An Assessment of India’s Energy Choices: Financial Performance and Risk Perception

The report finds that India's renewable energy power sector has historically been less risky and more lucrative than the fossil fuel sector, with higher risk-adjusted returns. Investor perceptions align with this, viewing renewables as safer, though solar is perceived as less risky than wind. The primary drivers of risk for both sectors are counterparty risk (specifically DISCOM non-payment), grid/transmission inadequacy, and financial sector constraints. Fossil fuel investments face additional significant risks from power market volatility and resource uncertainty, particularly for natural gas.

• Historically, the listed renewable energy power sector in India has been significantly less risky than the fossil fuel power sector, exhibiting approximately half as much systematic risk between 2006-07 and 2016-17.
• Between 2011 and 2017, renewable energy power portfolios outperformed fossil fuel portfolios with 12% higher annual returns, 20% lower annual volatility, and 61% higher risk-adjusted returns on average.
• Investors perceive renewable energy as less risky than fossil fuels, with the weighted average cost of capital (WACC) for solar PV being the lowest at 9.82%, while natural gas is the highest at 10.98%.
• Within the renewable sector, solar is perceived as safer than wind; the cost of debt for wind power is approximately 150 basis points higher than for solar, largely due to higher perceived resource risk.
• In the fossil fuel sector, coal is perceived as less risky than natural gas due to India's insufficient domestic gas reserves, import dependence, and lack of transport infrastructure.
• Counterparty risk, specifically the non-payment by state distribution companies (DISCOMs), is the most significant risk factor for both sectors, contributing 22-27% of the total risk premium.
• Grid and transmission risks contribute 14% to the risk premium for both sectors, stemming from the inability of infrastructure to absorb generated electricity, which often leads to curtailment of renewable energy.
• Financial sector risk, related to the scarcity of equity and debt capital, is the third major risk driver, with a higher perceived risk premium for fossil fuels (1.02%) than for renewables (0.93%).
• Power market risk and resource risk are particularly significant for the fossil fuel sector; power market risk adds 1.05% to the total risk premium for fossil fuels compared to 0.74% for renewables.
• Empirical testing of a multi-factor risk model for Indian power sector stocks found that only market returns are robustly priced into stock returns; factors like company size, leverage, and coal prices showed no statistical significance.

APA

Atal, V., & Shrimali, G. (2018). An Assessment of India’s Energy Choices: Financial Performance and Risk Perception. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/05/Financial-Performance-and-Risk-Perception.pdf

Chicago

Atal, Vinit, and Gireesh Shrimali. An Assessment of India’s Energy Choices: Financial Performance and Risk Perception. Climate Policy Initiative, 2018. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/05/Financial-Performance-and-Risk-Perception.pdf.

Wikipedia

{{cite report |last1=Atal |first1=Vinit |last2=Shrimali |first2=Gireesh |title=An Assessment of India’s Energy Choices: Financial Performance and Risk Perception |publisher=Climate Policy Initiative |date=May 2018 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2018/05/Financial-Performance-and-Risk-Perception.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{atal2018assessment, author = {Atal, Vinit and Shrimali, Gireesh}, title = {{An Assessment of India’s Energy Choices: Financial Performance and Risk Perception}}, institution = {Climate Policy Initiative}, year = {2018}, month = may, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2018/05/Financial-Performance-and-Risk-Perception.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }