If India must install 500 GW of non-fossil fuel-based energy capacity by 2030, the states would require a cumulative grant of ₹140.64 billion (~$1.6 billion) every year over the next five years, according to the National Council of Applied Economic Research (NCAER).

These funds must be devolved to the states by the Finance Commission in the form of green energy grants, considering the potential, installed capacity, and current trend in spending on renewables, it said in a report, ‘Public Financing for Renewable Energy Sector Development: Recommendations for the 16^th Finance Commission.’

The report makes a strong case for public investment in renewables, given the ‘high risks and low returns’ in this sector.

NCAER pointed out that the Union government funds the states through tax devolution and grants-in-aid to address vertical and horizontal fiscal imbalances and promote cooperative federalism. While environmental considerations were part of the 15^th Finance Commission recommendations, with 10% weight accorded to forest cover and ecology in the devolution formula, it did not consider the development of the renewable energy sector.

The 15^th Finance Commission had suggested state-specific grants targeted at renewable energy for four states, totaling ₹20.95 billion (~$240.3 million) over five years. This allocation was insufficient given the ambitious clean energy target. “The Finance Commission needs to take a proactive role in allocating funds to states specifically for renewable energy,” the report said.

Renewable Finance Obligation

The government has emphasized the need to increase financing to achieve India’s clean energy targets. Earlier this year, Union Minister for New and Renewable Energy Pralhad Joshi suggested introducing a renewable energy financing obligation for banks and financial institutions to provide funding for renewables.

In 2023, the Parliament’s Standing Committee on Energy asked the government to explore the possibility of prescribing renewable finance obligations for lenders, requiring them to allocate a specific percentage of their investments to renewable energy.

It also suggested establishing a green bank system to address the persistent financial challenges faced by the renewable energy sector.

The government estimates that approximately ₹30 trillion (~$344 billion) of investments covering infrastructure, transmission, and energy storage systems would be needed to achieve the 2030 clean energy target.

Mainstreaming Clean Energy Financing

At the recent Mercom India Renewables Summit 2025, panelists agreed that capital is no longer a constraint for well-governed companies with a good track record, and that renewable energy is increasingly being viewed as mainstream by lenders. An increasing number of players were entering the clean energy financing market, both on the debt and equity sides.

Pointing to the Indian capital market, which was flush with initial public offerings (IPO) by clean energy companies, Raj Prabhu, CEO at Mercom Capital, said India had seen some 16 IPOs over the last 12 months.

The panel sent out the message that financing was closely following renewable energy demand in India, with an increasing number of industries switching to green power because it makes commercial sense.