IEA Flags Investment Challenges In India's Renewable Energy Sector Amid FPI Slowdown

(MENAFN- KNN India) New Delhi, Jun 7 (KNN) India's renewable energy sector has been facing significant investment headwinds, as delays in power purchase agreements (PPAs) and transmission infrastructure bottlenecks have hindered foreign portfolio investment (FPI) flows over the past two years, according to the International Energy Agency (IEA).

The IEA's latest assessment reveals that while domestic sources continue to finance most of India's power generation and transmission infrastructure, foreign direct investment (FDI) has shown resilience-reaching USD 5 billion in 2023, nearly double pre-pandemic levels.

This growth has been supported by regulatory frameworks that permit 100 percent FDI across electricity generation sources, excluding nuclear power, and transmission infrastructure.

However, FPI in energy assets has declined significantly due to macroeconomic pressures and sector-specific challenges, despite historically steady growth patterns.

The agency identified several structural issues undermining investor confidence, including land acquisition complexities, off-taker risks, and inadequate transmission infrastructure that has constrained 60 gigawatts of renewable capacity deployment.

The financial viability of projects remains compromised by elevated capital costs, with India's cost of capital for grid-scale renewable energy standing 80 percent higher than advanced economies, despite being among the lowest within emerging market comparisons.

These financing premiums translate directly into higher energy prices and reduced project attractiveness for both domestic and international investors.

Distribution company payment delays represent a critical risk factor, with state electricity boards owing over USD 9 billion in unpaid dues as of March 2025.

The accumulated losses of distribution companies reached USD 75 billion in 2023, creating substantial off-taker risk that investors consistently cite as a primary concern.

The Ministry of New and Renewable Energy (MNRE) has acknowledged these challenges, with Minister Pralhad Joshi engaging state governments to expedite power purchase agreement signings for 40 gigawatts of stranded renewable energy capacity.

Industry analysis by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research & Analytics indicates that transmission capacity expansion delays have contributed to renewable energy under-subscription rates increasing fivefold to 8.5 gigawatts in 2024.

(KNN Bureau)

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