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Issues such as delay in signing power purchase agreements (PPAs) and stalled power evacuation projects impacted foreign portfolio investment (FPI) in Indian energy sector in the last two years, International Energy Agency (IEA) said.
The agency in its latest report pointed out that a large share of investment in India’s power generation capacity and transmission networks is met by domestic sources.
However, foreign direct investment (FDI) has been growing steadily, reaching $5 billion in 2023, nearly double the pre-pandemic levels. This is promoted in part by rules permitting 100 per cent FDI across electricity generation sources (with the exception of nuclear) and transmission infrastructure.
“However, foreign portfolio investment (i.e., investment into financial assets such as stocks) in energy has taken a hit in the past two years due to a range of macroeconomic and sectoral factors, even as the longer-term trend has been one of steady growth,” the IEA opined.
Sector Bottlenecks
While India’s cost of capital for grid-scale renewable energy is one of the lowest among its emerging market and developing economy counterparts, it is still 80 per cent higher than in advanced economies, IEA pointed out.
“These higher financing costs affect the financial viability of projects, leading to higher energy prices. Real and perceived risks affect the attractiveness of projects to investors, both domestic and international. These include risks related to land acquisition, off-taker risk and risks arising from the inadequacy of transmission infrastructure, which has impeded 60 gigawatts (GW) of renewable capacity in India,” the agency explained.
Off-taker risk arising from the inability of Discoms to pay generation companies fully and on time is cited as a key risk by investors. As of March 2025, distribution companies in India owed over $9 billion in unpaid dues. The accumulated losses of Discoms in India stood at $75 billion in 2023, it said.
Minister of New & Renewable Energy Pralhad Joshi is already talking to states to sign PPAs as 40 GW of RE capacities are stuck.
According to a report by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research & Analytics, delay in expanding transmission capacity is one of the key issues behind rising under-subscription of RE, which is five times higher in 2024 (8.5 GW) compared to 2023 calendar year.
This is also impacting tendering activity for renewables.
Tendering activity weakens
Tendering activity declined during the January-March 2025 period both on a sequential and annual basis largely impacted by a backlog of unsigned power purchase agreements (PPAs) and power sale agreements (PSAs).
According to JMK Research and Analytics, only 9 new tenders totalling 4.8 gigawatts (GW) were issued across solar, wind, wind-solar hybrid, and RE with storage segments in Q1 2025, a 49 per cent decline from Q4 2024 and an 88.2 per cent drop year-on-year.
“The slowdown is mainly due to a backlog of unsigned PSAs. Since 2023 through 2024, more than 40 GW of awarded RE capacity has not secured any off takers. This delay has created uncertainty among market stakeholders and continues to affect tendering activity and project timelines across the sector,” the agency added.
JMK Research said that a capacity of around 7 GW was allotted to various RE developers in Q1 2025, reflecting a decrease of 8.6 per cent compared to Q4 2024. There is a significant drop of around 65 per cent in the allotment of tenders in the RE space compared to Q1 2024.
“This considerable decline year on year is due to delays in signing PSAs, creating uncertainty for developers, compounded by under subscription and frequent tender cancellations,” it added.
Additionally, the drop is also attributed to the exceptionally high volume of capacity allotted in Q1 2024, which sets a higher comparative base for Q1 2025, driven in part by the initial momentum to meet the Ministry of New & Renewable Energy’s (MNRE) newly introduced annual bidding target of 50 GW from FY24 to FY28, it said.
Published on June 7, 2025
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