Top trends in 2024 for India’s power and renewables markets

In 2023, amid geopolitical turmoil around the globe and shrinking supply chains, India's economy has shown significant resilience. The GDP grew more than expected, registering a year-over-year growth of about 7.15%. The unexpected high growth was led by rapid growth in the manufacturing sector and the construction sector, while the growth in the service sector remained moderate. In 2024, despite global challenges and expected global slowdown, India's GDP is expected to grow rapidly in the range of 6.0% to 6.5%, retaining its position as the world's fastest-growing economy among the Group of Twenty (G20) nations for the third consecutive year.

Following a successful hosting of the G20 Summit in 2023, India positioned itself as an attractive destination for energy transition-related investments. In 2023, India added about 17 GW of capacity, of which 13.8 GW was non-fossil additions. On the other hand, India expanded its financial assistance to promote green hydrogen/green ammonia ecosystem and laid the groundwork for its domestic carbon markets.

In 2024, India is expected to continue to push harder on its implementation strategy on energy transition while balancing its issues related to energy security and energy affordability. The strategy will focus on a number of aspects like building local supply chains, expanding green hydrogen/ammonia production, securing domestic fuel resources, deepening power sector reforms to address structural issues, and continuing to adopt new and clean technologies by creating demand and infrastructure.

The following are the key trends (in 2024) for the India power and renewables market:

Clean energy transition is advancing; however, reliance on coal will remain high: Electricity demand is expected to grow in tandem with GDP growth, primarily spurred by increase in local activity due to general elections and impact of El-nino during first half of the year. With a 60% yoy growth in total capacity addition, share of coal in generation is expected to decrease marginally from 74.3% in 2023 to 73.2% in 2024 primarily driven by aggressive capacity addition on non-fossil fuel.

Improving domestic fuel supply(Coal and Gas) will remain a top priority to respond to rapidly growing demand. In 2024, India is expected surpass 1 billion metric tons of domestic coal production further impacting imported coal consumption. While domestic gas production to get a boost primarily driven by the new gas reforms on pricing.

On green hydrogen/ammonia, the focus would shift to local demand creation and support the excess costs. With launch of two new schemes under SIGHT (Component 2, Mode 2A and 2B), Government expects to aggregate demand from public sector units and large consumers like refineries and fertilizer plants. However, uptake of green hydrogen will warrant additional structure through which either green hydrogen off-taker (Refineries in this case) can monetize the green component of hydrogen or government can provide budgetary support to off-takers which will subsidize their green hydrogen procurement.

Power market sentiments to remain positive with softening of power market prices and continued big-ticket market reforms across different segments of the market. With DISCOMs, the ongoing reforms expected to improve the short-term financial discipline and reduce AT&C losses (e.g. on-time payment to generators under LPSC, smart metering installation under RDSS etc). While on wholesale markets, government to focus on improving market liquidity by bringing market coupling (price and volume) with first phase of MBED. For supporting large scale renewable capacity additions, reforms to focus on improving compliance and improving ease of doing business environment for C&I consumers to meet their voluntary sustainability targets.

Renewables to stay at the centre of India's climate policy as 2024 is expected to see the highest renewable capacity addition (>20 GW). Falling module costs globally and tender backlog to play a vital role in record capacity addition outlook for 2024. Hybrid renewable tenders have gained prominence and are expected to continue to rise. Stand-alone storage tenders (technology agnostic) are also expected to be requested increasingly as the need for balancing variable generation, and grid management rises with higher penetration of renewables.

As India firmly establishes its climate credentials, 2024 is expected to be the year that will define the "nuts and bolts" of domestic carbon strategy. In 2023, India passed the 2023 Carbon Credit Trading Scheme (CCTS), or the "principal" scheme with both segments (compliance and voluntary). However, with no expected timeline for launch of voluntary segment, it is unlikely that the voluntary segment will be operational until the commencement of the first cycle of the compliance segment in 2025-26. The voluntary segment is essential for pushing through sunrise sectors such as green hydrogen, where India has put forward a bold stance. In 2024, crucial decisions related to international participation are expected to be made, which will define the tone for India's approach to the carbon credit market. Additionally, details on scope, design and procedure are expected to be thrashed out, along with linkages across international standards and registries.

With notification of Green Credit Programme (GCP) based upon the principles of Mission Lifestyle for Environment (LiFE), India has set in place intricate framework of multiple interconnected mitigation and environmental conservation cap-and-trade schemes. More details on scope, modalities and operations of the ecosystem will emerge in 2024, as stakeholders await critical procedural updates.

With stellar achievements during G20 and COP28, India continues to enhance its influence as voice of global south. India's climate action agenda will remain the core attractor for foreign investments and supply chain partnerships. India is also expected to provide some budgetary support towards initial phase of the India-Middle East-Europe Corridor (IMEEC) launch plan including funding, infrastructure planning and operation strategy of the IMEEC.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.