From Cheap Debt to Smart Capital: The Next Phase of Renewable Energy Finance

India has already achieved the milestone of sourcing 50 percent of its installed power capacity from non-fossil fuel sources ahead of schedule and now targets 500 GW of non-fossil capacity by 2030. The International Energy Agency estimates that energy investment in India could reach around USD 170 billion in 2026, with solar investment growing rapidly and clean power attracting significantly more capital than conventional fossil-fuel generation.

The scale of investment required over the next decade is enormous. Yet India’s renewable energy challenge is no longer simply about securing debt financing. The sector has matured considerably over the past decade, and the next phase of growth will depend increasingly on the ability to attract smarter, more diverse and more flexible pools of capital.

Financial innovation may therefore prove just as important as technological innovation in determining whether India achieves its clean energy ambitions.

Limits of the First‑Wave Model

The first phase of India’s renewable energy growth was built on a relatively straightforward financing model. Developers participated in competitive bids, signed long-term power purchase agreements (PPAs) with government-backed counterparties and raised project finance from domestic banks, financial institutions and multilateral lenders against predictable future cash flows.

This model worked remarkably well. Long-term PPAs, prudent leverage levels and access to comparatively inexpensive debt, supported by government policy and institutions such as IREDA and NaBFID, helped drive the rapid expansion of solar and wind capacity across the country.

However, the sector is changing. Renewable energy projects are becoming larger and more complex. Hybrid projects combining solar, wind and storage are becoming commonplace. Round-the-clock renewable power solutions are gaining traction. Green hydrogen is emerging as a new area of investment. At the same time, banks face sectoral exposure limits and developers continue to contend with a limited pool of financially strong power distribution companies.

Elements of Smart Capital

Green Bonds

Green bonds have opened the door to global pools of capital seeking environmentally sustainable investments. Indian renewable platforms have increasingly tapped international debt markets to diversify their funding sources and access long-term investors.
Companies such as ReNew have successfully raised capital through green bond issuances, helping build confidence among international investors in India's renewable energy sector. Meanwhile, India's sovereign green bond programme has created another channel for directing capital towards climate-focused projects.

Domestic financial institutions are also showing greater interest in green bonds and green deposits as sustainability considerations become increasingly integrated into regulatory and investment frameworks. The result is access to a broader and steadily expanding group of investors looking to allocate capital to green assets.

InvITs and Capital Recycling

Infrastructure Investment Trusts (InvITs) have become one of the most important financial innovations in the infrastructure sector.
In simple terms, InvITs allow developers to monetise operational assets by selling interests in them to investors while continuing to manage the underlying portfolio. This enables developers to recover capital that can be deployed into new projects rather than being locked into mature assets for decades.

The ability to recycle capital through InvITs, platform sales and refinancing can significantly improve the efficiency of capital deployment. The same rupee of equity can support multiple project cycles instead of remaining tied to one project for its entire operating life.

At the same time, the growing participation of sovereign wealth funds, pension funds and ESG-focused investors is expanding the pool of long-term capital available to the sector and reducing dependence on domestic bank funding alone.

However, continued policy stability will remain critical. Predictable PPAs, a clear regulatory framework for InvITs and green bonds, tax certainty for institutional investors and credible ESG standards will influence whether global capital chooses India over competing markets.

Platform M&A and Asset Sales

Platform‑level M&A has created a credible secondary market. Transactions such as ONGC NTPC Green’s acquisition of Ayana Renewable Power and JSW Neo Energy’s purchase of a 4.7 GW platform from O2 Power, backed by EQT and Temasek, show that large‑scale exits are achievable. Exit visibility attracts early‑stage equity into development and construction risk.

Sovereign Wealth Funds and Patient Capital

Global sovereign wealth and pension funds now sit at the core of the capital stack. The National Investment and Infrastructure Fund was created to crowd such investors into Indian infrastructure, including renewables. Tax incentives under Section 10(23FE) of the Income Tax Act for qualifying investments further strengthen this channel. Strategic partnerships by global energy majors with Indian platforms bring governance and risk discipline that can lower perceived risk across the market.

Portfolio Financing and Refinancing

Financing is increasingly done at portfolio or platform level, rather than asset by asset. Lenders support multi‑SPV, multi‑state portfolios under common security and covenant packages, with more sophisticated intercreditor arrangements. Portfolio refinancing lets sponsors optimise leverage and release equity once assets stabilise, while diversified cash flows improve credit metrics.

Implications for the Transition

Capital recycling through InvITs, platform sales and portfolio refinancing means the same rupee of equity can support multiple project cycles instead of being locked in for 20–25 years. The increasing role of sovereign wealth funds, pensions and ESG‑focused investors deepens the pool of long‑term, countercyclical capital and reduces dependence on domestic bank liquidity. As structures standardise and risk is more accurately priced, this should lower the cost of capital for credible platforms and improve India’s competitiveness in global renewables.
Stable policy remains essential: predictable PPAs, robust InvIT and green bond rules, tax clarity for institutional investors and credible ESG norms will influence whether marginal global capital is deployed in India or elsewhere.

Conclusion

The first phase of India's renewable energy growth was powered by inexpensive bank debt and traditional project finance. The next phase is likely to be shaped by green bonds, InvITs, platform acquisitions, sovereign and pension capital, and financing structures that allow capital to move efficiently across the lifecycle of renewable assets.

India's clean energy ambitions will require far more than technological innovation. They will require a financing ecosystem capable of attracting, recycling and scaling capital at an unprecedented pace.

Cheap debt helped build India’s renewable capacity. Smart capital will determine how far the transition can go.

                - Satyadarshi Kunal, Partner, Projects & project Finance, CMS Induslaw