Navigating risks to unlock 500 GW of renewables by 2030
Assessing investment risks is key to designing effective risk mitigation mechanisms. This becomes critical to ensure the necessary flow of capital to drive growth in the renewable energy sector.
24 Feb 2025
72 Minutes Read
Table of Contents
Executive summary
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Chapter 1: Understanding risks better
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Understanding different type of risks becomes important
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Chapter 2: Measuring risks
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A primer on assessment of risk premium
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Risks associated with project delays
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Risks Associated with PV Modules
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Risks associated with generation shortfall
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Risks associated with new-age FDRE tenders
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Other potential project risks
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Chapter 3: The big picture about cost of capital
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High cost of capital as a barrier to RE growth
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Supporting materials
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Highlights
$300B
Total investment required by 2032 to meet India’s National Electricity Plan-14 targets
+4%
Maximum increase in cost of capital to factor in risks associated with new-age dispatchable renewable projects and commissioning delays
100 GW
less renewables by 2030 if cost of capital remains elevated by +4%
Featured in the media
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Executive summary
Understanding and mitigating financing risks is key to enabling low-cost capital flows for India’s renewable sector
India stands at a pivotal moment in its renewable energy journey, with an ambitious target of 500 GW by 2030 requiring significant investment. Achieving this scale hinges not only on the availability of capital but also on ensuring it is available at a low cost. Attracting low-cost capital is critical on two fronts: enabling the development of renewable energy infrastructure at the required scale and ensuring that the promise of affordable renewable electricity is realised.
Key takeaways
01
Total renewable power investments must reach USD 300 billion by 2032 to meet NEP-14 targets
Investments in renewable power generation and transmission for FY 2024 are estimated at USD 13.3 billion, marking a 40% increase from the previous year. Achieving the National Electricity Plan (NEP)-14 targets will require annual financing to grow by 20% annually, reaching USD 68 billion by 2032. Over this period, a total capital flow of USD 300 billion will be needed to keep India on track to meet its renewable energy commitments.
02
Commissioning delays and risks from new-age FDRE projects can drive up the cost of capital by 4%
Project commissioning delays, driven by land acquisition challenges, grid connectivity issues and regulatory hurdles, remain a significant concern for India’s renewable energy sector. Furthermore, Firm and Dispatchable RE (FDRE) projects, designed to enhance renewable energy dispatchability through oversizing solar and wind projects and integrating storage, can introduce additional risks. These include penalties for failing to meet demand targets, exposure to market price fluctuations, and uncertainties surrounding future battery costs. Combined, risks from project delays and FDRE projects have the potential to raise the cost of capital by up to 4% or 400 basis points (bps ~ equivalent to 1/100th of 1%, or 0.01%).
03
A 4% increase in the cost of capital could cause India to fall short of its 2030 RE target by 100 GW
A 4% or 400 bps rise in the cost of capital—from 10%, i.e., an average estimate of cost of capital for Indian renewable projects, to 14%—could restrict India’s 2030 renewable energy capacity to approximately 400 GW, falling short of the 500 GW target. In contrast, a 200 bps reduction—from 10% to 8%—could allow India to exceed its target, reaching 540 GW. Effectively managing risks and lowering the cost of capital will be critical to sustaining renewable energy growth.
This report highlights key challenges in India’s renewable energy (RE) sector that could increase the cost of capital, potentially hindering the sector’s growth. Addressing these risks through targeted policy measures, innovative contracting mechanisms and proactive expectation management is crucial for maintaining a steady flow of investments. Collaborative efforts from project developers, financiers and policymakers will be indispensable in mitigating these risks and ensuring the successful realisation of India’s ambitious RE targets.
Understanding project-specific financing risks for RE projects is key to designing targeted mitigation measures that keep the cost of capital low. Staying attuned to evolving risk profiles in renewables is essential for sustaining their growth and ensuring India meets its RE targets.
Besides offering a detailed assessment of key risks in India’s renewable markets, this report presents a transparent risk premium assessment methodology for renewables. By demystifying the quantification of risks and their magnitude, it ensures that all RE stakeholders—developers, financiers, and policymakers—have access to a structured framework for evaluating risks. This, in turn, can lead to more targeted policy interventions and contracting mechanisms that effectively mitigate risks.
There has been a surge in Letters of Award (LoAs) for renewable energy projects, but many of these have not yet materialised into Power Purchase Agreements so far. The Ministry of Power must address this issue, as the delay imposes financial strain on developers due to bank guarantee costs and creates uncertainty for equity investors in forecasting cash flows based on LoAs.
Satyadeep Jain
Director – Equity Research Ambit Private Limited
Director – Equity Research Ambit Private Limited
Risks in RE projects are constantly evolving, making a contemporary understanding crucial for developers and investors. Research like this must be regularly updated to quantitatively reflect the evolving risk profile.
Abhishek Jain
VP, Investment Cell O2 Power
VP, Investment Cell O2 Power
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