Recognizing that electricity is a key enabler of socio-economic development, India adopted the Sustainable Development Goal (SDG) of ensuring access to affordable, sustainable and clean energy for all, by focusing on increasing the share of renewable energy in the country’s energy mix substantially. Ranking 4th globally in terms of installed renewable energy capacity, India is surging ahead in its mission to expand its non-fossil fuel energy generation capacity by 500 GW by 2030. In line with the country’s mission of achieving net-zero emissions by 2070, an estimated ₹2.44 lakh crore of investment will be needed to achieve this feat, creating an investment opportunity worth over $30 billion every year for the next decade.
However, financing this kind of an energy transition and providing avenues to mitigate investment risks associated with the renewable energy sector will remain crucial for India as it aims to reduce cumulative emissions by one billion tonnes by 2030.
Additionally, while renewables remain central to the overall energy transition process, many programmes for green fuels, green mobility, green buildings and even policies for efficient use of energy are being implemented in order to reduce carbon emissions contributed by conventional energy sources. To spur investments and encourage entrepreneurs to participate in this renewable energy push, the government of India has already launched two phases of its Production Linked Incentive (PLI) scheme for Solar Photovoltaic (PV) cell manufacturers and has even pledged to invest $4.3 billion in initiatives that would further solar and other green energy production. While this would include various renewable energy projects including Hybrid wind-solar plants, off-shore wind farms and green hydrogen production, those related to solar energy will undoubtedly be the biggest drivers in meeting 50% of India’s energy requirements from renewables. In fact, plans are afoot to develop 60 solar parks across the country under the National Solar Mission and support the overall target of achieving 280 GW in solar energy capacity by 2030.
To support this multi-pronged strategy, it will be extremely important for public and private sector participants to de-risk their undertakings from the various challenges posed by projects in this space. These include widescale losses for solar PV instalments due to natural hazards, financial impact due to theft, operational impact due to transformer fires and even business interruption due to equipment failures. Moreover, given the complex and often leveraged financing structures for power projects in the renewables space, loss of revenues resulting from business interruption remains a key risk that can often lead to bankruptcies. While India is still a developing market in terms of insurance solutions catering to these nuanced requirements, general insurers are leading the way in introducing efficient insurance solutions for both solar and wind power producers, thereby helping them tackle crisis situations without undue financial stress. India is yet to discuss energy transition: while renewables are part of the overall energy transition process, since conventional sources will still be utilised for some time to come, it is important to either capture or store the carbon emissions through some technological break throughs like carbon capture storage, carbon capture utilisation, hydrogen, carbon markets, pyrolysis & biofuels.
However, insurance solutions to support energy transition have already been designed and will actively help clients in their quest to become carbon neutral. An example of this can be seen in Solar PV warranty insurance that has emerged as a fantastic tool for domestic manufacturers, supporting them in administering warranty claims resulting out of solar panel performance issues. Such insurance solutions not only help manufacturers market and service their products sustainably but play an important role in driving solar adoption and support the larger goal of more than quadrupling the country’s current solar electricity generation capacity. For large-scale offshore wind farms that pose significant challenges both at the execution stage and operational stage, the Indian insurance industry is gearing up to introduce insurance products that can qualm investor fears and drive large-scale investments in these inherently more efficient wind projects. In the quest to achieve its SDG of providing clean energy to all, viable insurance solutions combined with ramping up investments in the renewable energy space will define the next phase of India’s energy transition towards its net-zero ambition.
Source: Burzin Umrigar, The Times of India