The foreign direct investment (FDI) in India’s renewable energy sector stood at $1.03 billion (~₹77.55 billion) for the first half (1H) of the financial year (FY) 2021-22.

The renewable sector has been witnessing a steady increase in FDI inflow in the past few years, increasing from $1.2 billion (~₹92.05 billion) in FY 2017-18 to $1.44 million (~₹110.53 billion) in FY 2018-19. However, in FY 2019-20, FDI flows reduced to $1.4 billion (~₹97.73 billion) and $797.21 million (~₹58.87 billion) in FY 2020-21.

The FDI inflow into the renewable energy sector so far in 2021-22 is more than what was invested in the whole of 2020-21. With another six months to go, this could be the best year for foreign direct investments in the sector.

There has been no FDI into coal production after 2013-14, and the investments in petroleum and natural gas have been stable. The renewable energy sector accounted for 3.4% of the total FDI inflow during 1H 2021-22. Cumulative FDI inflow in the renewable sector stood at $10.23 billion (~₹770.24 billion) between April 2010 and September 2021.

The Ministry of New and Renewable Energy (MNRE) has formed an FDI cell to process proposals.

With India setting a target of installing a non-fossil energy capacity of 500 GW by 2030, it is a massive opportunity for foreign investors.

India also has an advantage when tapping into foreign environmental, social, and governance (ESG) funds due to its clear renewable energy targets and increasing power demand. However, foreign funds are hesitant as the power sector is a subject under the Concurrent List of the Indian Constitution. Since both the federal and state governments have jurisdiction, there is often conflict regarding regulations.

Foreign investors are also worried about state DISCOMs reneging on power purchase agreements (PPA) signed for renewable energy projects. Recently, the Punjab state government passed a Bill to revise PPAs and renegotiate renewable energy tariffs. The Bill is awaiting consent from the President of India.