Structural issues related to bond market, discoms and land availability hindering India’s RE surge

Structural issues impeding rapid RE adoption include an underdeveloped domestic corporate bond market, fiscal situation of discoms, lack of land availability and question of just transition.

India stands at a crucial juncture, poised to enhance its renewable energy (RE) portfolio significantly and emerge as a global RE powerhouse. However, despite the ambitious goals, the RE landscape in the sector faces obstacles. For example, in 2022, RE sector investment was $15 billion, expected to decline to $13 billion in 2023, falling short of the government’s $25 billionbannual investment target.This underscores the fact that the adoption of renewable energy in India is not progressing at the necessary pace to fulfill the rapidly growing energy demand and meet the commitments associated with energy transition.

Underdeveloped corporate bond market

Structural issues impeding RE adoption include an underdeveloped domestic corporate bond market, where India’s bond market size is only 18 percent of GDP compared to 120 percent in the United States. To address this, regulatory modifications for domestic institutional investors, particularly insurance companies and private funds, are crucial. Increasing corporate bond capital, decoupling renewable energy from the power sector, and allocating dedicated funds for cleaner energy sources can stimulate investment.

Precarious fiscal situation of Discoms

Similarly, the fiscal challenges of distribution companies (discoms) present another hurdle. The precarious fiscal situation of discoms, burdened by debt, distribution losses, and subsidies, impedes the integration of renewable energy into the grid. Interventions to reduce fiscal burdens, such as rationalisation of subsidies, reduction of T&D losses and increase private sector participation needed to enhance distribution networks.

Challenge of land availability

Land availability, the third obstacle, poses a complex challenge in a country with diverse developmental needs. With competing demands for land in areas like housing and agriculture, conflicts arise, hindering renewable energy projects. Government initiatives, such as identifying land suitable for renewable energy deployment and emphasising decentralised renewable energy (DRE) schemes, can alleviate this challenge.

Question of just transition

The fourth issue involves the impact of the transition on communities and states heavily dependent on fossil fuels. Communities reliant on coal economies face economic and environmental challenges during the transition. States like Jharkhand and Chhattisgarh are proactively implementing just transition paradigms, forming task forces to mitigate the impact and develop policies that facilitate a smooth shift from fossil fuels to renewables.

Addressing the underdeveloped bond market, improving the fiscal situation of discoms, resolving land availability issues, and managing the transition’s impact on communities are essential steps. These structural problems must be tackled to accelerate investment and adoption of renewable energy in India.

Spokesperson: Gaurav Upadhyay, Energy Finance Specialist, India Sustainable Finance- IEEFA