Key findings

India’s power sector requires a massive escalation in capital investment to meet its decarbonisation goals. Annual investments in renewables, storage, and transmission are estimated to surge from USD 68 billion (INR 6.18 trillion) by 2032 to as much as USD 145 billion (INR 13.19 trillion) by 2035. The capital-intensive, long-lived nature of renewable assets makes transition planning fundamentally a matter of debt market planning. Credit markets are already structurally differentiating between clean and thermal assets, with renewable platforms delivering stronger margins and broader access to capital than thermal peers. NTPC Limited, India’s largest state-owned utility, is uniquely positioned to anchor this transition with a planned capex of INR 7 trillion (USD 80 billion) through FY2032.

Power sector transition relies on debt finance

India has reaffirmed its goal of 500 gigawatts (GW) of renewable energy capacity by 2030, increasing its Nationally Determined Contributions for non-fossil fuel-based energy to 60% by 2035. Momentum is evident as non-fossil capacity expanded from 74.4 GW in 2014 to 272 GW as of January 2026. Because renewable projects have long operating lives and high upfront costs, they are ideally suited to non-recourse amortising term debt with tenors of 15-20 years. Relying on equity would otherwise raise the overall cost of capital. Rising energy demand necessitates that annual investment in the sector must increase by 20% per year to maintain momentum.

Bottlenecks: Market and fundamental constraints

Despite the rise in India’s total bond market, with annual issuances exceeding USD 500 billion in 2025, the corporate bond market remains shallow and structurally underdeveloped. It is dominated by public sector issuers, while the utility sector’s participation has been uneven. Currently, the eight major utilities analysed raise approximately 80% of their debt through bank loans, leaving the bond market underutilised. Legal and regulatory fragmentation persists; recovery rates under the Insolvency and Bankruptcy Code fell from 43% in FY2019 to 27% in FY2024, and the average resolution time of 713 days far exceeds the statutory 330-day limit. These factors limit the ability to attract a diversified investor base and increase reliance on state-backed lending.

Credit divergence across utilities

There is a widening credit gap between renewable-focused and thermal-heavy utilities. Renewable assets structurally outperform thermal on profitability due to the absence of fuel costs. For instance, Adani Green Energy Limited (AGEL) consistently exhibits better EBITDA margins than its fossil fuel peer, Adani Power. However, rapid expansion has increased debt leverage across the sector. Seven of the eight companies reviewed generated negative free cash flow in FY2025 due to capital-intensive buildouts. SJVN and ReNew Power demonstrate elevated borrowing costs, with funds from operations (FFO) interest coverage below 1.5x. Conversely, NTPC maintains a manageable profile with interest coverage around 3x. Although the Reserve Bank of India reduced the repo rate to 5.25% in early 2026, structural vulnerabilities remain as leverage climbs.

Thermal: Transition planning will be key to credit resilience

Thermal generators face elevated risks, including potential carbon pricing and underperforming assets. NTPC and Adani Power are the sector’s largest emitters, with NTPC’s scope 1 emissions reaching 327 million tonnes of CO2e in FY2025. Without factoring in cost pass-throughs, unpriced carbon costs could represent one to four times the EBITDA of thermal-heavy utilities by 2030 under high-price scenarios. Fitch indicates that coal generation faces existential threats to credit profiles by 2045. While companies like Tata Power have set 2045 net-zero targets to comfort creditors, others continue to focus on long-life thermal assets without clear phase-out timelines, risking carbon lock-in and higher funding costs.

Debt finance and how to unlock scale

Unlocking the required scale of financing requires deep structural reforms to develop liquid debt capital markets. Key recommendations include easing investment restrictions for domestic institutional investors, such as insurance and pension funds, which are currently restricted from bonds rated below AA. Catalytic bond issuances by sovereigns and institutions like PFC and IREDA are needed to set pricing benchmarks. Expanding the Masala bond market can shift currency risk from issuers to investors, while innovative financing like Infrastructure Investment Trusts (InvITs) can help developers monetise operational projects. NTPC should act as a market anchor, using its AAA domestic rating to shoulder counterparty risk and support smaller renewable independent power producers (IPPs).

Conclusion: Transforming systemic risks into opportunities

The observed credit differentiation aligns with transition dynamics: renewable-focused issuers access better funding, while thermal-exposed firms face constraints. Coherent transition planning and multidisciplinary reforms are essential to integrate energy and finance ecosystems. By strengthening financial markets and managing counterparty credit risks, India can transform systemic transition risks into strategic opportunities for sustainable economic growth.