Transmission Infrastructure Crucial for India’s Renewable Energy Goals, Says SBICAPS Report

India’s energy supply is expected to show healthy growth in FY25 despite recent months of weak demand. The annual growth rate for energy supply in November 2024 is projected at only 3 percent, below the Year-to-Date FY25 (YTDFY25) level of 5.3 percent. This was revealed in a recent report by SBI Capital Markets (SBICAPS), titled  'Transmission As A Counter-Balance To Evolving Regional Balance of Power'.

The report further pointed out that a prolonged period of above-normal monsoons, which dampened energy consumption, offset the earlier strength seen in Q1. However, the remaining months of FY25 are expected to see fair energy demand, aided by the cold winter in the North and favourable base effects for industrial demand towards the end of Q4.

The peak power demand for FY25 likely occurred in May 2024, when it reached a staggering 250 GW. Despite the dip in short-term demand, the long-term drivers of energy and power demand—including data centres, green molecules, and electric vehicles—remain intact, suggesting robust growth beyond the projections laid out by the National Electricity Plan (NEP).

Highlighting  India's renewable energy (RE) capacity, it said that the country has  seen a record addition of RE capacity, with 30 GW added to the installed base over the past 12 months, 75 percent of which is from renewable sources. Solar has seen significant growth, alongside a resurgence in wind energy after several years of stagnation.

The rise in energy storage systems (ESS) has also been remarkable, with a third of tenders issued in 8MFY25 incorporating storage elements, a significant jump from 23 percent in FY24 and just 5 percent  in FY20. While this growth is promising, concerns remain over several renewable energy projects that are still waiting for Power Purchase Agreements (PPAs) and sufficient evacuation infrastructure. These delays could potentially slow the pace of renewable energy capacity additions.

Dwelling on the key trends in India's RE landscape, the report noted  that most of the incremental renewable supply between now and March 2032 will come from the North—particularly from solar-rich states like Rajasthan and Ladakh.  In South, coastal regions in Tamil Nadu, Karnataka, and Andhra Pradesh are seeing significant wind energy development.

This shift will reduce the share of installed renewable capacity in the West from 33 percent to 25 percent by 2032, even though the region will remain an important consumer of energy and a secondary driver of the national peak. This change in the geographical distribution of renewable capacity will require a significant increase in transmission infrastructure, particularly from the West, to maintain a stable power supply.

To effectively integrate India’s growing renewable energy capacities, a substantial expansion of the transmission network is required, said the report. It further added that the government plans to add 114,687 circuit kilometres (ckm) of transmission lines and 776 gigavolt-amperes (GVA) of substations between April 2022 and March 2027.

However, as of October 2024, only 28 percent of the transmission lines and 20 percent of the substations have been commissioned. To meet the targets, the pace of annual transmission capacity additions will need to double in the coming years. Most of the additions are expected to occur in the North-West and West-South corridors, with minimal expansion in other regions. The targets for the subsequent period, from April 2027 to March 2032, are less ambitious and are expected to be achievable based on historical progress.

Achieving these transmission goals will require an estimated capital outlay of over INR 8.2 trillion, with the majority directed towards the Inter-State Transmission System (ISTS) and the remainder allocated to Intra-State Transmission Systems (InSTS). Around 40 percent of this capital will be needed in the next 30 months. To finance the majority of this investment, a total of IN. 2.3 trillion in debt will be raised by March 2027. Given the current debt book of key financial institutions stands at approximately INR 850 billion, there is significant room for banks and bond markets to participate in funding this monumental project.

In addition to debt, approximately INR 1 trillion in equity needs to be raised to meet the transmission funding requirements. While some of this capital will come from budget allocations and internal accruals, the large operational base of transmission assets in India makes Infrastructure Investment Trusts (InvITs) an attractive option for raising equity capital. By leveraging InvITs, capital can be recycled effectively, ensuring a steady flow of investment into transmission infrastructure.

As per the report, the integration of 500 GW of renewable energy into India’s power grid by 2030 will require a concerted effort from multiple stakeholders, including government agencies, financial institutions, and private players. This ambitious goal can only be achieved through a diverse funding approach that incorporates debt, equity, and innovative funding structures like InvITs.

As renewable energy continues to play an increasingly dominant role in India's energy mix, the need for a robust and expansive transmission infrastructure will be critical to ensuring the seamless integration of renewable power and maintaining the stability of the national grid.