Key takeaways
The power generation sector
accounts for 35 percent of India’s
total emissions, which have grown at a
CAGR of two percent in the last decade,
in line with the demand growth of
electricity. While India has taken steps
toward decarbonising the sector by
accelerating build-out of RE capacity
over the past decade, challenges
remain.
India could get to net-zero emissions
by 2070 in our LoS scenario,
supported by favourable economics
(of RE and RE-storage hybrids vis-à-
vis coal), industry action, conducive
policies and increasing investment
(including from major global investors).
We do not envisage accelerated
retirement of coal-fired power plants in
our scenarios—incremental demand for
power would largely be met with non-
fossil sources of generation while the
existing fleet of hyphenate plants would
continue to operate (depending on their
position in the merit order curve) until
the end of their economic life.
India’s power sector could achieve
net zero by 2050 in the Accelerated
scenario by accelerating investment
and undertaking market reforms. This
will require around 1000 GW additional
renewable capacity by 2050 and
can result in avoiding a cumulative 16
GtCO₂e of emissions by 2070. Sector
emissions would peak by the mid- to
late-2020s in this scenario.
61
Full system cost of power including costs (factoring reasonable returns and system losses) for generation, transmission and distribution. The corresponding cost of
power generation Is INR 3.9/KwH.
Decarbonising India: Charting a pathway for sustainable growth
This transition will likely need an
investment of $2.5 trillion until 2050
in the LoS scenario and an additional
$1.3 trillion in the Accelerated scenario.
Importantly, most of this investment
is NPV positive and could get India’s
power-generation cost from its current
INR 4/kWh to INR 3/kWh by 2050.
The total average system cost of supply
which was 6.15 INR/kWh in 2020 can
also come down by 0.7–0.9 INR/kWh
as increases in per unit transmission
and distribution cost could be offset
by decreases in generation cost and
aggregate, technical and commercial
(AT&C) loss reduction.61 However,
India would have to be mindful not to
compromise on energy security through
import localisation and power-mix
diversification.
Critical challenges that India would
face to achieve net-zero in the
power sector are a) 5x and 9x RE
capacity addition in 2030 and 2040,
respectively relative to its current
10–12 GW per year RE addition; b)
RE supply chain and raw material
manufacturing given 80–90 percent of
solar modules are currently imported; c)
land availability and grid connectivity;
d) integration of intermittent RE while
ensuring grid stability and avoiding
power outages.
Key actions that India could take
to enable the transition would be
a) increase RE and storage capacity
additions; b) initiate market reforms,
leverage innovative flexibility sources
for RE-integration to ensure grid
reliability; c) improve the financial
health of power distribution
companies (DISCOMs); and d) localise
manufacturing in key technology
areas such as solar, storage and
hydrogen electrolysers. Besides the
transition, decarbonisation could
also help accelerate job creation and
provide India with an opportunity to
become a global leader of energy
transition and a possible exporter
of green technologies. However,
India will have to be mindful not to
compromise on energy security through
import localisation and power-mix
diversification.
51
The power sector today Renewables are increasingly wind power have led to the RE annual
competitive against coal: Most of capacity addition outpacing coal since
The power sector currently accounts
the emissions in the sector are from 2017.68 Government initiatives over
for around 35 percent of India’s total
coal-based thermal power plants, the past decade—such as holding
carbon emissions. Between 2011
which currently meet three-quarters reverse auctions, creating solar
and 2019, emissions increased from
of India’s power demand.65 However, parks and de-risking evacuation and
930 MtCO₂e to 1100 MtCO₂e—a
the share of coal generation in the offtake—have also attracted significant
CAGR of two percent,62 roughly half
power generation mix peaked in 2015 investment and enabled this shift.
the electricity demand growth in the
at 78 percent and has been declining
period.63 Demand for power is set to
since. 66 This decline is driven primarily
rise further as industry and transport
by exponential capacity growth in
electrify, increasing per capita
RE and its cost competitiveness
consumption from the current relatively
(Exhibit 10). India is a global leader in
low levels of around 1,200 kWh, just
RE development. In 2021, it had the
one-seventh of the Organisation
world’s fifth-highest global solar-power
for Economic Co-operation and
capacity and fourth-largest global
Development (OECD) average.64
solar and wind capacity.67 Rapid cost
declines in solar photovoltaic (PV) and

62
Historical emissions—UNFCCC
63
Climate action tracker (India); “Third biennial update report to the United Nations Framework Convention on Climate Change,” Ministry of Environment, Forest and
Climate Change, Government of India, 2021.
64
“Per capita electricity generation,” Our World in Data.
65
India’s current capacity mix, Ministry of Power annual report, 2021–22
66
“India energy outlook,” IEA, 2021.
67
Country rankings, International Renewable Energy Agency (IRENA).
68
Ministry of Power and Ministry of New and Renewable energy annual reports

Exhibit 10

The share of coal generation in the power mix has been declining due to capacity growth
in renewable energy.
Coal Other fossil1 Solar and wind Other non-fossil1 Wind Solar

Annual capacity addition for coal, solar & wind Generation Mix
GW %

16
15

3 5 6 7 8 9 9
11 11

9
8 8
7
7
78 77 77 77 75 74 75
4 4
4
3
1

FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY16 FY17 FY18 FY19 FY20 FY21 FY22

Source: India RE Navigator, Ministry of Power annual reports; Ministry of new and renewable energy; Government of India

52 Decarbonising India: Charting a pathway for sustainable growth

Solar tariffs in the range of INR 2–2.5/
kWh are cheaper than the marginal
cost of 60–70 percent of coal power
plants.69 Solar-wind-storage hybrid
plants that provide 85 percent round-
the-clock power on an annual basis—a
common definition of baseload RE in
India—have ex-bus bar tariffs between
INR 4–5/kWh. These RE-storage
hybrids have reached parity with new-
build coal plants, and it is expected that
they will be cheaper on a marginal cost
basis than 30–50 percent of operating
coal plants by 2030 and 60–75 percent
by 2040 (Exhibit 11).70
Net zero is possible, but challenges
remain: Reaching net zero is possible
in India only if the power sector builds
on and accelerates its energy-transition
momentum. We examine two scenarios
for getting to net zero in the sector:
the LoS scenario and the Accelerated
scenario (Exhibit 12). Both are realistic
and would bring great benefits.
However, both scenarios would require
substantial investment, and major
challenges remain to be addressed—
primarily through market and
policy reform.

69
Ex-bus bar tariff excludes the cost of transmission and distribution. Analysis based on the unit-level coal plant variable cost; Data from RE navigator and Merit India
70
Analysis based on unit-level coal plant variable cost.

Exhibit 11

Cost of power from solar-wind-storage hybrids has reached parity with the full-cost of
new-build coal plants.
Comparison of coal plant variable cost curve LCOE comparison of baseload RE and coal
with RE tariffs in 2021, INR/kWh based generation, INR/kWh

Price
6.3 6.3
7 Full cost of
5.3 5.4 5.4 new build coal
6 5.0 plant
Solar-wind-storage hybrid 4.5 4.6
5
4.0–5.0 Coal plant
4.0 3.7 3.6 3.6
4 variable cost
3.9
3.1
Solar-wind hybrid1
3.4 3.4 RE-storage
3
2.7
2.9 hybrid LCOE2
Coal variable cost 2.5
2 2.4 2.5
Solar 2.1 2.2
1

0
0 40 80 120 160 200 240 2022 2030 2040 2050

1. Adani Hybrid Energy Jaisalmer commissioned a 390 MW solar-wind hybrid plant. The plant has a PPA with SECI at a tariff of ₹2.69/kWh.
2. The upper limit is hybrid levelised cost of energy (LCOE) with average capex and opex costs for solar, wind and storage; lower limit is hybrid LCOE with best-in-class
85% fulfilment.

Source: India RE Navigator, Merit India, McKinsey Power Model

Decarbonising India: Charting a pathway for sustainable growth 53

Exhibit 12

Both the LoS and the Accelerated scenarios are realistic—but would likely require
substantial investment.
Transmission & distribution Coal Other fossil1 Solar and wind Other non-fossil Storage2

LoS scenario

Non-fossil capacity at 400 GW by 2030 Coal reaches net zero by 2070

Capacity evolution until 2050, GW Generation mix, %

2,675 5 12 1 1 6
16 11
9 27
1,325 60 79
415
673 74 55
28 14
2022 2030 2040 2050 2022 2030 2040 2050

Emission peaks in the early 2030s $2.5 trillion investment required by 2050
CO2e emissions until 2050, Mt Investments in RE and storage until 2050, $ billions

1,268 1,273 1,288 2,502

1,125
931
793
783
431

2020 2025 2030 2035 2040 2045 2050 2020–30 2030–40 2040–50 Total

Capacities by 2050: Solar – 1372 GW; Wind onshore – 364 GW; Hydro – 51 GW; Nuclear – 22 GW, Capacities by 2030: Solar – 204 GW; Wind onshore – 86 GW;
Hydro – 69 GW; Nuclear – 16 GW.

Accelerated scenario
Non-fossil capacity at 600 GW by 2030 Coal reaches net zero by 2050
Capacity evolution until 2050, GW Generation mix, %

5 12 4 14 1
11 6 1
4,019 9
44 74
1,939 94
872 74
415 38 14
2022 2030 2040 2050 2022 2030 2040 2050

Emission peaks in mid-2020s $3.8 trillion investment required by 2050

CO2e emissions until 2050, Mt Investments in RE and storage until 2050, $ billions

1,330 2,000 3,793

1,125
955
616 1,202
591
0
2020 2025 2030 2035 2040 2045 2050 2020–30 2030–40 2040–50 Total

Capacities by 2030: Solar – 376 GW; Wind onshore – 102 GW; Hydro – 71 GW; Nuclear – 24 GW; Capacities by 2050: Solar – 2172 GW; Wind onshore – 536 GW;
Hydro – 54 GW; Nuclear – 22 GW.

1. Other fossil includes gas and oil; other non-fossil includes hydro, biomass and nuclear.
2. Storage includes battery, pumped hydro, LDES 8–24h, LDES 24h+ and hydrogen.

Source: McKinsey Power Model

54 Decarbonising India: Charting a pathway for sustainable growth

These challenges include but are not
limited to the poor financial health
of DISCOMs, power infrastructure
upgrades to deal with infirm power,
constraints in the RE supply chain and
barriers to RE access for industrial
consumers. The absence of ancillary
and capacity markets in India shows
that India’s market structures are still
not ready to integrate large amounts of
RE.71 The fact of a relatively young coal
fleet (the average age of coal-powered
plants is 14 years) will need to be kept in
mind while developing India’s road map
to net-zero emissions.
The LoS scenario
It is feasible for India to achieve net-
zero emissions by 2070 in an LoS
scenario. Several factors put India’s
power sector on a strong footing
to reach its decarbonisation goals:
favourable economics; strong policy
backing, including the waiver of
inter-state transmission charges and
ambitious decarbonisation targets; a
well-developed, mature power and RE
industry; the presence of large global
investors; and a growing trend among
industrial consumers to decarbonise
their power.
In this scenario, emissions may rise for
another decade, as coal generation
is expected to increase modestly to
provide continuous power and balance
the grid till RE-storage hybrid ramps
up. Correspondingly, emissions would
peak in the early 2030s at 1.3 GtCO₂e.
Emission intensity would, however,
gradually decrease from 0.77 kgCO₂e/
kWh in 2020 to 0.52 kgCO₂e/kWh by
2030. This transition would be
enabled by:
— Coal capacity: This is estimated to
increase from its current 210 GW
to peak at 240 GW by 2030, driven
by the completion of major projects
currently under construction or in
advanced planning (Exhibit 14).72
The LoS scenario assumes that
there would be minimal to nil coal
capacity addition after 2030—but
also no forced plant retirements,
as cheaper coal capacity could be
maintained at an average plant load
factor (PLF) of 60 percent.
— Solar and wind capacity: This
is expected to increase from the
current 95 GW in 2021 to 300
GW by 2030, with 20–25 GW
built annually. This is achievable,
considering India has succeeded
in adding 10–12 GW per year over
the past five years (excluding some
periods affected by the COVID-19
pandemic) 73 and is further scaling its
renewable capacity.

71
90 percent of power in India is still provided via long-term power purchase agreements (PPAs), the majority of which are for baseload. The share of wholesale or
traded power, peak PPAs and shaped PPAs is very low. Time-of-day pricing, which is needed to achieve demand-side flexibility, is also not dynamic or adequate in
many places.
72
Based on the McKinsey power model (detailed in the Box 1). Currently, 29 GW of coal power plant capacity is under construction and 20 GW of capacity is planned.
By 2030, it is expected that 18 GW of coal power plants will be retired, which entails a net increase of 30 GW by 2030.
73
Solar energy, Ministry of New and Renewable Energy, Government of India.

Exhibit 13

Key assumptions made in the LoS and Accelerated scenarios for power sector analysis.

LoS scenario Accelerated scenario

• Demand growth of 5% till 2050 (including hydrogen
demand); without hydrogen demand growth at 4% till
2050
• Coal capacity increases from 210 GW currently to
peak at 240 GW by 2030 driven by completion of
plants which are under-construction and in advanced
planning stage
• No accelerated decommissioning of coal plants, coal
plants are retired when they reach their end of life
(40-50 years)
• Wind and solar capacity addition assumed not to be
constrained by land availability, equipment and other
factors
• Nuclear capacity is assumed to increase from 7 GW in
2021 to minimum 15 GW by 2030 and 20 GW by
2040. Wind Offshore is assumed to reach 5 GW by
2030, 15 GW by 2040 and 30 GW by 2050
• Higher demand growth rate of 6% till 2050 due
to faster electrification of industry and transport
• No new coal plants built other than plants
already under construction. Coal capacity peaks
in mid-2020s, and is 190 GW in 2030
• Most coal plants become uneconomical by mid-
2040s and are retired. End of life for coal plants
assumed to be 10 years less (30-40 years)
• Wind and solar capacity addition assumed not to
be constrained by land availability, equipment
and other factors
• Nuclear capacity is assumed to increase from
7 GW in 2021 to minimum 15 GW by 2030 and
20 GW by 2040. Wind Offshore is assumed to
reach 5 GW by 2030, 15 GW by 2040 and 30
GW by 2050

Decarbonising India: Charting a pathway for sustainable growth 55