India's power sector needs reform

As the use of energy-guzzling AI grows, the countries that embrace renewables will gain an obvious competitive advantage.

- ARVIND SUBRAMANIAN NAVNEERAJ SHARMA ABHISHEK ANAND PRAVEEN RAVI

And on this front, China has established a substantial lead. According to the Financial Times, the country is on track to source 50% of its power from renewables (mainly solar and wind, but also nuclear, hydro, and battery-storage systems) by 2028.

By comparison, India’s efforts to promote renewables, while commendable, have yielded modest results. As the figure below shows, despite meeting its 2030 target for adding renewable-energy capacity five years ahead of schedule, India still lags behind its emerging-market peers — including Brazil, China, Mexico, Pakistan, and Turkey — and most advanced economies in terms of the share of solar and wind in total electricity generation.

Over recent decades, India’s energy landscape has changed dramatically, moving from scarcity to relative abundance — even for the rural poor. Blackouts, erratic supply, and the use of polluting diesel generators are a thing of the past. But the electricity revolution, and the transition to renewables, remains a work in progress.

One reason for the slow pace is that electricity transmission and distribution are mostly in the hands of public-sector incumbents that are highly inefficient, deliver consistently negative returns, and need to be bailed out periodically by governments and public financial institutions. Domestic and foreign private-sector players are reluctant to work with these loss-making utilities, which India’s 28 states largely oversee and regulate, because of the associated credit risks.