India has made strides in expanding its renewable energy capacity over the past year, but a funding gap of over $100 billion could still derail it from meeting International Energy Agency’s (IEA) net-zero emission pathway by 2030, a report by accounting firm Ernst & Young warns.

In the 2023-24 financial year, India added nearly 26 GW of new power generation capacity, with over 70% coming from renewable sources like solar and wind. Renewables now account for 33% of the country’s total installed energy capacity at 144 GW, while the share of coal and lignite dropped below 50% for the first time.

The report said the surge was partly fuelled by a record level of renewable energy auctions totaling around 41 GW. Wind-solar hybrid projects and combined renewable-storage solutions comprised 37% of the awarded capacity.

India has also committed over $2 billion in incentives for electrolyzer manufacturing and hydrogen production projects. However, the report questioned whether the relatively low subsidies and short duration of the incentive scheme will meaningfully support the industry. So far, winners of these subsidies have focused on the export market due to domestic uncertainty around policy and pricing.

At the same time, India slipped to rank seven from six in EY’s Renewable Energy Country Attractiveness Index (RECAI). The biannual ranking measures the world’s top 40 markets on the attractiveness of their renewable energy investment and deployment opportunities. The U.S. topped the ranking, followed by China and Germany.

Global Investments Also Fall Short

Despite a record $1.8 trillion invested globally in clean energy last year, investment levels are still insufficient to meet the goal of tripling renewable capacity by 2030 set at COP28, according to the report.

The report found that network gridlock and high capital costs could delay progress in the renewable energy transition at a time when acceleration is needed.

Energy Storage

Prices for battery storage systems, considered crucial for managing the intermittent nature of renewable sources, have plunged 59% since August 2022.

“Scaling up battery energy storage systems can help solve multiple problems holding up clean energy progress, including stabilizing and strengthening network infrastructure and enabling more distributed energy resources to connect to the grid,” said Arnaud de Giovanni, EY Global Renewables Leader.

The report noted that there could be a fall in costs of grid-scale battery energy storage systems (BESS) of around 20% to 30% across key markets by 2030 as technology improves, government subsidies increase and the slowdown in EV adoption impacts the battery cell supply chains. Volatile commodity prices and supply chain bottlenecks could offset this decline in price.

With a lot of countries heading for an election in 2024, the political landscape could likely shift during the year. Broader geopolitical factors can impact the evolution of the business case for BESS, especially if new governments renege on clean energy commitments or if wider factors influence global oil and gas prices.

EY also issued its first-ever ranking of the top markets for investing in BESS. The U.S. took the top spot, thanks to the 30% tax credit from the Inflation Reduction Act. China was second, with strong government support and plans to reduce BESS costs by 30% by 2025. The UK was third as it classified BESS as a generation asset.

India, meanwhile, came in eighth position thanks to its commitment to secure 5 GW of BESS by the end of 2024. The government is funding BESS projects with 4GWh capacity, offering up to 40% of the capital cost.

Corporate PPA

2024 had a slow start for corporate power purchase agreements (PPAs) globally, from a record number of around 46 GW in 2023.

Some corporates kept their next phase of PPAs on hold as the power markets were low. But now, as the energy markets gain traction, corporates are keen to lock in low PPA prices.

It was a sellers’ market as there were plenty of corporates chasing too few projects at higher prices. Now, there is a major shift as buyers claim an edge in negotiations.

PPA prices were exorbitant in several lower-priced wholesale markets, leading to unattractive deals. The market is now seeing a correction to lower PPA prices following the markets. Lower solar equipment costs are supporting attractive PPAs, but wind costs have not come down.

India retained its ranking at 13 in the country attractiveness for corporate PPAs.