India Needs $700 Billion for Net-Zero Power

New Delhi, Feb 19 (PTI) India's power sector - the biggest carbon emitter - will need massive USD 700 billion investment over the next 10 years to help the country achieve its 2070 net-zero pledge, Moody's Ratings said on Wednesday.

Stating that the power sector accounts for around 37 per cent of carbon emissions in the country, the rating agency said the investments required by the power sector during fiscal 2026-51 to be of the order of 1.5 per cent to 2 per cent of GDP (around 2 per cent for the next 10 years), which is manageable for India.

The sector, which currently is highly dependent on coal-fired generation, has to make significant decarbonization investments for the country to meet its emission cut goals.

"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 note, Moody's pegged power sector's annual investment requirement between Rs 4.5 lakh crore to Rs 6.4 lakh crore (USD 53 billion to USD 76 billion) of investment until fiscal 2034-35 (fiscal year ending March 2035), and around Rs 6 lakh crore to Rs 9 lakh crore annually over fiscal 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 (USD 53 billion to USD 76 billion) until fiscal 2034-35 (total investment of around USD 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 power sector investments include capital spending for electricity generation (including renewable energy, coal and nuclear power), electricity transmission and distribution and 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," it said. "These investments are significant and will be funded jointly by the public and private sectors and foreign and domestic capital."

Moody's expect India's economy to grow at around 6.5 per cent per annum over the next 10 years, with a compound annual growth rate for power demand of around 6 per cent.

The per capita consumption of electricity in India (1,255 kilowatt-hours (KWH) in fiscal 2022) is around one-third of the world average, according to the International Energy Agency (IEA). This is expected to increase with the growing economy and improved living standards of India's population.

"Our projection of an increase of around 450 GW of renewable energy capacity over this period would be insufficient to meet such demand, implying that India's coal-based power generation capacity will continue to expand by 35 per cent (from 218 GW to around 295 GW) over the next 10 years," it said.

Investments to meet net-zero target will have to focus on renewable energy, grid networks and energy storage. Solar and wind power will dominate new generation capacity additions over the next 20-25 years, with nuclear and hydropower additions smaller.

"We expect installed generation capacity to increase by 2.0x-2.2x by fiscal 2034-35 to meet India's power demand growth of 1.7x-1.8x in the same period. Non-fossil fuel power will account for 45-50 per cent of total output by fiscal 2034-35, from 23.5 per cent in fiscal 2023-24," it said.

Stating that private sector is vital to transition and that foreign capital was essential to bridge funding gap, Moody's said its expects the private sector to remain very active in India's renewable energy sector, while government-owned companies will also increase their role.

Conventional bank lending and non-bank financial institutions will be the key source of debt capital for under-construction projects, and debt capital markets (domestic and overseas) will be key to the refinancing of debt for operational projects. However, access to long-term low-cost capital and foreign capital will be essential to bridge the funding gap.