What is the story about?
As Finance Minister Nirmala Sitharaman prepares to present Budget 2026 on February 1, India’s renewable energy sector is signalling a shift in priorities. The next phase of clean power growth will depend less on adding new capacity and more on fixing transmission, storage and grid stability constraints.
India has rapidly expanded its renewable footprint over the past decade, crossing 262 GW of installed non-fossil capacity and setting an ambitious target of 500 GW by 2030 and net zero by 2070. But as renewables account for a rising share of electricity generation, structural stress points in the power system are becoming harder to ignore.
“Given the strong policy support in renewables & its rising share in the overall power generation mix, there is a clear need to expedite the strengthening of T&D infrastructure as well as storage capacity which is systemically important to ensure grid stability,” said Girishkumar Kadam, Senior Vice President and Group Head at ICRA.
Kadam pointed to instances of renewable power curtailment in parts of Rajasthan, attributing them to both unavailable transmission networks and grid stability concerns. These challenges, he said, are already affecting sector activity.
“The transmission connectivity related challenges have also impacted the overall project award activity in the current FY as well as the signing of PSAs [power sale agreements] with the discoms for some of the auctioned capacity over the last 1 year,” he said.
While India continues to auction record volumes of solar and wind capacity, developers and financiers argue that the system’s ability to absorb intermittent power is lagging behind generation growth.
According to industry executives, renewable curtailment is emerging as a broader risk as high-capacity states struggle with evacuation infrastructure and balancing power supply.
Renewable curtailment occurs when solar or wind plants are forced to reduce output despite being available, usually because the grid lacks sufficient transmission capacity or flexibility to absorb intermittent power. It hurts project revenues, dents investor confidence, and leads to wastage of low-cost clean electricity, slowing the effectiveness of the energy transition.
“Current incentives have resulted in large capacity addition and helped kick-start domestic manufacturing,” said Varun Karad, co-founder of LNK Energy. “But from an investor’s standpoint, long-term capital ultimately responds to certainty of predictable policy and payment discipline.”
Karad added that unless the government focuses on grid resilience and long-duration storage, renewable energy absorption could hit a ceiling.
“Going forward, the government should also focus on strengthening the backbone of the system in the form of grid resilience and long-duration storage, else there may be a constraint on RE absorption,” he said.
Energy storage, particularly battery energy storage systems and pumped hydro, is expected to feature prominently in Budget 2026 discussions. While the Centre has already announced viability gap funding (VGF) support for limited battery capacity, industry participants say scale and speed are now critical.
Kadam expects policy continuity, along with higher budgetary allocations, particularly to support storage investments.
“With this, the policy continuity on renewables and higher budgetary allocation (such as for VGF) is expected towards the schemes for encouraging more capex in battery storage capacity,” he said.
However, he cautioned that storage alone will not resolve integration challenges unless transmission expansion keeps pace.
“Timely implementation of transmission network strengthening projects, both at inter and intra state levels, remains critical, given longer gestation cycle and RoW related challenges,” Kadam said.
Despite falling renewable tariffs and improved project economics, payment delays by state-owned distribution companies continue to weigh on investor sentiment.
Higher budgetary support for distribution reforms and smart metering is therefore being seen as a key Budget signal.
Kadam said increased allocations for distribution strengthening and smart metering schemes could help improve cash flows and viability of state discoms, a prerequisite for sustaining renewable investments.
“While the project pipeline remains robust aided by large sized project award activity in FY 2024 and FY 2025, near term addressal of issues related to transmission adequacy and signing of PSAs by the discoms (wherever it is still due) remains key monitorables,” he said.
Industry leaders are also calling for structural changes in how renewable projects are financed and contracted, beyond the traditional tender-based approach.
“As India enters the next phase of its clean energy transition, the forthcoming Budget is an opportunity to create long-term stability and unlock the next wave of investments in renewables,” said Rupal Gupta, founder, managing director and CEO of TrueRE Oriana Power.
Gupta advocated purpose-built financial mechanisms, including a dedicated renewable energy fund and separate budget lines for high-potential but non-rated companies under MSME or Startup India frameworks.
He also called for a clearer policy framework enabling direct partnerships between public sector undertakings and private developers, beyond conventional auctions.
“A government-backed risk mitigation framework would go a long way in addressing payment delays and market uncertainties, while boosting investor confidence,” Gupta said.
While grid and storage issues dominate near-term concerns, industry leaders say green hydrogen and research and development should not lose momentum.
“Sustained support for R&D across renewable technologies, storage and grid integration can help drive innovation and cost competitiveness,” Gupta said, adding that targeted funding, mandates and VGF support could accelerate hydrogen adoption in hard-to-abate sectors.
For the renewable sector, Budget 2026 is unlikely to be judged by headline targets alone. Instead, stakeholders say its success will hinge on how effectively it addresses the plumbing of the power system, transmission, storage, discom finances and risk mitigation.
After years of rapid capacity addition, India’s clean energy transition is entering a more complex phase, where reliability and integration matter as much as scale.
The next leap in renewables will be determined not by how much power India can generate, but by how well it can move, store and monetise that power.
India has rapidly expanded its renewable footprint over the past decade, crossing 262 GW of installed non-fossil capacity and setting an ambitious target of 500 GW by 2030 and net zero by 2070. But as renewables account for a rising share of electricity generation, structural stress points in the power system are becoming harder to ignore.
“Given the strong policy support in renewables & its rising share in the overall power generation mix, there is a clear need to expedite the strengthening of T&D infrastructure as well as storage capacity which is systemically important to ensure grid stability,” said Girishkumar Kadam, Senior Vice President and Group Head at ICRA.
Kadam pointed to instances of renewable power curtailment in parts of Rajasthan, attributing them to both unavailable transmission networks and grid stability concerns. These challenges, he said, are already affecting sector activity.
“The transmission connectivity related challenges have also impacted the overall project award activity in the current FY as well as the signing of PSAs [power sale agreements] with the discoms for some of the auctioned capacity over the last 1 year,” he said.
Renewable curtailment poses an emerging structural risk
While India continues to auction record volumes of solar and wind capacity, developers and financiers argue that the system’s ability to absorb intermittent power is lagging behind generation growth.
According to industry executives, renewable curtailment is emerging as a broader risk as high-capacity states struggle with evacuation infrastructure and balancing power supply.
Renewable curtailment occurs when solar or wind plants are forced to reduce output despite being available, usually because the grid lacks sufficient transmission capacity or flexibility to absorb intermittent power. It hurts project revenues, dents investor confidence, and leads to wastage of low-cost clean electricity, slowing the effectiveness of the energy transition.
“Current incentives have resulted in large capacity addition and helped kick-start domestic manufacturing,” said Varun Karad, co-founder of LNK Energy. “But from an investor’s standpoint, long-term capital ultimately responds to certainty of predictable policy and payment discipline.”
Karad added that unless the government focuses on grid resilience and long-duration storage, renewable energy absorption could hit a ceiling.
“Going forward, the government should also focus on strengthening the backbone of the system in the form of grid resilience and long-duration storage, else there may be a constraint on RE absorption,” he said.
Storage moves centre stage
Energy storage, particularly battery energy storage systems and pumped hydro, is expected to feature prominently in Budget 2026 discussions. While the Centre has already announced viability gap funding (VGF) support for limited battery capacity, industry participants say scale and speed are now critical.
Kadam expects policy continuity, along with higher budgetary allocations, particularly to support storage investments.
“With this, the policy continuity on renewables and higher budgetary allocation (such as for VGF) is expected towards the schemes for encouraging more capex in battery storage capacity,” he said.
However, he cautioned that storage alone will not resolve integration challenges unless transmission expansion keeps pace.
“Timely implementation of transmission network strengthening projects, both at inter and intra state levels, remains critical, given longer gestation cycle and RoW related challenges,” Kadam said.
Discom health and payment risk remain key concerns
Despite falling renewable tariffs and improved project economics, payment delays by state-owned distribution companies continue to weigh on investor sentiment.
Higher budgetary support for distribution reforms and smart metering is therefore being seen as a key Budget signal.
Kadam said increased allocations for distribution strengthening and smart metering schemes could help improve cash flows and viability of state discoms, a prerequisite for sustaining renewable investments.
“While the project pipeline remains robust aided by large sized project award activity in FY 2024 and FY 2025, near term addressal of issues related to transmission adequacy and signing of PSAs by the discoms (wherever it is still due) remains key monitorables,” he said.
New financing and partnership models
Industry leaders are also calling for structural changes in how renewable projects are financed and contracted, beyond the traditional tender-based approach.
“As India enters the next phase of its clean energy transition, the forthcoming Budget is an opportunity to create long-term stability and unlock the next wave of investments in renewables,” said Rupal Gupta, founder, managing director and CEO of TrueRE Oriana Power.
Gupta advocated purpose-built financial mechanisms, including a dedicated renewable energy fund and separate budget lines for high-potential but non-rated companies under MSME or Startup India frameworks.
He also called for a clearer policy framework enabling direct partnerships between public sector undertakings and private developers, beyond conventional auctions.
“A government-backed risk mitigation framework would go a long way in addressing payment delays and market uncertainties, while boosting investor confidence,” Gupta said.
Hydrogen and innovation still matter
While grid and storage issues dominate near-term concerns, industry leaders say green hydrogen and research and development should not lose momentum.
“Sustained support for R&D across renewable technologies, storage and grid integration can help drive innovation and cost competitiveness,” Gupta said, adding that targeted funding, mandates and VGF support could accelerate hydrogen adoption in hard-to-abate sectors.
What will define Budget 2026 for renewables
For the renewable sector, Budget 2026 is unlikely to be judged by headline targets alone. Instead, stakeholders say its success will hinge on how effectively it addresses the plumbing of the power system, transmission, storage, discom finances and risk mitigation.
After years of rapid capacity addition, India’s clean energy transition is entering a more complex phase, where reliability and integration matter as much as scale.
The next leap in renewables will be determined not by how much power India can generate, but by how well it can move, store and monetise that power.
