India's Renewable Energy Transition Amid Subsidy Withdrawal: Navigating Risks and Capturing Opportunities

India's renewable energy sector is at a critical juncture. As transmission subsidies begin to phase out, the industry faces both risks and opportunities. The government's staggered approach to reducing financial incentives—while accelerating grid modernization and state-level procurement—creates a complex landscape for investors. This analysis explores how the end of transmission subsidies impacts project viability, state procurement trends, and the investment attractiveness of solar/wind sectors, while identifying undervalued firms poised to thrive.

The Subsidy Phase-Out Timeline: A Staggered Exit

The Indian government's transmission subsidy phase-out is structured around COD deadlines, with critical thresholds at June 30, 2025, and June 30, 2028. Projects achieving Commercial Operation Date (COD) by mid-2025 secure 25-year waivers for Inter-State Transmission System (ISTS) charges. Those commissioned after 2025 but before 2028 face a “staggered methodology,” likely reducing subsidy eligibility. By 2028, most renewable projects will lose access to full waivers, with exceptions for offshore wind (until 2032) and green hydrogen (until 2030).

This timeline creates urgency for developers to meet COD deadlines. However, delays risk higher costs, as projects post-2025 may incur ISTS charges or reduced incentives. The phase-out also prioritizes grid stability, aligning with India's 500 GW non-fossil target by 2030.

Sector-Specific Risks and Opportunities

1. Solar/Wind Projects: Balancing Cost Pressures and Innovation

The subsidy phase-out raises risks for solar and wind developers, particularly those dependent on ISTS waivers. Post-2025 projects may face higher transmission costs, squeezing margins unless they secure state-level incentives or cost-reduction efficiencies.

However, opportunities emerge in state-specific procurement trends:
- Karnataka, Maharashtra, and Tamil Nadu are aggressively expanding renewables, offering preferential tariffs and faster clearances.
- Hybrid projects (solar + storage) benefit from extended waivers for Battery Energy Storage Systems (BESS), with MNRE's 40% Viability Gap Funding (VGF) for BESS projects.

Both stocks have risen ~15% YTD, reflecting investor optimism about state-level demand and subsidy flexibility.

2. Hydro and Offshore Wind: Long-Term Plays

Hydro projects face reduced subsidies post-2025, with ISTS charges rising up to 100% for delayed projects. However, offshore wind and green hydrogen projects enjoy extended support (until 2032 and 2030, respectively). Companies like Sterlite Power (infrastructure) and Adani Green Energy (offshore wind) are well-positioned to capitalize on these sectors, though execution timelines remain critical.

State-Level Procurement Trends: A Tailwind for Regional Players

State governments are emerging as key drivers of renewable growth. Policies like Karnataka's 10 GW solar target and Gujarat's green hydrogen corridor are creating localized demand. Investors should prioritize firms with state-specific exposure:

• Welspun Energy (WUNSP.NS): Focused on rooftop solar and state-level tenders.
• Greenko Group (GREENKO.NS): Leverages hydro and hybrid projects in Andhra Pradesh and Karnataka.

States with strong discom health (e.g., Tamil Nadu) offer better payment security, reducing project risks. Conversely, states with weak discoms may see delays in PPA approvals, favoring firms with off-taker diversification.

Spotlight on Undervalued Firms

While majors like ReNew Power and Tata Power (TATAPOWR.NS) dominate headlines, several undervalued firms are strategically positioned:
1. CleanMax Energy (CME.NS): Specializes in distributed solar and has partnerships with state utilities.
2. Lanco Infratech (Lanco.NS): Transitioning from thermal to renewables, with a focus on hybrid projects.
3. Waaree Energies (WAAREI.NS): A manufacturer of solar panels with cost advantages from local production.

These companies trade at 10–15x EV/EBITDA, significantly lower than sector averages, offering upside potential if they secure COD deadlines and state contracts.

Investment Strategy: Prioritize Flexibility and State Exposure

1. Focus on COD-Ready Projects: Invest in firms with pipelines set to meet the 2025 deadline, such as Azure Power (AZUR.NS) or Greenko.
2. Target Hybrid and Storage: Companies like Welspun and CleanMax benefit from BESS incentives and grid stability demand.
3. Monitor State-Level Policies: Track tenders in Karnataka, Maharashtra, and Tamil Nadu; consider ETFs like NIFTY Renewable Energy Index for broad exposure.
4. Avoid Overexposure to Hydro: Post-2025 projects face subsidy cuts; prioritize firms with offshore wind or green hydrogen exposure instead.

Conclusion: A Transition, Not a Collapse

The subsidy phase-out is not an existential threat but a catalyst for industry maturation. Firms that blend state-specific execution, cost innovation, and diversified portfolios will outperform. Investors should remain selective, favoring undervalued players with strong balance sheets and exposure to high-demand states. As India's grid modernizes and states lead the charge, the renewables sector remains a cornerstone of its energy future—despite subsidy withdrawal.

Capacity growth (GW) continues rising post-2025, underscoring policy resilience and market demand.