Electricity demand in India has been rising sharply due to increases in commercial and residential space, a surge in ownership of air conditioners and appliances, and rising demand from industry. India has seen the third-largest growth in power generation capacity in the world after China and the United States over the past five years. While growth in power generation has come from all sources, there has been a surge in investment in renewables, led by solar PV, which constitutes more than half of total non-fossil investment over this period. In 2024, 83% of power sector investment went to clean energy. India was also the world’s largest recipient of development finance (DFI) funding in 2024, receiving around USD 2.4 billion in project-type interventions in clean energy generation. This helped bring the share of non-fossil power generation capacity to 44% in 2024, approaching India’s target of 50% by 2030.

India has announced a range of measures to facilitate and support investment in non-fossil power generation, domestic manufacturing of key energy components such as batteries and solar PV modules, and in transmission and distribution. While a large share of the investment in India’s power generation capacity and transmission networks is met by domestic sources, foreign direct investment (FDI) has been growing steadily, reaching USD 5 billion in 2023, nearly double the pre-coronavirus (Covid-19) levels. This is promoted in part by rules permitting 100% FDI across electricity generation sources (with the exception of nuclear) and transmission infrastructure. However, foreign portfolio investment in energy has declined 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.

India’s cost of capital for grid-scale renewable energy is one of the lowest among its emerging market and developing economy counterparts. However, it is still 80% higher than in advanced economies. Higher financing costs affect the financial viability of projects, leading to higher energy prices. Furthermore, real and perceived risks affect the attractiveness of projects to investors. One such risk is off-taker risk, which arises from the inability of distribution companies to pay generation companies fully and on time. As of March 2025, distribution companies in India owed more than USD 9 billion in unpaid dues. The accumulated losses of distribution companies in India stood at USD 75 billion in 2023. Another risk is the inadequacy of transmission infrastructure, which has impeded 60 GW of renewable capacity in India.