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India, the third largest CO2 emitter in the world, has committed to reaching Net Zero emissions by 2070. However, the country is still heavily reliant on fossil fuels, especially coal, and has a rapidly growing energy demand, so substantial investments are needed to reach the ambitious goal. In a paper, French asset management company Amundi analysed the progress, challenges and commitments of India’s energy transition.
In summary, India’s energy mix is dominated by coal and oil, with modern renewables only contributing about 11% of overall primary energy demand. In addition, the total primary energy demand has grown at about 4% CAGR in the last two decades.
According to the Amundi paper, India will need estimated annual investments ranging from $160 bn to $200 bn to achieve the energy transition. That is about 5% of the current gross domestic product (GDP).
The government has acknowledged the issue and has already implemented various economic measures. “India has experienced the swiftest growth rate in the addition of renewable energy capacity among the world’s major economies over the past seven years,” explains the French asset manager.
Amundi cites solar photovoltaic (PV) installations, which have grown 12-fold since 2015, and wind power capacity, which has doubled.
“Still, to meet its targets, the country must significantly scale up the addition of renewable capacity,” the French asset manager opines.
India’s energy transition – “substantial economic opportunity”
According to the analysis by Amundi, India’s 2023-24 Union Budget demonstrates a strong commitment to climate goals, with significant increases in funding for renewable and nuclear energy and subsidies for electricity storage projects.
The introduction of a green bond framework and the issuance of sovereign green bonds, denominated in Indian rupees to avoid currency mismatches, will finance various sustainable projects. Additionally, the Ministry of Power’s notification of the Carbon Credit Trading Scheme (CCTS) aims to incentivise emission reductions in industries, though its success depends on clear industry targets and effective carbon pricing.
The asset manager highlights energy storage batteries and green hydrogen as the sectors where India is “uniquely positioned to emerge as a global leader”. Amundi estimates the market for such low-carbon technologies in India to reach up to $80 bn by 2030.
Last year, the Indian government launched the National Green Hydrogen Mission. It aims at producing 5 million metric tons of hydrogen fuel annually by 2030. “This will help reduce fossil-fuel imports and turn India into a leading producer and exporter of green hydrogen,” Amundi opines and adds that initiatives like these present significant opportunities for international investors.
Mergers and Acquisitions activity by multinational corporations has surged recently, and hurdles for global private equity funds to invest in India have been lowered.
Amundi notes that global investors are significantly supporting the expansion of India’s green bond market, now the second largest in Asia among emerging markets for green bond issuance. Additionally, the Security and Exchange Board of India has facilitated the influx of international investments by implementing stricter regulations on ESG disclosure standards.
“Going forward, global asset owners should increasingly work alongside public actors – such as governmental agencies and development finance institutions – to scale the funding of Indian sustainable energy infrastructure, notably by providing access to cheaper sources of capital and thereby help India reach its ambitious environmental and social sustainability goals,” Amundi summarises.
