The Regulatory and Market Landscape for Climate Finance Into India’s Renewable Energy Sector

Executive summary

India’s clean energy landscape has developed rapidly over the last decade, enabled by an improving policy and regulatory architecture. Nevertheless, challenges remain that have impacted the scale and direction of climate finance flows to this sector, particularly from international sources. As India aims to further ramp up the pace of its RE deployment, both large- and small-scale, this brief analyzes these challenges from regulatory, institutional mandate, coordination and market development angles, and explores ways to address them.

Based on a literature review and 13 expert interviews in the large scale renewable energy, rooftop solar, and energy efficiency sectors, we find that regulatory challenges are relatively minor in the large scale RE sector, and that this may cause international funders to channel finance accordingly. In other words, the established governance structure facilitates a relatively easy flow of climate finance. On the other hand, the small scale renewables and energy efficiency sectors have received comparatively less policy support, and a lack of awareness and scale contributes to considerably less funding flowing to these sectors.

Overall, while the government has an important role to play in continuing to improve the policy and regulatory environment for clean energy finance – including international flows into the country – there is an equal role for funders to adapt their funding processes and scopes to the domestic context. Harmonizing these parallel efforts will require improved coordination between the various actors, including through more defined processes for consultations within the overall institutional architecture for climate action in India.