India’s Green Energy Transition: Ambitious Plans, Complex Challenges

India is setting the stage for an ambitious energy transformation, aiming to reach net zero by 2070. This shift requires climate-sensitive policies that incentivise the advancement of mature and emerging clean-energy technologies, all while adapting to a rapidly evolving, competitive landscape. As the country rides the global wave of energy transition, it is also contending with the demands of an ascending economy.

According to S&P Global Commodity Insights’ Energy and Climate Scenarios, India is expected to reach an upper-middle-income status by the mid-2030s, alongside an urban surge exceeding 40 percent. However, this economic growth’s quality depends on tackling high pollution levels. Data from IQAir reveals that 17 of the world’s 20 most polluted cities are in India, with coal still dominating the energy mix at 48 percent. The nation must therefore accelerate its transition to clean energy to mitigate both air pollution and climate change.

Even in a base-case scenario, fossil fuels are forecast to remain essential to India's energy mix through 2030, despite the rise of renewables. This energy transition must also ensure the country’s growing economy continues to be powered reliably and affordably. India’s energy security is paramount, especially as household energy spending, as a proportion of income, is double that of the US. This mirrors the fossil fuel dependency seen in other emerging economies such as Indonesia and South Africa.

India’s low-carbon future depends on a coordinated cross-sectoral approach, with each sector requiring tailored strategies and technologies.

The transport sector, responsible for 13 percent of India's total CO2 emissions, will see the introduction of electric vehicles (EVs) alongside policies to improve fuel efficiency and biofuel advancement. The power sector, responsible for 48 percent of emissions, will continue to prioritise solar and wind energy, supported by energy storage systems like batteries to manage renewable energy's variable nature.

In the industrial sector, which accounts for 21 percent of emissions, efforts will focus on improving energy efficiency and transitioning to cleaner technologies, including green hydrogen, bioenergy, and carbon capture, utilisation, and storage (CCUS). These approaches are essential for decarbonising heavy industries such as iron, steel, and cement.

India’s heavy reliance on coal, which accounts for 73 percent of total power generation, is a key hurdle in transitioning to renewables. With growing power demand and high storage costs, coal is likely to remain dominant in the short term. However, India’s strategy includes diversifying energy sources, reducing costs through competitive tenders, and expanding grid infrastructure. By 2030, the country aims to triple its renewable energy capacity to approximately 500 GW, supported by both federal and state-level agencies.

Technologies like green hydrogen and small nuclear reactors are also in focus as India seeks to meet its climate goals. Programmes like the Production Linked Incentive (PLI) scheme for solar and battery manufacturing and the Strategic Interventions for Green Hydrogen Transition (SIGHT) initiative are central to this strategy, with the aim of building self-reliant supply chains.

India’s transition to green mobility is progressing in phases, balancing technology, market readiness, and infrastructure development. The government’s roadmap aims for widespread adoption of battery-electric vehicles (BEVs) by 2030. Key initiatives such as the Faster Adoption and Manufacturing of Electric Vehicles and the Advanced Chemistry Cell scheme will enhance the practicality and convenience of BEVs through extended range and faster charging capabilities.

In addition to BEVs, hybrid solutions and compressed natural gas powertrains are also key to India’s strategy, particularly in reducing reliance on crude oil and liquefied natural gas imports. This supports the country’s self-reliance goals and improves air quality by minimising pollution from waste decomposition and crop burning.

India’s manufacturing sector, projected to double its share of global industrial production by 2050, poses a significant challenge for emissions reduction. According to S&P Global, the nation will require a 1.7-gigaton reduction in industrial emissions to meet its net-zero targets. Breakthrough technologies like CCUS and green hydrogen will be critical for cutting emissions from industries such as refining, chemicals, and steel.

Though hydrogen and CCUS are pivotal, both face readiness and scalability issues. Without faster development of the green hydrogen economy, India’s net-zero goal could be delayed by a decade.

India’s energy transition involves four key investment themes: energy efficiency, renewables, low-emission fuels, and mobility. The government is leveraging subsidies, mandates, taxes, and incentives to push this agenda forward. While fossil fuels received an average of 37 percent of funding over the past five years, green energy only garnered 5 percent, highlighting the need for a stronger policy push towards environmentally friendly technologies.

A just transition will require addressing the investment gap between traditional oil and gas companies and green energy firms. S&P Global data shows that oil and gas companies have outperformed green energy companies by 8.3 percent in capital returns over the past five years, indicating that more robust financial frameworks are needed for the energy transition.