Energy transition in India: what’s happening on the demand side

Globally, energy transitions are assessed by the renewable energy capacity installed as a share of total generation capacity, and then by the more meaningful indicator of how much ‘renewable electricity’ is generated and delivered as a percentage of the total.  

Policymakers are on a learning curve, as there is little or no experience decarbonising a market with India’s characteristics. However, this is a timely lesson for developing countries with traditional and often congested grids, that vies with renewable energy as a stand-alone solution.   

Automated, modernised electricity grids and energy storage must necessarily be considered as part of their transition requirements. But while complementary investments are needed, they must be implemented in a way that keeps clean energy affordable for India’s price sensitive users.   

The share of delivered renewable energy in India’s energy mix is slowly increasing; early results of the new policies are starting to emerge.  Within renewables, the share of core renewables (solar, wind and biomass, minus hydro and nuclear) has for the first time touched a high of 17%. It had hovered at around 13% for the past five years, according to national data by the Ministry of New and Renewable Energy.  

The demand side 

The Indian energy transition cannot be viewed as purely a supply-side story (see this week’s companion article Delivering the energy transition in India: the supply side). Indeed, the demand-side must not be taken for granted. Even if high rates of grid decarbonisation are achieved, prices can increase and large numbers of small offtakers may no longer be reached. India’s electricity customers include hundreds of millions of low-income, heavily subsidised electricity users who currently pay very little for coal-fired grid power.   

Mainstream adoption of clean energy by such households to ensure the affordability and uptake of clean energy will require removing entry barriers to decentralised renewable energy technologies. The private sector will not fund decentralised renewable energy for the poor, so there is a large role for government to offer subsidised schemes for such users. The government has proactively introduced multiple programmes for low-income customers to switch to clean energy, whether for household use, low-cost transport or agricultural pumping, for example. (This article looks at the household programme.)  

India’s interventionist approach towards residential energy transition started well before the Paris Agreement over 25 years ago. Grid electrification was the first government-funded transition for households that had depended for decades on kerosene for lighting, cooking and heating.  

There has been a significant expansion in the access of Indian households to grid-electricity over the last two decades. In 2000, only about 60% of the population had access to electricity and India’s electricity coverage lagged the global average by 18%. By 2021, access to electricity had risen to 99.6%, and in 2024 it was 99.8%. India has not only closed the electrification gap, but has also surpassed countries with similar socio-economic contexts, such as Brazil.  

While urban use of electricity has grown, there has been a steady shift away from kerosene in rural areas, according to Data For India.   

Who are low-income electricity users?  

India is making major efforts to boost demand for clean energy and clean transport by people whose take-home income is around $7–20 per day. At $7/d these are the people (gig workers and e-commerce drivers, security guards, primary school teachers, clerical workers etc) who earn India’s current average per capita income of $2,500/y. Still poorer households – as part of their first-time grid electricity connection – were provided with free lightbulbs and in some cases a fan, to introduce them to electricity and disincentivise their continued reliance on kerosene.  

Residential use of electricity was a luxury for very poor people (daily wage earners at $4/d) because of difficulties in saving up to pay monthly electricity bills. This is why several states now offer free or heavily subsidised tariffs to low-income domestic users. For example, with no payment for the first 200 kWh per month, to encourage electricity use, after the government’s massive electrification investments.  

Low appliance ownership by the poor results in low average annual per capita electricity usage in India compared to the rest of the world, at 1,218 kWh, a third of the UK’s (4,587 kWh), half of the global average (3,562 kWh) and a tenth of the US (12,325 kWh), according to data from Omniscience Capital.

The current surge in India’s electricity demand is coming from sources that are unrelated to the millions of poor customers, such as artificial intelligence, data centres, electric vehicles, air conditioning, cryptocurrency, etc.  

Apart from a major push on grid electrification to end household kerosene usage, India, with its attempt to narrow the electricity supply-demand gap, was also the first country to enact a law mandating energy efficiency for large industrial consumers.   

The 2001 Energy Conservation Act empowered the central government to specify energy consumption standards for common equipment and appliances, aimed at improving energy efficiency in India.  

Following the Paris Agreement of December 2015, India added the third goal of ‘decarbonisation’ to its ongoing energy transition strategy (previously consisting of electrification and energy efficiency). This was launched through heavy investment in renewable energy, that now stands at a cumulative 242 GW in just seven years, since 2017 when solar photovoltaics (PV) became commercially viable in India. Fig 1 summarises India’s energy transition strategy over the last 25 years.  

Fig 1: India’s energy transition strategy 

Source: OEIS

There is one knotty problem built into ‘free’ domestic electricity consumption for the poor, and the government is turning to decentralised renewable energy to attempt to solve it.  

There is a heavily subsidised group of residential customers who pay little or nothing for their (modest) monthly grid consumption of around seven units a day or up to 200 kWh/month.   

This is the ‘low income-low revenue’, or LILR group, who are loss-making for the utility when it serves them with thermal power. The utility must buy the bulk thermal power, transmit it over long distances, incurring transmission losses (therefore paying for more than it requires), and then deliver it to the LILR customer. The utility then waits for a government subsidy – often delayed – to cover this cost.  

How serious is this issue? A quarter of India’s electricity consumption is accounted for by the mostly urban residential sector, according to estimates of India’s electricity consumption (2022–2023) by the Ministry of Statistics and Programme Implementation. Since then, India’s total electricity consumption has grown from 1,400 TWh to 1,800 TWh.  

Helping LILR customers to switch to decentralised solar for their daytime electricity requirements would have several benefits: reducing demand for mainly thermal grid-electricity; lowering the cost of electricity service delivery to this group, by avoiding payment for bulk thermal power and transmission losses; reducing the financial losses to the utility, and decarbonising the electricity supply to millions of small residential users (who used to use kerosene, then coal-fired power and now solar power).  

The Indian government has set aside $9bn to subsidise the cost of the switchover for heavily subsidised, small residential customers from thermal power to solar, under the PM Surya Ghar (PMSG) programme, launched in February 2024, with generous cost-sharing subsidies targeted initially to 10 million households for installation of 1 kW–10 kW rooftop solar systems. They must apply online to their distribution utilities and use domestically manufactured panels. PMSG is built on the premise that decentralised solar will quickly help the finances of the distribution utility, and the state budget that funds its operating subsidies.

PMSG is a successor to the Saubhagya scheme that remains the world’s largest household electrification programme. Saubhagya completed grid-electrification of India’s last remaining 30 million unconnected households in just 18 months between 2017 and 2019. Now, PMSG will financially support small grid-connected households to adopt decentralised renewable energy (grid-connected rooftop solar) as their source of supply, instead of thermal power delivered by the utility.   

India’s energy transition has been from kerosene to coal-fired power to solar PV. A mature delivery mechanism for maximum renewable energy is currently still under development, with more storage and grid upgrades awaited, and more green energy investment to reach 500 GW.   

This will take a few more years but it is considered to be unstoppable, despite some challenges, such as plans for the emergency construction of 90 GW of additional coal-fired plants to plug the supply gaps in the face of surging demand.  

There are also other ingenious subsidy schemes to promote affordable clean energy use by the poor in agriculture and in transport, as well as mandates for green buildings and commercial and industrial sectors, and plans for across-the-board energy conservation.  

In conclusion, the Indian government is investing large amounts of money and administrative efforts to ensure not just availability of renewables, but also to strive for mainstream renewable energy adoption by the poor, who vastly outnumber the rich in India. Only when hundreds of millions of low-income Indian consumers can easily turn away from fossil fuels for lighting, cooking and transport in their daily life (turning away from the use of kerosene, coal, biomass, diesel/petrol), will India be able to measure tangible reductions in greenhouse gases.   

• Further reading: ‘Inspiring clean energy initiatives in the Global South’. Finalists in the 2025 Ashden Awards give a unique insight into what is being done to cut emissions and tackle climate threats across the world. Here we highlight outstanding initiatives, mostly in the Global South, by innovators from the public, private and non-profit sectors, and the lessons that can be learned by their example. 
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