India has become the second-largest emitter of greenhouse gases from fossil fuel-based power generation. Further out, we forecast that growth of solar, wind and other non-fossil fuel sources will fall short of incremental demand. Therefore, India’s coal generation and emissions will continue to grow before peaking in 2034. This puts India’s power sector on a pathway that will see temperatures rise significantly above 3°C. We believe this is unlikely to remain an acceptable outcome.
To compare, under our enforced 2°C scenario set out in CRU’s Power Transition Service, we forecast that Indian renewables capacity would need to grow at a CAGR of 14% between 2024 and 2050 – much higher than our base case forecast growth of 11%. This difference will have significant implications for the level of investment required.
Additionally, in a price-sensitive market such as India, there are difficulties in passing on additional costs of emissions reduction to the customers. As a result, we are observing more solar capacity additions, which is less capex. intensive than wind, but we believe this is storing up higher costs for the future. That is, while rapid deployment of solar and wind will help India reduce coal generation and emissions, our research shows that a heavy reliance on solar is not the most cost-effective option, particularly once renewables penetration on the grid is high.
Solar and wind generation have accounted for 7% of emissions reduction
Over the last five years, India has achieved significant growth in solar capacity on the back of implementation of several initiatives and supportive policies by the government and declining costs of solar panels. Since 2019, India’s solar capacity has grown by 55 GW to 89 GW in August 2024, while wind capacity has grown by 9 GW to 47 GW in the same period.
This growth in solar and wind capacity has resulted in their share of the Indian power mix reaching a combined 12% in 2024 from 8% in 2019. In 2024, generation from solar and wind is expected to be 125 TWh higher compared to the 2019 level. The same amount of coal-generation would have resulted in 7% higher emissions in 2024.
Although India plans to grow renewables capacity rapidly in future, the country’s total power demand growth will continue to outpace solar and wind generation growth under current targets. As a result, coal generation and emissions will continue to grow until they peak in 2034.
Indian power sector emissions will peak in the mid-2030s
A growing economy, population and urbanisation will continue to drive Indian power demand upward. Currently, Indian power demand is heavily reliant on coal, with its share in the power mix at more than ~70%. We expect the coal share will decline from here, with expected growth in solar, wind, hydro and nuclear generation.
However, over the next decade, generation growth from non-fossil fuel generation capacity will not be enough to mitigate incremental demand. Thus, according to our forecast, coal generation will continue to grow until 2034. Nonetheless, the solar and wind generation share will rise from the current 11% to 32% in 2034 and, by 2050, emissions will be 78% lower than they would have been without solar and wind investment.
India is far from a 2°C temperature pathway up to 2050
While our base case puts the world on a 2.5–3.0°C temperature pathway out to 2050, we have also developed a scenario that would keep temperature rises below 2°C. In this <2°C scenario, Indian renewables capacity grows at a CAGR of 14% between 2024 and 2050 compared with a CAGR of ~11% under our base case. Whilst this doesn’t sound like much of a difference, it essentially requires a doubling of renewables capacity in 2050 from 2,358 GW to 4,825 GW, equivalent to an additional investment over the period of ~$2.0–2.5 tn at near-term capex. costs.
Furthermore, India is a developing nation and, in our forecast, will see limited electrification beyond traditional consumers until 2035. During this period, we expect electricity demand growth will be similar for both the <2°C scenario and our base case. From 2035, under our <2°C scenario, India will rapidly electrify other energy needs to increase decarbonisation efforts. As such, between 2035 and 2050, electricity demand will rise by 144% in the <2°C scenario compared to 66% in the base case.
Over-reliance on solar is emissions-effective but not cost-effective in the long term
Solar plays a pivotal role in Indian decarbonisation policies. Currently, the Indian government not only provides subsidies for rapid deployment of solar capacities but is also incentivising the domestic solar cell and panel manufacturing industry. Our forecasts show that solar will account for 61% of India’s renewable electricity mix by 2050.
However, our research shows that for optimised, lowest-cost grid power, the solar share in renewable energy should not surpass 20% – even in countries at low latitudes where the solar resource is best. Variability of solar and wind generation will need to be addressed to provide firm, constant power to the grid, but as fossil fuels are phased out, grid flexibility will be reduced and more energy storage capacity will be required, which will increase costs. Our analysis shows these costs can be mitigated to a significant extent by placing more emphasis on wind power and grid optimisation.
The costs incurred in the efforts to decarbonise the power sector will not be easy to pass on to the customers. Therefore, more emphasis on optimising the renewables mix to achieve lower overall cost will help mitigate the additional costs over long term.
Our forecast shows that India’s power sector emissions will peak in mid-2030’s and that the country is far from <2°C temperature pathway despite its renewables push. To shift to a <2°C temperature pathway, India will need raise its renewables investment significantly. Furthermore, our forecast suggests India’s power mix will be dominated by solar, but a more optimised approach to solar and wind capacity installation could reduce overall power costs significantly.
If you are interested in CRU’s research on the power mix, in India or globally, and its impact on costs, contact us, we will be happy to discuss our work and how it can help your analysis.
