Hybrid and storage-backed renewables are set to drive Rs.3.8 trillion in clean energy investments by FY2026-27, powering nearly 40 per cent of new capacity, according to Manish Gupta and Ankit Hakhu.
Investment in India’s renewable energy sector is poised to increase at a compound annual growth rate (CAGR) of 55 per cent between this and next fiscal to Rs.3.8 trillion, driven by capacity addition of 75 gigawatt (GW), which is nearly half the existing capacity.
Notably, hybrid and storage-backed renewable projects will account for 37 per cent of this addition, more than doubling their share from 14 per cent in the previous two fiscals. That said, the timely development of transmission infrastructure to support growing renewable capacity and the closure of open power purchase agreements (PPAs) will be crucial to maintaining the sector’s growth momentum.
Despite these risks and significant capital expenditure (capex), the credit profiles of developers are likely to remain stable on the back of steady generation and adequate debt service coverage ratios (DSCRs).
Hybrid to Drive Capacity Addition
India’s renewable capacity has nearly doubled—from 80 GW in FY2021 to 158 GW by FY2025—driven by strong government backing and developer momentum. A further 75 GW is projected by FY2027, taking total capacity beyond 230 GW. This expansion is expected to lift renewables’ share in total power generation from 14 per cent in FY2025 to nearly 20 per cent by FY2027.
A robust 88 GW project pipeline, awarded by renewable energy implementation agencies (REIAs) and selected state distribution companies (discoms) as of March 2025, is set to drive a 21 per cent CAGR in capacity addition over FY2025-27, which is marginally higher than the 20 per cent logged across the previous two fiscals.
The value proposition of hybrid projects stems from the intermittent nature of renewable generation. Solar power is produced during the day, while wind energy is seasonal, posing a risk to grid stability. To address this, the industry is shifting to hybrid projects, with or without storage. These projects offer an effective solution by combining solar and wind sources to enable generation throughout the day. Adding storage, such as batteries, allows power to be retained during off-peak periods and despatched during peak demand.
Of the 75 GW capacity addition projected between FY2025 and FY2027, 28 GW is expected to come from hybrid and storage-backed renewables. This is a sharp rise from the 7 GW added over the previous two fiscals. The shift is evident in tender awards: hybrid projects accounted for 70 per cent of total awards last fiscal, up from 29 per cent in FY2024.
While utility-scale projects (hybrid, standalone solar and wind) will contribute around 80 per cent of capacity addition, growth will also be supported by solar rooftops and rising renewable power demand from commercial and industrial (C&I) users. This C&I push reflects a broader trend of businesses seeking to reduce carbon emissions.
India’s rapid renewable energy expansion is expected to trigger a significant rise in capital requirements. Investment grew at a CAGR of 37 per cent across the past two fiscals to about Rs.2.5 trillion and is set to increase substantially. Despite the scale of investment, securing capital should not pose major challenges, given the favourable funding environment for both debt and equity.
Competitive tariffs and lower input costs are expected to yield healthy returns for developers, sustaining equity inflows. In addition to strong private sector participation, interest from public sector entities is rising. Most new capacities are being developed by established players or platforms with strong sponsor backing, ensuring sufficient equity availability. Notably, the sector raised `190 billion in primary funding during FY2025, almost half of the total equity required for capex that year.
Post-commissioning, robust operating cash flows and stable debt service coverage ratios (DSCRs), coupled with continued sponsor support, should enable timely debt access. The sound financial health of banks and institutions, alongside sponsor support during the initial generation phase, further strengthens debt availability.
As renewable capacity scales up, the timely closure of PPAs and the expansion of transmission infrastructure remain critical. Despite a strong project pipeline, PPA closures have lagged, with only 45 per cent of hybrid project PPAs concluded as of the start of this fiscal (based on a Crisil Ratings study of projects awarded). This reflects the large number of awards issued just last fiscal. Closure rates are expected to improve, though delays may persist.
India’s rising power demand and hybrid projects’ ability to meet higher energy loads have positioned them as potential proxies to thermal generation for scheduling purposes. However, while the government is now prioritising new thermal capacity to meet growing demand, commissioning can be delayed given longer gestation periods compared to renewables. Hybrid projects—especially those with storage—can serve as viable alternatives where thermal shortfalls emerge. Competitive tariffs, alongside rising renewable purchase obligations for discoms (set to increase to 38.8 per cent by FY2028 from 29.9 per cent in FY2025), will support higher PPA closures over time, though not without delays.
Another key factor for sustained growth is the timely availability of transmission infrastructure to evacuate the increasing renewable load. In recognition of this, the government ramped up transmission awards last fiscal to nearly Rs.1.5 trillion, including Rs.475 billion for high-voltage direct current (HVDC) capacity, up from Rs.700 billion across FY2023-24. This infrastructure can enable 60 GW of additional renewable transmission capacity by FY2027, which would be sufficient to handle the expected 55-58 GW of inter-state transmission system (ISTS)-connected renewable additions.
However, the risk of transmission shortfalls due to execution delays remains high, given the unprecedented scale of projects underway. These require significant resources such as land, right-of-way approvals, equipment and manpower. With transmission capacities typically taking around three years to commission, compared with two years for renewable generation, timely execution is critical. Overcoming these challenges is vital to sustaining the orderly growth of India’s renewable energy sector.
Although capex intensity is set to rise and developers will face execution risks, we believe credit profiles will remain stable. An aggregated analysis of 12 leading renewable companies, accounting for over 30 per cent of upcoming capacity, supports this view.
While most projects are still under construction or in early stages and may face delays, commissioning is likely over the coming years. Many of these projects are being developed by players with sizeable operational portfolios (54 GW) and strong cash accruals.
That said, operational performance—measured as EBITDA per megawatt (MW) of installed capacity—has fallen short of P-90 projections, largely due to climate variability, particularly in wind assets. A P-90 estimate reflects a performance level with 90 per cent probability of being achieved or exceeded in a year, serving as a conservative benchmark for investors.
Even so, the deviation has been largely steady and not materially high across portfolios, with average variation in actual EBITDA per MW versus P-90 benchmarks under 10 per cent during fiscals 2021-25. Diversification across solar, wind and storage assets, coupled with the growing share of hybrid projects, should help mitigate asset underperformance risk.
Due to the expected capital expenditure, leverage (net debt/EBITDA) is projected to rise to around seven times but remain manageable, supported by steady EBITDA generation. Consequently, the average DSCR is expected to remain healthy at 1.2-1.3 times over the tenure of long-term debt. Financial profiles are further supported by the creation of debt service reserve accounts (DSRAs) to address short-term exigencies or cash flow mismatches.
All said, with careful planning and execution, India’s renewable sector is well-positioned for long-term growth, advancing a cleaner and more sustainable energy future. Its ability to attract investment and navigate challenges will be key to achieving the country’s
ambitious targets.
About the author:
Manish Gupta, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings, and Ankit Hakhu, Director, Crisil Ratings.