The task ahead

The incredible economic growth of India has lifted millions out of poverty. Annually, urbanisation increases at a rate equivalent to creating a city the size of London. That means authorities have to supply an additional 50 million citizens with electricity every year. This extraordinary growth has historically been fuelled by coal and oil. In 2020, coal made up 54% of India’s power capacity. As a result, the country’s CO2 emissions are now the third highest globally after China and the US.

Ambitious plans

By 2050, if India is achieving its net zero targets, it is estimated that more than 1500 GW of renewables will have to be added to the grid, accounting for around 66% of the energy mix.

Can it achieve this? Initial signs are encouraging. India’s ramping up renewable electricity production, led by solar and wind. It also recently unveiled plans to invest in hydrogen capabilities, which could significantly reduce the cost of renewables. The government has pledged to create five million tonnes per year of renewable hydrogen by 2030 for domestic and export markets. Additionally, it’s developing battery storage alongside green hydrogen. Both could potentially create a market worth $80 billion by 2030. Combined, this mix of different energy sources could rapidly replace India’s need for coal.

However, deploying these new technologies and meeting national targets will not be easy. The country will have to build energy infrastructure and storage capacity on a huge scale. To fulfil its energy ambitions, India will require international support and adequate climate financing.

According to the International Energy Agency, India’s transition will cost $160 billion a year between now and 2030 – three times the investment levels of today. To meet its net-zero targets, it’s vital that India can access long-term, low-cost investment.

Where are the investment opportunities?

Bond markets can play a vital role. By our estimates, 70-75% of the capital needed for renewable generation projects will likely come from debt, with equity investment making up the rest. Overseas bond markets are a crucial source of funds. Investor appetite is growing for this market. Already we are seeing high global demand for bonds that are aligned with the UN’s Sustainable Development Goals.

Currently, India’s issuance of green bonds aligned to sustainable energy development is dominated by the country’s largest renewable energy developers. Names include ReNew Power, Greenko, Adani Green Energy and Azure Power. Smaller players, like Continuum Energy, Hero Future Energies and ACME Solar, are also active here. As a result, India is now the world’s second-largest green bond market. That said, it is still only a tenth the size of China’s. The growth potential therefore remains significant and we expect this market to continue expanding.

While the future of renewables in India looks bright, it’s crucial to ensure that projects and activities in the sector are not causing harm. So it’s important that investors keep issues like supply chain visibility, land rights and environmental management at the front of their minds. Further, active ownership and ongoing engagement with renewable energy companies should allow investors to appropriately manage ESG (environmental, social and governance) risks.

Final thoughts…

The transformation of the fossil fuel-based energy system in India has only just begun. We expect to see increasing innovation and efficiencies as the sector expands. For example, with the help of improved storage systems, the industry can move towards more complex projects that operate around the clock. These will provide energy as required and reduce the intermittency that blights many renewable energy projects.

For us, helping India get from where it is now to where it wants to be by 2070 will be a major investment opportunity. Green bonds and other debt instruments financing the energy transitions will only grow in popularity. This represent a tangible way to help our clients achieve their own financial goals, while supporting the world’s energy transition ambitions.

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

Source: BNEF India Energy Transition outlook, accessed February 2022

https://www.bbc.co.uk/news/world-asia-india-59125143

The task ahead

The incredible economic growth of India has lifted millions out of poverty. Annually, urbanisation increases at a rate equivalent to creating a city the size of London. That means authorities have to supply an additional 50 million citizens with electricity every year. This extraordinary growth has historically been fuelled by coal and oil. In 2020, coal made up 54% of India’s power capacity. As a result, the country’s CO2 emissions are now the third highest globally after China and the US.

Ambitious plans

By 2050, if India is achieving its net zero targets, it is estimated that more than 1500 GW of renewables will have to be added to the grid, accounting for around 66% of the energy mix.

Can it achieve this? Initial signs are encouraging. India’s ramping up renewable electricity production, led by solar and wind. It also recently unveiled plans to invest in hydrogen capabilities, which could significantly reduce the cost of renewables. The government has pledged to create five million tonnes per year of renewable hydrogen by 2030 for domestic and export markets. Additionally, it’s developing battery storage alongside green hydrogen. Both could potentially create a market worth $80 billion by 2030. Combined, this mix of different energy sources could rapidly replace India’s need for coal.

However, deploying these new technologies and meeting national targets will not be easy. The country will have to build energy infrastructure and storage capacity on a huge scale. To fulfil its energy ambitions, India will require international support and adequate climate financing.

According to the International Energy Agency, India’s transition will cost $160 billion a year between now and 2030 – three times the investment levels of today. To meet its net-zero targets, it’s vital that India can access long-term, low-cost investment.

Where are the investment opportunities?

Bond markets can play a vital role. By our estimates, 70-75% of the capital needed for renewable generation projects will likely come from debt, with equity investment making up the rest. Overseas bond markets are a crucial source of funds. Investor appetite is growing for this market. Already we are seeing high global demand for bonds that are aligned with the UN’s Sustainable Development Goals.

Currently, India’s issuance of green bonds aligned to sustainable energy development is dominated by the country’s largest renewable energy developers. Names include ReNew Power, Greenko, Adani Green Energy and Azure Power. Smaller players, like Continuum Energy, Hero Future Energies and ACME Solar, are also active here. As a result, India is now the world’s second-largest green bond market. That said, it is still only a tenth the size of China’s. The growth potential therefore remains significant and we expect this market to continue expanding.

While the future of renewables in India looks bright, it’s crucial to ensure that projects and activities in the sector are not causing harm. So it’s important that investors keep issues like supply chain visibility, land rights and environmental management at the front of their minds. Further, active ownership and ongoing engagement with renewable energy companies should allow investors to appropriately manage ESG (environmental, social and governance) risks.

Final thoughts…

The transformation of the fossil fuel-based energy system in India has only just begun. We expect to see increasing innovation and efficiencies as the sector expands. For example, with the help of improved storage systems, the industry can move towards more complex projects that operate around the clock. These will provide energy as required and reduce the intermittency that blights many renewable energy projects.

For us, helping India get from where it is now to where it wants to be by 2070 will be a major investment opportunity. Green bonds and other debt instruments financing the energy transitions will only grow in popularity. This represent a tangible way to help our clients achieve their own financial goals, while supporting the world’s energy transition ambitions.

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

Source: BNEF India Energy Transition outlook, accessed February 2022

https://www.bbc.co.uk/news/world-asia-india-59125143