India’s Clean Energy Rise Needs Climate Finance Expansion

Syllabus: GS3/Environment; Energy

Context

• India is positioning itself as a global leader in climate action with ambitious targets for renewable energy, green hydrogen, and decentralized power systems.
  • However, it is threatened by a persistent and widening climate finance gap.

India’s Clean Energy Transition

• India is rapidly shifting from coal-dominated power generation to a diversified mix of solar, wind, hydro, bioenergy, and nuclear with a target of achieving 500 GW of non-fossil fuel capacity by 2030.

Growth in Renewable Energy

• India’s non-fossil fuel installed capacity reached 213.70 GW by late 2024.
• India added 24.5 GW of solar energy capacity, ranking third globally—behind only China and the United States in 2024.
• India stands alongside Brazil and China as a leading developing economy advancing large-scale solar and wind deployment, recognised by the UN Secretary-General’s 2025 Climate Report.
• Wind Energy: Installed capacity grew to 47.96 GW, with total wind capacity (including pipeline projects) at 74.44 GW.  
• Hydro and Bioenergy: Combined capacity from small and large hydro projects exceeded 72 GW, while bioenergy reached 11.34 GW.  
• Nuclear Energy: Installed capacity rose to 8.18 GW, with total capacity including pipeline projects at 22.48 GW.
• India contributed nearly 5% to India’s GDP growth, supporting over one million jobs, including 80,000 in off-grid solar in 2023.
• IRENA projects India could achieve 2.8% average annual GDP growth through 2050 under a 1.5°C-aligned pathway.

Growth of Green and Sustainable Finance

• Green, Social, Sustainability and Sustainability-linked (GSS+) debt issuance totalled $55.9 billion, marking a 186% rise since 2021.
• Green bonds accounted for 83% of this, with cumulative investments surpassing $45 billion in 2025, with sustainable finance targets set at $100 billion by 2030.
  • Key enablers include:
    • Sovereign green bonds and SEBI-regulated social bonds;
    • Solar Park Scheme auctions that attract private capital;
    • Growing investor confidence in India’s sustainable finance frameworks;

Financial Gap Behind the Growth

• India requires between $1.5 trillion and $2.5 trillion in climate investments by 2030, according to IRENA and India’s Ministry of Finance, to stay on a 1.5°C pathway. These funds are needed for:
  • Expanding renewable capacity;
  • Strengthening power grids;
  • Scaling battery storage and green hydrogen;
  • Supporting sustainable transport and agriculture;
• Most Green Bonds have been driven by large private firms, which accounted for 84% of total green bond issuance.
  • Expanding access to MSMEs, agri-tech innovators, and local developers remains critical.
• Carbon-intensive Sectors in India: ‘India’s Climate Finance Requirements: An Assessment’ highlighted that India needs to mobilise USD 467 billion in climate finance by 2030 to put its four most carbon-intensive sectors — power, steel, cement, and transport — on a low-carbon trajectory.

Way Forward

• Diversifying Climate Finance Strategy: India needs to broaden and deepen its climate finance approach. Public finance needs to play a catalytic role in leveraging private investment through fiscal incentives and de-risking tools. Blended finance offers a pragmatic pathway:
  • Partial guarantees and subordinated debt can enhance investor confidence.
  • Performance or loan guarantees can mobilize funds for mid-sized clean projects in Tier II and III cities.
  • Institutional capital—from pension funds, insurers, and sovereign wealth funds—must be mobilized for green investments.
• Regulatory reforms are essential to enable institutional investors to commit a portion of their portfolios to ESG-aligned projects.
• Unlocking Carbon Markets and Innovation: The Carbon Credit Trading Scheme(CCTS) presents another opportunity to generate climate finance if implemented with transparency and equity.
  • Simultaneously, India must prioritize financing for climate adaptation and loss & damage, areas often overshadowed by mitigation.
• Blended Finance Models: Combining concessional and commercial capital to de-risk investments and support MSMEs, agri-tech innovators, and decentralized energy developers.
• Climate Finance Taxonomy: The Finance Ministry’s draft taxonomy aims to guide investments toward sustainable projects and prevent greenwashing, aligning with India’s Net Zero by 2070 goal.
• India needs to focus on technology-driven solutions such as:
  • Blockchain for transparent climate finance tracking;
  • AI-powered risk assessments for green portfolios;
  • Customised blended finance models adapted to India’s socio-economic context;

Source: TH