Renewable energy and FDI in India

Introduction

After adopting the Paris Agreement at COP 21 in Paris, India has taken the pledge towards tackling climate change. Taking into account the commitment made to achieve the goal of 500 GW of renewable energy by 2030, the Indian government has taken the big leap to move from conventional forms of energy to renewable sources.

However, the preparation to tackle the issue of climate change was made earlier in the year 2008, when the central and state government took major initiatives by setting up a National Solar Mission on Climate Change. The objective of the mission is to establish India as a global leader in solar energy by creating the policy conditions for solar technology diffusion across the country as quickly as possible. The mission targeted installing 100 GW grid-connected solar power plants by the year 2022.

Legal Framework

The Constitution of India provides for the enactment of laws under three categories, a) Union List b) State List and c) Concurrent list. Under the concurrent list, laws can be enacted by both the Union and State legislatures. Laws relating to energy fall under the concurrent list, therefore both the center and the state government have simultaneous powers to enact laws relating to energy.

The apex legal framework relating to the energy sector in India, formulated by the central government is called as the Electricity Act, 2003 (Electricity Act). Since renewable energy is part of the electricity sector, it is governed under the provisions of the Electricity Act, which provides a framework for the generation, transmission, distribution, trading and use of electricity.

Along with the aforesaid Electricity Act, the government of India has designated a separate body called as the Ministry of New and Renewable Energy (MNRE) for the purpose of promoting renewable energy, on and off the grid. The MNRE is also tasked with advancement and matters connected to solar energy, biogas facilities, small hydro-power, tidal energy, geothermal power etc.

Under the MNRE there are 3 separate dedicated institutions such as the National Institute of Solar Energy, the National Institute of Wind Energy, and the Sardar Swaran Singh National Institute of Renewable Energy.

The MNRE is a nodal ministry for all matters relating to new and renewable energy aimed at developing and deploying new and renewable energy for supplementing the energy requirements of the country. They provide direct and indirect tax benefits such as sales tax, excise duty exemptions, and custom duty exemptions. At present the MNRE, Ministry of Power, and the Government of India provide a 30% capital subsidy on solar projects. Some States, for example the state of Karnataka, offer loans for setting up solar plants in the region. Both the Central Government as well as State Nodal Agencies (SNAs) offer multiple subsidy schemes to the people for installing rooftop PV systems. The customer can also sell the excess solar power back to the grid, for which the customer would get a predetermined fare as decided by the local DISCOM.

FDI in Energy Sector

The government policies and programs are aimed at encouraging investments in the renewable energy sector. Companies involved in non-conventional power generation can receive up to 100% foreign direct investment under the current rules. Improved FDI inflows have come from the Centre’s FDI policy changes, investor cooperation, and ease of doing business initiatives and thus it has made India a lucrative spot for top investment hub for international investors.

Over the last 8 years, over USD 70 billion has been invested in the renewable energy sector in India. The FDI in this sector has been witnessing a sustained increase over the years, with FDI in 2021-22 standing at USD 1.6 billion as compared to USD 414.25 million in 2013-14.

Conclusion

The Indian renewable energy market has evolved, and it now boasts for a big scale development with lesser risks, consistent yields, and relatively high level returns, which are precisely what foreign investors are looking for, this  renders the Indian renewable energy sector an appealing option for FDI.

India’s solar module manufacturing capacity is set to increase by 4 times in 2025 as compared to 2021, with 30-35 GW of fresh module capacity set to be commissioned following strong demand, favourable policies, likely improvement in energy efficiency, and price competitiveness.

With the renewed and updated policies made by the government of India in the renewable energy sector, India can potentially create about 3.4 million jobs by installing 238 GW solar and 101 GW new wind capacity to achieve the 500 GW non-fossil electricity generation capacity by 2030. These jobs represent those created in the wind and on-grid solar energy sectors. A workforce of about one million can be employed to take up these green jobs.

A combination of short term and long-term incentives and policies made by the government in the energy sector can have a positive impact on the growing economy and in turn can lead to greater FDI. A well designed policy by the central government along with the assistance of state government can accelerate the pledge to tackle climate change. Easier approvals, upgrading transmission facility and relaxing of certain regulations can bend the curve downward on emissions and push the economic growth curve upward, helping secure a more prosperous, secure, and resilient future for India.

Bosky Tanmay Gokani Bosky Tanmay Gokani

Bosky Tanmay Gokani

Legal Advisor
Bosky Gokani, a qualified Indian lawyer, is currently based in Shanghai.
Veronica Gianola Veronica Gianola

Veronica Gianola

Senior Associate
Veronica Gianola, an accomplished Italian lawyer, is a member of the Milan Bar Association.

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