· 10 min read
• India’s energy demand is projected to rise by 35% by 2035, fueling urgent policy shifts towards renewables
• Despite progress, fossil fuels still dominate India’s energy mix, complicating the shift to cleaner alternatives
• Geopolitical instability and regional disparities challenge India’s energy security and renewable transition efforts
As the world’s fastest-growing major economy and the most populous nation, India faces the dual challenge of sustaining economic expansion while advancing its ambitious energy transition goals. The country’s surging energy demand — expected to rise by 35% by 2035 — has driven a decisive policy shift towards renewables. However, structural barriers and continued reliance on fossil fuels complicate this shift. Overcoming these challenges will require not only policy innovation but also international cooperation and substantial financial commitments.
Rising energy demand and the shift toward renewables
According to the latest Global Economic Prospects report from the World Bank, India is expected to continue leading global economic growth, with a projected growth rate of 6.7% in both FY2025/26 and FY2026/27. This growth trajectory increases the urgency for an energy infrastructure that can sustain economic dynamism while mitigating environmental concerns.
Meanwhile, India’s energy demand, which has been growing at an unprecedented rate, is forecasted to surge by around 35% by 2035, reflecting the scale of its energy needs. This demand is driven not only by domestic factors such as urbanisation and population growth but also by India’s growing role in global manufacturing supply chains, which significantly increases its energy intensity.
India’s economy is also increasingly reliant on sectors like information technology (IT), services, and transportation, each demanding more energy per unit of output as these sectors scale. This growth in energy demand, if not managed properly, risks exacerbating both environmental and energy security challenges. At the same time, the accelerating pace of urbanisation in India — with town and cities projected to reach 600 million residents by 2036 — presents further complexity, necessitating the careful balancing of supply with equitable access to clean energy solutions.
The interconnectedness of India’s economic ambitions and energy demands places heightened pressure on policymakers to devise a balanced and sustainable energy strategy. In managing these demands, India’s energy strategy prioritises both supply security and long-term environmental goals, maintaining near-term fossil fuel reliance while aggressively expanding renewable energy (RE). The Government of India has committed to achieving 500 gigawatts (GW) of non-fossil fuel capacity by 2030, and it has also pledged to reach net-zero emissions by 2070 — one of the most ambitious climate goals among large developing nations. Nonetheless, the pace and depth of India’s energy transition face structural challenges, including infrastructure limitations and uneven regional progress. This renewable energy drive is part of India’s broader strategy to reduce fossil fuel dependency and combat the increasingly evident impacts of climate change. The Reserve Bank of India (RBI) predicts that fossil fuels will no longer dominate India’s electricity generation by the end of this decade. Nevertheless, smoothly ensuring a stable transition will demand enhanced grid resilience, efficient storage solutions, and integrated energy planning.
At the heart of this energy transformation lies India’s ambitious target of reducing fossil fuel dependency by leveraging the potential of renewable resources. As of October 2024, RE-based electricity generation capacity had climbed to 203.18 GW, accounting for over 46.3% of total power generation capacity and underscoring its cleaner energy shift. This progress has been driven largely by favourable policy frameworks, such as production-linked incentives and tariff support for renewable technologies. Renewable sources like solar and wind now represent a growing share of India’s power generation. Rajasthan, Gujarat, and Madhya Pradesh have emerged as key solar power hubs, home to some of the world's largest solar projects.
By the end of 2024, wind energy accounted for about 23.5% of India’s installed renewable capacity, ranking as the second-largest source after solar. Expanding renewable infrastructure to regions less equipped for renewable energy generation remains a critical challenge. For example, states like Uttar Pradesh, Bihar, and West Bengal have substantial energy needs but lack the necessary infrastructure to harness renewable resources effectively, presenting a key area for policy intervention.
The persistent role of fossil fuels
Nevertheless, fossil fuels still contribute significantly to the country’s overall energy matrix. According to the Statistical Review of World Energy 2024, coal continues to dominate India’s primary energy mix, accounting for over 56.3%, followed by oil at 27.1%, and natural gas at 5.7%. This persistent reliance on fossil fuels serves as both a buffer for energy security and a reflection of the challenges of transitioning sectors like heavy industry and power generation, where alternatives remain nascent. This reliance underscores the importance of adopting transitional technologies, such as carbon capture and storage (CCS), to mitigate emissions.
India’s reliance on fossil fuels is particularly pronounced in its heavy import dependency for crude oil. As the world’s third-largest consumer of crude oil, India relies on imports to meet approximately 85% of its needs. This dependency raises geopolitical vulnerabilities, prompting India to diversify its crude oil suppliers. Notably, the geopolitical realignment following Russia’s invasion of Ukraine has amplified India’s focus on supply diversification. The number of countries from which India imports oil has expanded to include Russia, which has become its second-largest supplier following the Russia-Ukraine conflict. Expanding energy diplomacy with emerging suppliers, particularly in Africa and Latin America, could further bolster India’s energy resilience.
Geopolitical challenges in energy security
India faces the dual challenge of meeting its clean energy objectives while keeping pace with rising energy demand, driven by population growth, rapid industrialisation, urbanisation, rising incomes, and an expanding manufacturing sector. Moreover, it must ensure stable crude oil supplies while transitioning toward cleaner energy sources. Balancing these objectives within the constraints of volatile global energy markets necessitates strategic foresight and multilateral engagements.
Geopolitical instability in regions like the Middle East — the source of nearly half of its crude imports — heightens the urgency for supply diversification, prompting India to secure alternative sources such as Russia, Africa, and Latin America. This diversification is an integral part of India’s broader energy security strategy, which must account for the pressures of both meeting its growing demand and adhering to its climate commitments. Prime Minister Narendra Modi’s visit to Guyana in November 2024 exemplified India’s proactive efforts to secure long-term energy supplies, particularly through partnerships with emerging oil producers such as Guyana, Angola, and Brazil. These partnerships also reflect India’s broader push for South-South cooperation in energy development. India’s diplomatic engagement in the Indo-Pacific is equally pivotal in securing maritime routes for energy imports. This is evident in the ongoing collaboration with Japan, Australia, and the U.S. to ensure a secure, free, and open Indo-Pacific, which is crucial for energy security in a region where maritime disputes are prevalent.
The geopolitical shifts triggered by the Ukraine conflict have further complicated India’s energy sourcing strategy. In response to the G7 sanctions, India increased its imports of discounted Russian oil, which accounted for nearly 36% of its crude imports in 2024. The shift to Russian oil, though economically advantageous, has introduced new vulnerabilities. The dependence on Russian oil has strained India’s diplomatic relations with Western nations, particularly the U.S. and the European Union (EU), which have imposed sanctions on Russia. The sweeping sanctions imposed in January by the U.S. Treasury Department targeting Russian energy firms and oil transporters could force India to turn to costlier Middle Eastern supplies and expose it to the Trump administration’s possible use of sanctions as leverage in Russia peace negotiations. India’s ability to maintain a neutral stance in global geopolitics — particularly regarding the Russia-Ukraine conflict — could influence its future energy trade patterns and diplomatic relationships, a balance it must carefully navigate.
This situation underscores the complex intersection of India’s energy needs with its foreign policy objectives, as it seeks to balance economic and strategic interests. India’s balancing act becomes even more critical when viewed through the lens of long-term strategic partnerships, particularly its engagements with the Quad nations and its aspirations in Indo-Pacific geopolitics. While India has effectively expanded its import base to 39 countries, including new suppliers from Africa and Latin America, the challenge remains to balance short-term affordability with resilience against geopolitical risks. Additionally, India is strengthening bilateral energy partnerships with nations like Saudi Arabia and the United Arab Emirates (UAE), both of which are increasingly investing in renewable energy and offering new opportunities for energy collaboration.
Decarbonisation and domestic constraints
India’s energy transition also faces challenges in sectors like transportation and heavy industry, where the adoption of renewable alternatives has been slow. Simultaneously, the country’s power grid remains heavily reliant on coal, which produces roughly half of India’s CO2 emissions. To mitigate this, India is exploring technologies like carbon capture and storage (CCS), hydrogen fuel, and advanced battery systems, which could play pivotal roles in decarbonising hard-to-abate sectors. Scaling up these technologies will require strengthened research and development (R&D) ecosystems and international technology transfer.
Financially, India’s decarbonisation goals demand unprecedented levels of investment. RBI Deputy Governor Michael Patra has estimated that India will need $.04 trillion in green investments over the period 2024-2030 and projected the cost of the country’s fossil fuel independence by 2047 and net-zero by 2070 at $10.1 trillion. These projections underscore the scale of capital mobilisation needed across both public and private sectors to achieve India’s climate goals. In this context, creating innovative financing mechanisms, such as green bonds and public-private partnerships, arguably will be essential to bridging the investment gap. Increased foreign direct investment (FDI) in India’s renewable energy sector, particularly from tech-heavy economies such as the U.S., Japan, and Germany, will also be pivotal in meeting these financial requirements.
Political economy constraints also loom large. Eastern states, home to many low-income populations and reliant on coal and energy-heavy industries, would face concentrated economic risks with limited job gains from RE expansion, which mainly benefits wealthier Western states. This regional disparity in energy transition benefits risks exacerbating existing economic inequalities unless carefully managed. Addressing this imbalance will require a “just transition” framework, including targeted financial support and workforce re-skilling initiatives. Equity-focused energy policies will be critical to building widespread political and social support for the energy transition. An expansion of social welfare programs that target displaced workers, particularly in coal-dependent regions, could help mitigate potential resistance to the energy transition.
The journey to net zero is further complicated by issues such as land disputes, population density, and non-linear climate risks. India’s recent subsidy adjustments have been problematic. In 2023, rising energy demand and the global energy price crisis, triggered by Russia’s invasion of Ukraine, led to increased fossil fuel support in FY 2023, shrinking the fiscal space for supporting clean energy technologies.
Simultaneously, India’s approach to energy security cannot be disentangled from its energy transition ambitions. Despite notable progress, such as RE capacity exceeding 203 GW by late 2024, fossil fuels, particularly coal and oil, remain deeply embedded in the energy mix, with coal still accounting for over 55% of primary energy consumption. This persistent reliance highlights the complexity of India’s dual challenge: scaling up renewables while ensuring stable, affordable fossil fuel supplies to meet surging energy demand driven by industrialisation and urbanisation.
To perform this balancing act, India will need to continue expanding renewable capacity while addressing infrastructure gaps and regional disparities in the energy transition. Eastern states, for example, remain heavily dependent on coal and face significant economic risks from a rapid shift toward renewables, unlike the more advanced solar and wind hubs in Rajasthan, Gujarat, and Madhya Pradesh. A “just transition” framework, including targeted investments and workforce re-skilling, will be crucial to avoid deepening regional inequalities.
Conclusion
Ultimately, India’s energy security strategy must balance climate ambitions with geopolitical realities. A diversified import portfolio, expanded domestic renewable capacity, and policies supporting green technology investments will be essential to reducing fossil fuel dependency while maintaining energy reliability. By advancing both supply diversification and clean energy development, India can bolster its energy security while staying on course to meet its long-term climate commitments.
India’s energy transition is thus not just a matter of domestic policy but also deeply intertwined with geopolitical and economic considerations. As the country moves along this challenging journey toward cleaner energy, it will need to address both domestic challenges and external pressures, balancing energy reliability, climate goals, and geopolitical interests. The success of India’s energy transition will depend on how effectively it manages this balancing act, ensuring that its energy needs are met while advancing its climate ambitions and maintaining diplomatic relations with key global players.
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