With India crossing 250 GW of installed renewable capacity in 2025 and meeting its non-fossil fuel capacity target well ahead of schedule, the sector is entering a new phase of growth, marked by larger project pipelines, stronger market fundamentals and a steady shift in how projects are planned, financed and implemented. Financing models have evolved considerably over the past decade – from conventional bank debt and corporate equity to green bonds, blended finance, infrastructure investment trusts (InvITs) and platform-based investments led by global institutional capital. Rising merger and acquisition (M&A) activity, consolidation among large developers, and the entry of long-term sovereign and pension funds are reshaping how companies plan growth, manage risks and monetise assets. Leading experts discuss the shifts in renewable energy financing, investor participation and emerging growth areas in India. Edited excerpts…
How has renewable energy financing evolved over the years, and how are emerging investment trends and consolidation shaping the way companies plan their growth and allocate capital?
Kedar Deshpande
India stands at a defining juncture in its clean energy journey. With more than 50 per cent of generation capacity dominated by non-fossil fuels, a goal achieved five years ahead of its target year of 2030 based on its Nationally Determined Contributions, this clearly indicates an aggressive push by the government to clean energy. Currently, India ranks fourth globally in total renewable energy installed capacity. Solar and wind power have already reshaped the country’s generation mix, but the next phase of growth will be driven as much by robust financing as by technological advancement. As India transitions to a renewables-dominant power system,financing has become the most critical enabler.
Estimates suggest India needs Rs 30 trillion, encompassing infrastructure, transmission and storage systems, to meet its climate goals by 2030. Several structural and market factors are shaping the financing landscape. First, India’s decarbonisation commitments have pushed the government to take several policy and framework initiatives, such as the Carbon Credit Trading Scheme, the National Solar Mission and production-linked incentives (PLIs) for solar PV modules. Second, corporate sustainability targets, driven by investors and customers, are creating unprecedented demand for renewable power through open access and group captive models. Third, technology maturity, especially in solar PV, has reduced project risks and made renewable energy a mainstream asset class. Meanwhile, on the demand side, India’s growing energy needs and the push for energy security reinforce the importance of domestic renewable generation.
While India offers one of the world’s most attractive renewable markets, several challenges persist. Project commissioning delays, driven by land acquisition challenges, grid connectivity issues and regulatory hurdles, remain a significant concern for India’s renewable energy sector. Counterparty risk, primarily due to financially stressed discoms, remains a long-standing issue. Project delays ultimately lead to higher capital costs, which dent investor interest in funding these projects.
To meet its 2030 climate targets, India needs a significant scale-up of renewable financing. Greater participation from global institutional investors, expansion of InvITs, and adoption of innovative instruments such as risk-guarantee funds and blended finance models will be crucial. Equally important is strengthening transmission infrastructure, improving discom finances and enabling regulatory consistency across states. Environmental, social and governance (ESG) frameworks are increasingly influencing lending decisions in India. A national green taxonomy, once formalised, will enhance transparency and attract more global capital into India’s green sectors. As COP30 discussions unfold, anticipation is rising for stronger global commitments to clean energy financing. The hope is that COP30 at Belém will catalyse new funding frameworks and mobilise capital at the scale needed for a just energy transition.
“As India transitions to a renewables-dominant power system, financing has become the most critical enabler.” Kedar Deshpande
Ankit Jain
The renewable energy sector has grown at a massive pace, reaching a significant milestone of 250 GW of installed capacity in 2025. The sector has never been passive, constantly innovating and improving to accommodate and rectify. With the growth in renewable energy capacity implementation, financial innovations have also grown, providing multiple financing options to developers, which has made India one of the world’s largest markets for renewable energy.
India’s renewable energy financing landscape has also evolved significantly over time, utilising a diverse range of financing sources. Renewable energy projects are being supported by a range of debt and equity funding options. Many types of financial instruments have been used over the years, including rupee term loans or foreign currency term loans as senior debt, as well as equity finance instruments. Significant equity investments in the renewable energy sector have been coming from global investment and pension funds, large Indian corporations and international oil companies. On the debt side, funding is being provided by commercial banks, non-banking financial companies (NBFCs) and development financial institutions.
The renewable energy sector has witnessed a tremendous amount of M&A activity and consolidation. There is continued investor focus on the sector, both for returns and ESG requirements. Companies are scaling up their capacities both organically and inorganically to gain operational efficiencies and achieve economies of scale. They are implementing investment structures in such a way that they can readily monetise their investments in the future. All this has resulted in new classes of financial instruments and solutions. As more assets become operational, there will be opportunities to buy operating cash-generating projects.
“The renewable energy sector has witnessed a tremendous amount of M&A activity and consolidation.” Ankit Jain
Several global investors have recently increased their ownership/commitments in Indian renewables. How has foreign equity/sovereign capital changed pricing, deal structures and exit expectations?
Ankit Jain
In the recent past, several global investors have increased their ownership/investments in India’s renewable energy sector through additional investments or increased commitments. These investments effectively trace the trajectory of India’s renewable energy journey and have followed the ever-increasing capacity additions, which require more and more fresh equity. This also signifies increasing confidence and improving risk perception of the sector.
With higher and deeper commitments, investors are now looking at longer holding periods, diversified holdings as well as innovative structures to maximise returns. Investors are using quasi and hybrid equity instruments and investing in platforms across the sector, which provides diversification and wider exposure. This, in turn, also means a lowering of returns expectations in the short to medium term. Investors are building large-scale platforms and exiting them through initial public offerings (IPOs)/bilateral deals when the timing is right. Good premiums are available, and investors are in search of high-quality and scalable assets. In recent years, attempts have also been made to explore alternative exit options like InvITs. However, these remain at a nascent stage.
What key trends are shaping the way renewable energy projects are funded, and how are financing instruments and investor participation evolving with the sector’s growth?
Kedar Deshpande
Renewable energy in India is financed through a blend of conventional lending, capital market instruments and emerging mechanisms designed to attract institutional investors and lower the cost of capital. These include:
Traditional debt and equity financing: Commercial banks, NBFCs and public sector institutions such as the Indian Renewable Energy Development Agency (IREDA), PFC Limited and REC Limited remain the primary providers of long-term debt for renewable energy projects. These institutions often provide competitive interest rates and longer tenors, allowing developers to structure projects with stable cash flows. As of FY 2025, IREDA, PFC and REC together have a combined loan book of Rs 2.15 trillion to the renewables sector, registering a growth of more than 71 per cent over the past three years. International development financial institutions’ share in the overall renewable financing sector may not be as significant compared to domestic lenders, but they play a significant role in facilitating funding to projects at a concessional rate.
Capital market instruments: Green bonds have emerged as a preferred mechanism for raising cost-efficient capital from global markets. Indian corporates have been significant issuers of this instrument. According to the Climate Bonds Initiative, by the end of 2024, India’s cumulative aligned GSS+ (green, social, sustainability, sustainability-linked) debt was $55.9 billion, of which 83 per cent is labelled as green debt.
Government incentive mechanisms: The government has introduced several financial support schemes to enhance project viability. Viability gap funding is widely used in solar parks, while PLI schemes promote the domestic manufacturing of solar modules and batteries, strengthening supply chains. Further, bonds issued by IREDA have been given capital gains tax exemption. All these have improved the economics of renewable projects and increased bankability.
Ankit Jain
Renewable energy projects are capturing a major share of project debt financing from banks and financial institutions. With the proliferation of professionally managed private equity funds/sovereign wealth funds-backed platforms, there is a relentless pressure on pricing. The renewable energy sector is constantly innovating in terms of financing solutions, challenging the lending community to evolve. However, despite the volumes, lenders continue to demonstrate clear appreciation and discernment for high-quality assets. Debt financing for a renewable project involves assessment and evaluation on a wide range of parameters, such as project location, land availability, project cost and size, technology used, equipment costs, and existing policy and regulations. These parameters have also emerged as grounds for differentiation by lenders. In summary, the environment remains highly competitive, with adequate funding being readily available for good projects.
How do you see capital-raising strategies evolving as the renewable energy sector expands into new technologies and emerging business areas?
Kedar Deshpande
India’s clean energy transition is expanding beyond traditional solar and wind projects. Newer segments require innovative financing approaches and risk-mitigation tools. Green hydrogen, which is still in its early phase, requires blended finance, concessional capital and long-tenor funds due to high upfront costs and evolving demand. As the grid integrates more variable renewables, storage becomes essential for stability. Build-operate-transfer/build-own-operate models, hybrid tenders and storage-linked renewable projects are attracting investor interest, though clarity on revenue mechanisms remains key. With high upfront capital requirements and longer development timelines, offshore wind projects need government guarantees, viability support and international financing partnerships.
Ankit Jain
Indian markets have witnessed a record number of IPOs (likely to cross 100) in 2025. Backed mostly by domestic capital, this trend has been characterised by debt reduction and capex as major end uses. This highlights investors’ confidence in the long-term growth of the country. The renewable energy sector is offering diversified opportunities, with sub-sectors like renewable energy manufacturing, green hydrogen and energy storage solutions emerging as new growth areas. These trends have also been supported by policy initiatives. The 14th National Electricity Plan has set an ambitious target of achieving 600 GW of renewable energy capacity by FY 2032, which is an additional 350 GW of capacity addition in the next seven years. This, even by conservative estimates, would require $7 million-$8 billion per annum of fresh equity infusion. The increased policy focus on domestic content manufacturing will also give an impetus to equity investment. Since the majority of renewable energy players are venturing towards the integration of the value chain by setting up solar module/cell manufacturing units, the combined equity requirement would likely remain sizable. Considering the buoyant demand and supportive policy climate, IPOs are likely to remain an important source of equity, even in the near future.
