India is on the edge of an energy and infrastructure revolution

10 December 2021

Already home to 1.37 billion people – almost a fifth of the global population – India is projected to overtake China and become the world’s most populous nation by 2027. Around the same time, rural to urban migration is expected to tilt the proportion living in urban centres over the 40 per cent mark for the first time.1

This population growth and urbanisation coupled with ongoing industrialisation and India’s status as the world’s fastest-growing economy will see its energy consumption – which has already more than doubled since 2000 – increase considerably in the coming years.

The country – whose energy usage on a per capita basis is currently only around 20-30 per cent of the global average – will see demand for energy increase at a rate higher than that of any other country over the next two decades2. By 2040, according to the International Energy Agency’s (IEA) 2021 India Energy Outlook, it could account for a quarter of global energy demand growth.2

Already the world’s third-largest carbon polluter, without significant changes to its energy mix – including the upscaling of investment in renewable energy sources – India will struggle to simultaneously meet demand for new energy generation and its commitments to curtailing its contribution to rising levels of greenhouse gas emissions.

Since 2000, India’s carbon emissions have risen faster than energy demand3, growing 2.6-and 2.1 times respectively. In its ‘stated policies’ scenario (a conservative outlook that does not factor in its COP26 commitment and does not meet the goals set in the Paris Agreement), the IEA sees the South Asian nation’s CO2 emissions rising by an additional 50 per cent over 20 years.

On a per capita basis, however, India’s CO2 emissions are – currently - just half the global average. Even if this increases as the IEA predicts, India would still be producing 35, 65 and 75 per cent less CO2 per person in 2040 than Europe, China and the US, respectively.2

Though fossil fuel power generation is gradually losing share, it still dominates the country’s power mix, and India’s reliance on thermal energy generation is significantly higher than its global peers, accounting for about 85 per cent of energy generation versus a global average closer to 60 per cent.2

At this year’s United Nations Climate Change Conference (COP26), India’s Prime Minister, Narendra Modi, announced that the country would escalate their displacement and raised its renewable energy capacity target for 2030 by 50GW to 500GW4 (for context the target for 2020 was 80 GW). He also committed to reaching net zero by 2070.


India’s primary energy mix 1965-2020 and IEA’s ‘stated policies scenario’ to 2040

Source: BP, IEA
Source: BP, IEA

Evolving India’s energy mix

Achieving such ambitious goals whilst still substantially growing its energy production to fuel a rapidly developing country will require the concurrent scaling up of the use of renewable sources like solar and wind to fill the gap left by the phasing down of coal and oil.

Though on the right trajectory – the installed capacity of renewable energy overall has increased 226 per cent in last 5 years5 and solar power capacity alone has increased more than 11-fold in the last five years, from 2.6GW in 2014 to 42GW today – the pace of clean energy installations will need to triple to meet the new 2030 target.

A 2021 report by the Institute for Energy Economics Financial Analysis (IEEFA) highlighted that India would require an additional $US500 billion in investment in new wind and solar infrastructure, energy storage, and grid expansion and modernisation to reach its original 450 GW of renewable capacity by 2030.6,7 That was before the target was upgraded at this year’s COP26, meaning more is almost certainly needed today.

The integration of renewables into the national grid was highlighted in the report as a major challenge for the country and one that would require – amongst other solutions – better storage systems and the building in of additional resilience and responsiveness to its electricity distribution infrastructure to facilitate the expansion of renewable power.8


India’s power generation mix and renewables share by source

Source: IEA

Aditya Suresh, Macquarie’s Head of India Research, says the potential for India to transition to a low carbon economy is significant and presents one of the biggest opportunities for the Indian economy this century.

“India’s renewable power capacity has grown six-fold over the past decade - the resource potential is huge, ambitions are high, and policy support and technology cost reductions have quickly made it the cheapest option for new power generation, according to the IEA.”

“If grid integration issues can be resolved and assuming capital remains abundant, we consider India’s 500GW capacity target by 2030 feasible, at which point renewables would account for half9 of the power generation mix versus 20 per cent today.”

India’s commitment and trend towards decarbonising its economy, and the investments that will be required to support this will continue to provide interesting investment opportunities over the next decade and beyond."

Deep Gupta
Managing Director
Macquarie Asset Management

India’s energy transition journey

The priority: scale renewables – solar in particular

Strong policy support has been a driving force behind the adoption of renewables in India and is helping make it a primary emerging market for clean energy investment.

Government initiatives such as the granting of “must-run” status to wind and solar projects – in effect prioritising them by preventing curtailment of their usage in response to demand fluctuations – and the Renewable Purchase Obligations (RPO), which require electricity distribution licensees to purchase a minimum percentage from renewable sources, have served to increase the use of renewable energy – often at the expense of coal.10

The falling costs of key clean energy technologies has also had a huge influence.

India is already the world’s largest renewable auctions market and tariffs are amongst the lowest in the world. Solar auction tariffs, for instance, have declined sharply from ~$US75/MWh in 2016 to $US40/MWh in 2018 and $US33/MWh this year11; this compares with thermal costs of ~$US50/MWh. They have been below those of new coal-fired power plants for two years now, according to the IEA.12

In part, this mirrors the steep decline in solar module/technology costs. But it also comes as a result of the way in which the country contracts utility-scale wind and solar projects: through competitive auctions. A record volume of these auctions has driven down the costs by attracting high levels of demand and competition amongst investors and promoting cost efficiencies amongst bidders.13

Renewable energy capacity remains highly variable by state, however, with the highest concentration being in ten ‘renewables rich states’, some of which – such as Karnataka (28 per cent), Rajasthan (20 per cent), Tamil Nadu (18 per cent), Andhra Pradesh (16 per cent), Gujarat (14 per cent) – have a greater share of clean energy than China (11 per cent) and the US (13 per cent), while the top two states are comparable to Europe (20 per cent).

Continued growth will see the annual spend on solar PV modules and batteries, along with wind turbines grow four-fold to $US40 billion per year by 2040, at which point India would account for between 10 and 30 per cent of the global market. In addition to opportunities for clean energy project developers and equipment manufacturers, India will need significant investment in grid enhancement, storage, and grid digitalisation to enhance grid reliability.


India's market size and global share in clean energy technologies

India's markets for clean energy technologies grow rapidly in the IEA's 'stated policies' scenario, led by lithium-ion batteries. India's solar PV market accounts for around 25 per cent of the global total in 2040.

Source: IEA, IndiaDataHub, Macquarie Research, October 2021


Alternative sources of energy

Natural gas

The role of natural gas in India’s energy transition has been pitched as a ‘transition fuel’ that can help the country wean itself off coal, by providing an alternative fuel for industry uses, powering transport and heating homes

Currently comprising 6 per cent of the energy mix, the government aspiration is to increase it to 15 per cent by 2030, though scepticism as to whether this can fully materialise exists as key issues, such as import capacity growth, costs and taxation levels, and last-mile connections (just 3 per cent of the population is currently connected), remain.

In support of the ambition, the government has announced investment of $US60 billion for pipelines, LNG terminals and distribution networks.14 The investment will also help the government’s goal to transform India into an 'energy-independent' nation by 2047.


India’s energy mix contribution of gas at 7 per cent versus ambition of 15 per cent

Source: PPAC, Macquarie Research estimates


A consequence of India’s plan to reduce its dependence on oil imports – currently standing at around 90 per cent – has been to increase attention on the role of ethanol blending, and to bring forward the target for the sale only of gasoline with 20 per cent ethanol brought forward by five years: to 2025.15

Achieving that will require a more than doubling of the 8.5 per cent today, and the rapid upscaling of investment in the infrastructure needed to allow the production and blending of ethanol domestically. Should it do so, the opportunity exists for India to rise to become the third largest market for ethanol worldwide, behind the United States and Brazil.16

One obstacle is the necessary recalibration of existing motor vehicles to use the blended fuel if they are to maintain their efficiency. The use of E20 fuel by newer vehicles (those manufactured after 2008) requires new engine specifications.


Replacing biomass

Traditional fuels such as biomass are used by roughly half of all Indian households – with the predominance being in rural areas – for cooking purposes, even though the country has near-universal electrification. Achieving full transition to cleaner cooking (such as by providing better access to LPG or electric cookstoves) will require concerted action to address the unaffordability of alternatives, which remains a key dampener of their growth.


Electric vehicles

Whilst adoption of electric vehicles (EVs) is making prime-time headlines elsewhere, India remains in the very early days of adoption. Though a participant in EV30@30, a campaign launched by the Clean Energy Ministerial with an ambitious objective of reaching 30 per cent sales share for EVs by 2030, penetration in India remains slow and hindered by the lack of charging infrastructure (with the exception of three-wheelers where EVs account for 50 per cent of sales in 2020)17. Government plans are in play to install chargers in several cities and highway corridors, as well as to provide capital subsidies and other incentives to EV manufacturers and expand private sector involvement in the infrastructure rollout. India’s annual EV charger market could be worth $US5.2bn by 2030 if it achieves the EV30@30 target, which would see an ~7-8 million electric cars on Indian roads by the end of this decade.



India’s ‘Hydrogen Energy Mission’ was launched in 2021 and aims to scale up the production and use of green hydrogen – that produced from renewable electricity – and increase its role in India’s energy transition. India’s low costs of renewable energy make it well placed to be a global leader in green hydrogen. The government plans to spend $US200 million over the next five to seven years18 to promote its use and position the country as a global hub for green hydrogen production and exports.

The high dependence on imports and cost of gas and the emissions tied to coal consumption, combined to low clean energy cost, make India one of the more attractive markets for producing and utilising green hydrogen. In the near term, this is particularly true for industry and heavy duty transport, but green hydrogen could become an alternative to gas to provide balancing on the power grid as cost decline.

Its potential as a transport fuel is currently being explored through various initiatives, including an 18 per cent hydrogen-enriched compressed natural gas (HCNG) as an automotive fuel, and promoting projects for hydrogen-powered vehicles such as six-fuel cell buses by Tata Motors and the rollout of HCNG buses in Delhi.


Supporting India in achieving net zero

“Opportunities and partnerships with the private sector can play a vital role in closing the funding cap and enabling new opportunities,” Gupta says.

Macquarie has a strong track record of developing and operating renewable energy assets and working with government utilities, industries, and companies to support their decarbonisation, and we are playing a key role in helping India achieve its net zero ambitions.

From developing solar assets to transformational intervention in India’s electric mobility space where we have mobilised large commercial capital to power India’s drive to de-carbonise its transport sector, our involvement is both direct, cross sector, and at the international level.

Earlier this year Blueleaf Energy, a portfolio company of Macquarie’s Green Investment Group, acquired majority stake in Vibrant Energy with a pipeline of over 400MW solar plants across India.

Macquarie Asset Management is currently working with portfolio companies in India on reaching their net zero emission targets by 2040. One example being Macquarie’s toll road portfolio. As one of the largest international investors in Indian toll roads, Macquarie is working with Gujarat Road And Infrastructure Company Limited (GRICL) in Gujarat on reducing emission. Thus far they have installed 108 kW roof top solar in two of the toll plazas. This has reduced 246 tonnes of CO2 emissions and electricity costs. These initiatives not only help us get to our net zero target but also deliver clear business improvements.

Bringing together leading private sector actors and the government to identify actions that can help accelerate private capital investment in the energy transition is also  essential to meeting India’s ambitions.

Macquarie’s CEO, Shemara Wikramanayake, alongside Natarajan Chandrasekaran, Chairman of Tata Group, co-chairs CFLI India, an initiative led by Bloomberg’s Climate Finance Leadership Initiative (CFLI). CFLI India has been established with an objective to mobilise capital to enable and meet the funding gap in India’s ambitious national climate plan, and Macquarie is actively working with various public and private corporations to accelerate financing across renewables, water, waste infrastructure, electric mobility, and hydrogen, amongst other energy transition sectors.

The UK Climate Investments (UKCI) is another partnership which was established in 2015 as a joint venture between Macquarie’s Green Investment Group (GIG) and UK Government’s Department for Business, Energy and Industrial Strategy. The UKCI has been targeting transformational green energy investments in India and helping commercial and industrial business across India rethink how they produce and consume electricity via its investment in Cleanmax Solar. 

With India’s renewable power capacity growing six-fold over the past 10 years, the country’s quest for more sustainable energy sources and a lower-carbon economy is ambitious yet achievable.

“Proactive and ongoing government policy decisions and falling technology costs making renewable power cost competitive with thermal-installations may put the world’s third largest economy on track to net zero and deliver positive global repercussions in the process,” says Aditya Suresh, Macquarie’s Head of India Research.

  1. ‘Population’, United Nations (UN), December 2021,
  2. ‘India Energy Outlook 2021’, International Energy Agency (IEA), December 2021
  3. Aditya Suresh, Ajinkya Bhat, Ashish Jain et al., ‘India: Macq’s Big Book of Trends (2 of 10): Energy Transition Choices’, Macquarie Research, 21 October 2021,
  4. ‘India to achieve 50% clean energy share, 500 GW RE capacity targets before 2030 deadline: RK Singh’, The Economic Times, 9 November 2021,
  5. Ministry of New & Renewable Energy - Government of India,
  6. Uma Gupta, ‘India sees renewable energy investments increase between April and July’, pv magazine, 20 August 2021,
  7. ‘Renewable energy investment in India bounces back from COVID-19 slowdown’, Institute for Energy Economics & Financial Analysis (IEEFA), 19 August 2021,
  8. Dhruv Suri, Jai Shekhar, Azade Y Aria, ‘Greening the Grid - How Close is India to Meeting its Renewable Energy Targets?’, The Energy and Resources Institute (TERI), 12 August 2021,
  9. Rajesh Kumar Singh and Debjit Chakraborty, ‘Modi’s COP26 Goals Could Mean a Massive Energy Overhaul in India’, Bloomberg, 2 November 2021,
  10. Julia Pyper, ‘How India’s Renewable Energy Sector Survived and Thrived in a Turbulent 2020’, GTM, 6 January 2021,
  11. IHS Markit data
  12. Simon Evans, ‘Solar is now ‘cheapest electricity in history’’, confirms IEA, Carbon Brief, 13 October 2020,
  13. Rohit Gadre, Atin Jain, Shantanu Jaiswal et al., ‘India’s Clean Power Revolution: A success story with global implications’, BloombergNEF, 26 June 2020,
  14. ‘India plans $60 billion investment in gas infra, says Pradhan’, The Times of India, 18 December 2020,
  15. Twesh Mishra, ‘India aims to sell only 20% ethanol-blended petrol from 2025: Oil Secretary’, Business Standard, 11 November 20201,
  16. ‘Renewable electricity growth is accelerating faster than ever worldwide, supporting the emergence of the new global energy economy’, International Energy Agency (IEA), 1 December 2021,
  17. BloombergNEF,
  18. ‘India to spend $200 mln in next 5-7 years to promote hydrogen use’, Reuters, 16 April 2021,