India’s power sector is undergoing a transformation, fuelled by rising electricity demand and the shift towards green energy. Foreign direct investment (FDI) in the sector also saw substantial growth, rising by 144 per cent to $1.7 billion in 2023-24 from $697.92 million in the previous year. To advance its “Viksit Bharat” vision, India is witnessing a surge in investments aimed at accelerating the green energy transition.
Notably, initiatives taken by the Power Finance Corporation (PFC), REC Limited and the Indian Renewable Energy Development Agency (IREDA) played a crucial role in sustaining this momentum.
Power Line takes a look at the key trends and developments in the power financing segment over the past year…
Debt market trends
The cumulative disbursements by PFC, REC and IREDA amounted to nearly
Rs 3,142.07 billion in 2023-24, an increase of over 71.07 per cent over the Rs 1,836 billion recorded in the previous year. The cumulative sanctions also witnessed a significant growth of 27.31 per cent, from Rs 5,326.73 billion in 2022-23 to Rs 6,781.7 billion in 2023-24.
On a year-on-year basis, REC’s disbursements increased by 64.91 per cent to reach Rs 1,614.62 billion in 2023-24 from Rs 979.11 billion in 2022-23. PFC’s disbursements increased by 49 per cent, reaching Rs 1,276.56 billion in 2023-24 from Rs 857.56 billion in 2022-23.
During 2023-24, REC sanctioned loans worth approximately Rs 3,588.16 billion compared to Rs 2,684 billion in the previous year, recording an increase of 33.66 per cent, while PFC’s sanctions increased by 21.75 per cent to Rs 2,820 billion from Rs 2,316.25 billion in the same period.
IREDA sanctioned Rs 373.54 billion in 2023-24 as against Rs 325.87 billion in the previous year, marking a 14.63 per cent increase. Further, it disbursed Rs 250.89 billion in 2023-24 compared to Rs 216.39 billion in the previous year, which is a 15.94 per cent increase.
PFC maintained a strategic mix of 82 per cent domestic and 18 per cent foreign currency borrowing, along with a balanced approach between short-term and long-term funding. It ventured into debt markets with new structures such as zero coupon bonds and perpetual
debt instruments.
REC’s renewable energy sanctions have increased to Rs 1,365.16 billion in 2023-24 from Rs 213.71 billion in 2022-23, demonstrating a growth of around 539 per cent. A key highlight for REC was the raising of JPY 61.1 billion through its first-ever Yen Denominated Green Bonds issuance. The bonds were issued with tenors of 5, 5.25 and 10 years, marking the largest euro-yen issuance in South and Southeast Asia and the largest Yen-denominated issuance from India.
PFC’s renewable energy loan book has grown at a CAGR of 16 per cent over the past five years, having more than doubled from Rs 289.8 billion in 2018-19 to Rs 602.08 billion in 2023-24. In the past year itself, PFC saw a 25 per cent growth in its renewable energy loan book.
Public route
The past year saw key initial public offering (IPO) announcements. Notably, IREDA’s stock made its market debut on November 29, 2023. The issue saw an overwhelming response from investors, underscoring robust confidence in India’s renewable energy sector. The state-run non-bank lender’s IPO was oversubscribed by a staggering 38.8 times, driven by substantial demand across all categories of investors.
NTPC Green Energy Limited (NGEL) recently filed draft documents with the Securities and Exchange Board of India for an IPO valued at Rs 100 billion. Established in 2022, NGEL has a capacity of 3 GW currently, with plans to take it to 20 GW by 2026-27.
The qualified institutional placement (QIP) route also saw significant activity, with several listed power companies tapping this route. In August 2024, Adani Energy Solutions Limited raised $1 billion through a QIP issue, which was oversubscribed three times, with demand reaching approximately Rs 260 billion. Investors, including GQG Partners, the Abu Dhabi Investment Authority (ADIA) and domestic institutions such as Bandhan Mutual Fund, Nomura and 360 India Infoline, participated in the issue.
Previously, in April 2024, SW Energy Limited concluded its QIP, raising Rs 50 billion through the sale of shares to institutional investors. Among the investors, ADIA, BlackRock, Inc., GQC, Nomura and Wellington were notably involved.
Foreign funds
Renewable and transmission players continued to be favoured by foreign funds and investors. In August 2024, British International Investment and Norfund announced plans to invest in IndiGrid’s three interstate transmission system (ISTS) projects currently under construction. The projects are Ishanagar Power Transmission Limited (IPTL), Dhule Power Transmission Limited (DPTL) and Kallam Transco Limited. These projects will help transport approximately 6 GW of renewable energy to Madhya Pradesh and Maharashtra. Techno Electric will help develop IPTL and DPTL, investing capital and handling the project execution.
In August 2024, the International Finance Corporation, the Asian Development Bank (ADB) and the German Investment and Development Company announced an investment of $275 million into Fourth Partner Energy (FPEL). The consortium’s investment will fund FPEL’s business expansion plans, which include a target portfolio of 3.5 GW of renewable energy assets by 2026. In addition, Japanese conglomerate Sumitomo Corporation formed a JPY 100 billion Indian joint venture with AmpIN Energy to develop a green power platform to set up 1 GW of capacity over the next few years.
According to data from the Ministry of Commerce and Industry, FDI in India’s renewable energy sector increased by 50 per cent in 2023-24, reaching $3.76 billion against $2.5 billion in 2022-23. Since 2010-11, the cumulative FDI in the renewable sector has reached $17.07 billion.
Multilateral development banks continued to channel funds to the power sector in the past year. A notable deal was ADB’s $148.5 million loan in June 2024, to help strengthen, modernise and climate-proof distribution systems to enhance the reliability, quality and resilience of electricity supply in Sikkim. This will enhance Sikkim’s power distribution system by upgrading it with approximately 770 km of climate-resilient medium voltage underground and/or covered conductors.
In July 2024, ADB and the ENGIE Group signed a long-term local currency loan agreement to construct and operate a 400 MW solar PV power plant in Surendranagar, Gujarat. ADB was the mandated lead arranger for the entire loan totalling Rs 14.6 billion, with ADB and the Asian Infrastructure Investment Bank both providing Rs 7.3 billion each.
Government spending and support
For 2024-25, the net budgetary allocation for the Ministry of Power has been set at Rs 205.02 billion (as against Rs 206.71 billion in 2023-24). Meanwhile, the budgetary allocation for the Ministry of New and Renewable Energy (MNRE) was Rs 191 billion for 2024-25 (as against Rs 102.22 billion in 2023-24). The budget announcements promoting pumped storage projects and collaboration with private firms to develop small modular nuclear reactors and advance nuclear energy technologies have also received a positive response from
the industry.
Further, the government’s Strategic Interventions for the Green Hydrogen Transition programme, which envisages the procurement of green hydrogen and ammonia and incentivises the development of manufacturing facilities for electrolysers, has been a key positive.
The development of solar energy parks and dedicated transmission corridors for evacuating renewable energy, coupled with the waiver of ISTS charges and liberalisation of foreign investment norms, has also helped catalyse investment
and growth.
There has also been a notable improvement in the payment profiles of discoms, driven by the effective implementation of the late payment surcharge scheme.
Outlook
From an investment perspective, the outlook for India’s power sector remains strong and optimistic. The country’s ambitious target of achieving 500 GW of renewable energy capacity by 2030 has already garnered support from stakeholders, including states, utilities, developers, financial institutions and manufacturers. At the recently concluded 4th Global Renewable Energy Investor’s Meet and Expo (RE-INVEST) organised by the MNRE, investment commitments totalling Rs 32,450 billion ($386 billion) were announced by banks and financial institutions until 2030. Developers pledged an additional 570 GW of capacity, while manufacturers committed to expanding production to 340 GW of solar modules, 240 GW of solar cells, 22 GW of wind turbines and 10 GW of electrolysers.
It is estimated that the clean energy sector in India saw new investments of Rs 8,500 billion between 2014 and 2023 (Economic Survey 2024). The sector is further expected to attract investments of about Rs 30,500 billion in India between 2024 and 2030. Overall, the right mix of technology, policy support and collaborative efforts can ensure that the power sector continues to attract private capital.
Aastha Sharma