore to Rs 9 lakh crore annually between fiscal years 2026-51.
“We estimate India’s power sector investments… would be in the range of Rs 4.5 lakh crore to Rs 6.4 lakh crore ($53 billion to $76 billion) until fiscal 2034-35 (total investment of around $700 billion over the next 10 years), and Rs 6.0 lakh crore to Rs 9.5 lakh crore annually over fiscal 2025-51,” it said.
The required investments for the power sector encompass capital expenditures for electricity generation (covering renewable energy, coal, and nuclear power), electricity transmission and distribution, as well as energy storage.
“Annually, this represents 2 per cent of real GDP over the next 10 years, and 1.5-2 per cent of GDP over fiscal 2026-51,” the note stated. “These investments are significant and will be funded jointly by the public and private sectors and foreign and domestic capital.” Moody’s projects India’s economy to grow at an average rate of 6.5 per cent per year over the next 10 years, with power demand expected to increase at a compound annual growth rate of around 6 per cent.
India’s per capita electricity consumption in fiscal 2022 was 1,255 kilowatt-hours (KWh), about one-third of the global average, according to the International Energy Agency (IEA). This figure is expected to rise with the country’s growing economy and improved living standards.
Moody’s noted that their projection of an additional 450 GW of renewable energy capacity over the next decade would not be enough to meet rising demand, leading to a continued expansion of India’s coal-based power generation capacity by 35 per cent (from 218 GW to around 295 GW) over the next 10 years.
To meet net-zero targets, investments will need to focus on renewable energy, grid infrastructure, and energy storage. Solar and wind energy will be the primary contributors to new generation capacity in the next 20-25 years, with nuclear and hydropower contributing in smaller amounts.
Moody’s expects India’s installed generation capacity to double by fiscal 2034-35 to meet projected growth in power demand of 1.7x-1.8x over the same period. By fiscal 2034-35, non-fossil fuel power will make up 45-50 per cent of total generation, up from 23.5 per cent in fiscal 2023-24.
The report stressed that the private sector will play a critical role in this transition, with foreign capital essential to bridging the funding gap. While the private sector will remain active in India’s renewable energy space, state-owned enterprises will also increase their involvement. Conventional bank lending, non-bank financial institutions, and debt capital markets (both domestic and international) will be vital for financing under-construction and operational projects. However, securing long-term, low-cost capital and foreign investments will be crucial to close the funding gap.
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