New Delhi: India’s renewable energy (RE) sector has demonstrated exceptional growth momentum, with capacity additions reaching 20.1 Gigawatts (GW) in the first five months of Fiscal Year 2026 (5M FY2026), marking a 123 percent increase compared to 9.0 GW in the same period last year. This surge follows a strong performance in FY2025, where capacity addition rose sharply to 28.7 GW from 18.5 GW in FY2024, according to a recent report by ICRA.
Robust Pipeline and Market Conditions Drive Growth
The sector’s expansion is supported by a substantial project pipeline of 142.8 GW, as reported by the Central Electricity Authority (CEA). Favorable factors such as competitive solar module prices and robust electricity demand continue to propel the sector forward, positioning it to exceed 35 GW of capacity addition by the end of FY2026.
Read also: Hardeep Singh Puri Inaugurates IGL’s New Office and Smart Gas Meter Facility in New Delhi
Challenges in Bidding Activity and Power Agreements
Despite the strong pipeline, the report highlights a slowdown in bidding activity, with only 3.4 GW auctioned during the first half of FY2026. This decline is primarily attributed to delays in signing Power Sale Agreements (PSAs) between bidding agencies and state distribution utilities, which subsequently hold up Power Purchase Agreements (PPAs) with developers. Timely execution of these agreements and enhancements in transmission infrastructure are deemed critical to maintaining the sector’s growth trajectory.
Stable Outlook Supported by Policy and Market Dynamics
ICRA maintains a Stable outlook for the renewable energy sector, backed by strong government policy support, the tariff competitiveness of renewables, and increasing sustainability commitments from commercial and industrial (C&I) customers. The C&I segment, which accounts for 45-50% of India’s electricity demand, is expected to drive significant future growth, with a projected requirement of approximately 100 GW of RE capacity over the next five years — implying a compound annual growth rate (CAGR) of nearly 30%.
Key Sector Developments Highlighted by ICRA
- Cost Competitiveness: The reduction of Goods and Services Tax (GST) on solar photovoltaic (PV) modules and wind turbine generators from 12% to 5% is expected to lower capital costs by about 5%, reducing generation costs by 10 paise per unit for solar and 15-17 paise per unit for wind power.
- Energy Storage: Battery Energy Storage Systems (BESS) are gaining traction due to declining bid tariffs, improving the economics of hybrid projects. Energy storage capacity is expected to reach 50 GW by 2030, combining BESS and pumped storage hydro solutions.
- Module Price Trends: Imported N-type solar module prices remain low (8-9 cents/watt), but Indian market prices are higher (15-17 cents/watt) due to the Approved List of Modules and Manufacturers (ALMM). Upcoming ALMM imposition on solar cells in June 2026 may drive prices up in FY2027, impacting future bids. Additionally, US tariffs imposed on Indian exports could affect the competitiveness of Indian original equipment manufacturers (OEMs).
Sector Resilience and Credit Profile
The RE sector’s credit profile continues to remain resilient, with 15 credit upgrades against 13 downgrades in the first five months of FY2026. Upgrades were driven by successful project commissioning, solid generation performance, and favorable ownership changes.
India’s renewable energy sector is on a strong growth path, supported by a robust project pipeline, policy incentives, and technological advancements. However, timely execution of power agreements and infrastructure improvements will be crucial to sustain this momentum and meet the ambitious capacity addition targets for FY2026 and beyond.
