What is India's pathway to limit global warming to 1.5°C?

The investment figures presented here focus exclusively on generation capacities (solar and wind) and therefore reflect only part of the overall system transformation. A fully decarbonised power system requires substantial additional investments in grid infrastructure, storage, and system flexibility. Transmission and distribution expansion, battery storage deployment, and system digitalisation are critical to integrate high shares of variable renewable energy and ensure system reliability. These additional investments can significantly increase total system costs but are necessary to enable the transition

The investment challenge for India's power sector is therefore not simply about building more generation capacity, it is about financing a systemic transformation. Delivering a reliable, 1.5°C-compatible power system requires an equally urgent build-out of transmission, storage, and flexible system services. The cost of underinvesting in these is already visible. India lost 2.3 TWh of solar generation to curtailment between late May and December 2025, with compensation payments to affected generators reaching an estimated USD 63–76 million.¹²12 The National Electricity Plan (2023) requires approximately USD 30 billion for intra-state grid upgrades by 2030, while the power ministry's inter-state grid revamp is estimated at USD 109 billion through the end of the decade.¹³13^{, 14}14 On storage, India will need USD 50 billion in new investment by 2032, with the CEA targeting 411 GWh of combined battery and pumped-hydro capacity by 2031–32.¹⁵15 Taken together, estimates says India will require approximately USD 293 billion through 2030 to meet even its own national electricity plan targets for solar, wind, storage, and transmission combined.¹⁶16

Against this backdrop, the continued dominance of fossil fuels in public finance is striking. India's total quantified energy subsidies amounted to atleast USD 51 billion in FY2025. Clean energy subsidies reached only USD 3.9 billion in FY2024, five times less than fossil fuel support. Additionally, nearly 83% of central state-owned enterprise capital expenditure went to fossil fuels.¹⁷17 Redirecting this support toward clean energy infrastructure would meaningfully close the financing gap.

The transition also has important labour market implications. Pivoting to renewables could deliver a broad set of co-benefits that strengthen economic resilience and support sustainable development objectives. India's renewable sector already supports approximately 1.28 million jobs as of 2024, making it one of the world's top four renewable energy employers, with estimates suggesting a further 3.4 million jobs could be created by 2030 through scaled-up investment in solar, wind, storage, and grid infrastructure.¹⁸18

Closing India's power sector investment gap requires specific, proven instruments rather than generic calls for more capital. The most immediate lever is reducing the cost of capital: India's cost of capital for grid-scale renewable energy, while the lowest among emerging market peers, remains 80% higher than in advanced economies, directly pushing up tariffs and undermining project viability.¹⁹19 Concessional finance from multilateral development banks (MDBs) has already demonstrated its catalytic effect. The World Bank approved two successive rounds of USD 1.5 billion in low-carbon energy financing in 2023 and 2024, and in July 2025 the Green Climate Fund (GCF) approved USD 200 million for Asian Development Banks India Green Finance Facility.²⁰20^,2121 Currency-risk mitigation, public guarantees, and viability-gap funding operate by the same logic, not substituting for private capital but improving risk-adjusted returns enough to unlock it. India's competitive auction regime has already shown this works at scale, driving solar tariffs down by over 80%, proof that well-designed procurement frameworks are themselves a financing instrument.²²22 Extending this design approach to stable, long-term power purchase agreements and contracts for difference would give investors the predictable revenue streams that project-level guarantees alone cannot provide.

Public and private capital should play distinct but complementary roles within this framework. Public finance should prioritise system-enabling infrastructure, including transmission, distribution upgrades, storage, and early-stage risk mitigation. Private capital should finance the bulk of utility-scale solar, wind, hybrid projects, and storage once stable procurement and revenue frameworks are in place. India has early proof of this logic: the National Investment and Infrastructure Fund's Green Growth Equity Fund, launched with the UK government and the Green Climate Fund, showed how layered capital structures can reduce tariffs and crowd in institutional investors in sectors that would otherwise struggle to attract finance at scale.²³23

As a result, India is already attracting significant clean energy capital. The IEA reports that 83% of India’s power sector investment in 2024 went to clean energy, and that India was the world’s largest recipient of development finance for clean energy generation in 2024, receiving around USD 2.4 billion in project-type interventions.²⁴24 

Yet two structural barriers threaten to cap progress well short of what is needed. First, the offtake framework is under serious strain: a surge in auctions has produced a backlog of 55 GW of unsigned power purchase agreements as of October 2024. Power distribution companies owed more than USD 9 billion in unpaid dues as of March 2025, with cumulative losses of USD 75 billion by end-2023.²⁵25 The weighted average cost of capital for Indian renewable energy projects expanded by 320 basis points (3.2%) through 2024 as a direct consequence, compressing returns and threatening to cap 2030 ambitions well short of target.²⁶26 Restoring the financial health of power distribution companies, enforcing power purchase agreement compliance, and expanding corporate and direct offtake routes are therefore as urgent as any financing instrument. Second, continued fossil fuel subsidies distort market competition and reduce the relative attractiveness of renewables for private investors pricing on risk-adjusted returns. Closing the investment gap requires addressing both.