Debt markets reshape India’s energy transition: IEEFA report

India’s energy transition is being increasingly driven by debt markets, with renewable energy platforms showing stronger margins and wider access to capital than thermal peers, even as rising leverage places near-term pressure on credit metrics. This is according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA).

The report, titled “Financing the energy transition – A credit perspective on India’s power sector,” evaluates the credit risk profiles of eight major power generators, Adani Green Energy Limited (AGEL), Adani Power Limited (APL), JSW Energy Limited (JSW Energy), ReNew Power (ReNew), NLC India Limited (NLC), NTPC Limited (NTPC), SJVN Limited (SJVN), and Tata Power Company Limited (Tata Power), which together account for about one-third of India’s installed capacity.

Renewables show structural margin advantage
The analysis finds that renewable assets consistently outperform thermal generation on profitability due to the absence of fuel costs. Within comparable corporate structures, AGEL delivers higher EBITDA margins than APL, while NTPC Green outperforms NTPC’s legacy thermal portfolio. The report attributes this to structural differences in cost economics rather than cyclical factors, indicating that the gap is likely to widen as renewable portfolios scale up.

Leverage trends and funding pressures
Renewable-focused companies carry the highest debt-to-capital ratios in the sector. Seven of the eight firms analysed reported negative free cash flow in FY2025, reflecting ongoing capital expenditure programmes funded largely through debt. With further capacity expansion plans, overall leverage is expected to rise, leading to weaker credit metrics in the near term across both renewable and thermal segments. The report notes that long-term sustainability will depend on whether new assets can generate stable cash flows to service debt.

Constraints in bond market financing
Despite annual bond issuances crossing USD 500 billion in 2025, India’s corporate bond market remains relatively underdeveloped, with issuance dominated by public sector entities. The eight companies assessed rely on loans for around 80% of their borrowing, indicating limited use of bond markets. Offshore bond markets provide an additional but constrained avenue, with renewable energy companies being the primary participants in USD-denominated issuances.

NTPC’s role in transition financing
The report identifies NTPC as a central player in enabling large-scale transition finance. With a planned capital expenditure of INR 7 trillion through FY2032 and a sovereign-aligned credit profile, NTPC is positioned to act as a benchmark issuer across domestic, Masala, and international debt markets, potentially lowering financing costs for the sector.

Policy direction and market reforms
To expand debt financing, the report recommends strengthening both domestic and offshore bond markets for renewable energy funding, addressing counterparty risks through continued distribution company (DISCOM) reforms, and enhancing transparency through instruments such as green bonds and sustainability-linked debt. It also highlights that India’s sovereign credit rating upgrade in 2025 and cumulative repo rate cuts to 5.25% as of February 2026 have improved conditions for debt issuance.

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