While India has made progress in installed capacity for renewable energy sources, power generation from renewables remains low. In this post, Chaudhuri and Rath content that renewable energy budgets of several states continue to be limited, with only a few states demonstrating a strong commitment to sustainable energy transition. They recommend balancing capital and revenue expenditures and promoting private investment in large-scale infrastructure projects.

Infrastructure development is essential for successful deployment and integration of renewable energy in any country. Renewable sources like solar and wind are variable, location-specific, and often generated in remote areas far from consumption centres. Therefore, robust transmission infrastructure is required to evacuate power efficiently and reduce curtailments. Smart grids and upgraded distribution systems are necessary to manage the intermittent nature of renewable energy, balance demand and supply in real time with local manufacturing, and enable bidirectional flow¹ in decentralised systems like rooftop solar. It is also imperative to ensure grid stability with infrastructure such as mini grids and solar pumps. Institutional and regulatory infrastructure like forecasting tools, energy exchanges, and market mechanisms further supports efficient renewable energy operations. 

India’s energy demand continues to rise driven by urbanisation and industrialisation, which raise living standards and the need for energy. Therefore, transitioning to a sustainable, low-carbon energy system is now a necessity. In recognition of this, India has set an ambitious target of becoming net-zero by the year 2070, and plans to reach a 500 GW non-fossil fuel capacity by 2030. As of January 2025, renewable energy sources comprised approximately 46% of India’s total installed power capacity. However, renewables accounted for only 22-24% of actual electricity generation, pointing to issues of intermittency, grid integration, and underutilisation of installed capacity. This gap highlights the need to move beyond capacity expansion and focus on systemic reforms. 

Limited expenditure on renewable energy at the state level

One major reason is lack of financial investment to develop renewable energy infrastructure. In several states, renewable energy budgets remain limited, with only a few states demonstrating a strong commitment to sustainable energy transition. For instance, Gujarat and Chhattisgarh have  seen significant investment in the renewable energy sector, both in the public and private sectors². This is spurred by the high industrial energy requirement and stable state policies to scale up the installed capacity. Institutes such as GEDA (Gujarat Energy Development Agency) and GERC (Gujarat Electricity Regulatory Commission) have built the enabling infrastructure that attracts private capital by strengthening transmission networks, and enhanced fiscal health through green  projects such as the Rs. 29,000 Crore Green Energy Corridor. The ease of power purchase agreements (PPA) also led to greater confidence among investors. Other states that have prioritised renewal energy in their budgets include Jharkhand, Haryana, Maharashtra, and Uttar Pradesh.

To meet its growing energy demand, India must significantly increase investment in the electricity sector, including capacity expansion, grid modernisation, and the transition to renewable energy. Expenditure in the renewable energy sector can be classified mainly into two categories, namely capital expenditure and revenue expenditure. Capital expenditure creates long-term benefits, largely in the form of infrastructure development like installation of solar parks, etc. One effective way to increase installed capacity is increasing capital investment in the renewable energy sector. Revenue expenditure, on the other hand, covers day-to-day expenses such as salaries, operation costs, or government subsidies in the form of schemes or other programmes.   

Across several Indian states, climate and energy departments continue to allocate a larger share of their budgets to revenue expenditure, whereas capital expenditure on infrastructure and technology remains limited. Among the states which spent significantly on renewable energy, like Jharkhand and Uttar Pradesh, capital expenditure is consistently low or even entirely absent. Even in states with significant renewable energy potential, such as Maharashtra and Haryana, the installed capacity is relatively low, highlighting a huge scope for capital expenditure. These imbalanced spending patterns raise questions of these states’ capacity to achieve their renewable energy targets and maximise their potential given the significant lack of capital investment needed for grid modernisation, decentralised energy generation, and ensuring the long-term sustainability of the sector.

Chhattisgarh and Gujarat distinguish themselves by prioritising capital expenditure, dedicating 89% and 81% of their respective renewable energy budgets to infrastructure development. Gujarat employs a blended finance mechanism where the public capex works as an anchor for investment by the private players. Gujarat leads the country in rooftop solar installations of 5.3 GW across 9.6 lakh households. The Gandhinagar rooftop solar public private partnership (PPP) model was successfully implemented in Vadodara and five other cities. Industrial constituencies demand reliable power, renewable projects generate sustainable employment, and Gujarat’s success spurs inter-state competition to replicate its model. For instance, the success of Gujrat was replicated in Chhattisgarh when it secured Rs. 3 lakh crore energy investments using a similar PPP model, with significant allocation for solar initiatives. 

Way forward

In order for states to leverage capital expenditure to attract private finance, it is important to mitigate the potential risks for developers. To this end, state governments ought to invest in land and balance the infrastructure with adequate grid connectivity. In a federal governance structure like India, effective coordination between central and state government priorities is essential. With regard to renewable energy development, the infrastructure investments of many states are not only aligned with national targets, but are also creating an enabling environment to achieve national goals and build political momentum. 

To ensure sustainable growth in their renewable energy sectors, states should establish a more balanced capital-revenue allocation framework. This could be a PPP model where Centre and state work together to encourage private spending in large-scale infrastructure projects. Fiscal space for renewable energy infrastructure can be expanded by diversifying revenues through sale of power to other states. Central mechanisms like PM-KUSUM and viability gap funding further ease budgetary pressure.  

States that currently devote almost their entire budgets to revenue expenses should consider adopting a structured, phased transition plan over 3 to 5 years, gradually raising their capital expenditure share by 15-20% annually. This step-by-step approach prevents disruption to ongoing operations while steadily expanding essential renewable energy infrastructure through flexible targets, policy reforms, financial innovation, regulatory clarity, and capacity-building of state agencies – such that more states can modernise their infrastructure and maintain regulatory compliance. Such reforms can ultimately accelerate progress toward actualising India’s ambitious renewable energy goals.

The views expressed in this post are solely those of the authors and do not necessarily reflect those of the I4I Editorial board.

Notes:

1. Bidirectional flow allows local generation and loads to help balance supply and demand dynamically at the distribution level, rather than relying only on large central plants. Excess solar energy can support nearby consumers as well.
2. In our analysis, we focus on public investment.