The Three Gorges Dam, Yichang, Hubei province, China. Costfoto/NurPhoto

With China investing heavily and India actively promoting renewables, the two countries are at the forefront of the clean energy transition. Global Insight looks at their next steps.

The 2025 Shanghai Cooperation Organization (SCO) summit in the Chinese city of Tianjin marked Indian Prime Minister Narendra Modi’s first visit to China in seven years. There, he rubbed shoulders with the likes of Chinese President Xi Jinping at the largest SCO summit so far.

In his speech to SCO members – who represent approximately 43 per cent of the world’s population and 23 per cent of its nominal GDP – President Xi called on his guests to ‘oppose hegemony and power politics.’ The underlying message was that a new world order is emerging and, with it, a change in global leadership. And China and India certainly appear to be leading the way as far as the clean energy transition is concerned.

The International Energy Agency (IEA)’s 2025 energy investment report shows that, despite elevated geopolitical tensions and economic uncertainty, capital flows to the energy sector were set to increase year-on-year by two per cent in real terms to $3.3tn. Of this, approximately $2.2tn is going to renewables, nuclear, grids, storage, low-emissions fuels, efficiency and electrification – twice as much as the $1.1tn directed towards oil, natural gas and coal.

Meanwhile, India has been working to diversify the fuels it uses to generate power by promoting investment in renewables and nuclear to meet a sharply rising demand for electricity. And although the country is still the world’s number two coal producer and consumer, the fossil fuel’s share within India’s energy mix fell to a five-year low in July.

China breaks records

Ever since China signed the Paris Agreement in 2016, and particularly since articulating its dual carbon goals – to reach a peak in its CO2 emissions before 2030 and to achieve carbon neutrality before 2060 – the country has witnessed a substantial rise in clean energy investment, especially in renewables.

China’s clean energy investment in 2024 was more than $625bn, almost double the amount recorded in 2015. The Centre for Research on Energy and Clean Air has studied the level of investment in China, using a broad definition of clean energy sectors that includes renewables, nuclear power, electricity grids, energy storage, electric vehicles (EVs) and railways. Its conclusion was that clean energy contributed a record ten per cent of China’s GDP in 2024 and a quarter of its GDP growth.

With sales and investments worth CNY 13.6tn ($1.9tn), China’s clean energy sector has overtaken real estate sales in value. Solar power, EVs and vehicle batteries have all played a major role in the significant growth of Chinese clean technology, with the latter two responsible for an estimated 39 per cent of the overall value of the country’s clean energy economy.

Jin Xiong, an international partner at King & Wood Mallesons in Beijing, says these significant numbers have been achieved through a combination of entrepreneurship and unwavering government support. ‘The government has provided subsidies and policy support, but entrepreneurship has been key,’ he says. ‘Companies like BYD are producing world-class EVs, and fast-charging technology has transformed consumer confidence. Tesla was once a luxury brand in China, but it now faces strong competition from domestic manufacturers at a fraction of the price.’

According to the 2025 IEA report, energy security and reliability have become even more critical against this backdrop.

‘After years of expanding energy supply, focus has shifted to ensuring this capacity is used effectively and is stable enough to meet new and evolving demand while sustaining industrial competitiveness,’ the report reads.

Xiong says the rush to build has outpaced infrastructure readiness. ‘More than 50 per cent of capacity is renewable, but utilisation is only around 20 per cent due to curtailment,’ he says. ‘The main issues are transmission constraints, grid inflexibility and local protectionism. Energy-rich regions like Inner Mongolia and Xinjiang are far from the industrial coastal provinces where energy demand is highest. This requires huge investment in transmission, which leads to losses.’

Financing is another issue. Feed-in tariffs promised by the government have left power generators with large receivables – ie, overdue government subsidies on their balance sheets – and many turbine and solar manufacturers have even built their own projects overseas to sell to state-owned enterprises later, creating oversupply.

‘Some investment isn’t sensible,’ says Blumental. ‘It’s driven by a need to spur economic activity through fixed asset investment and to boost employment rather than by efficiency. Utilisation of wind power generation facilities depends on wind profiles, storage, dispatchability and transmission infrastructure. Simply building 20,000 turbines doesn’t mean they can replace the same capacity of baseload power.’

Most investment is driven by the state, with state-owned energy companies as sponsors, Blumental adds. ‘To some extent, they have dual mandates: financial performance and fulfilling political or social objectives,’ he explains. ‘Building capacity creates jobs and GDP growth, but not all projects are efficient. It’s a different model from the US, where utilities are profit-driven and not mandated to pursue government imperatives but rather are incented or disincented as the case may be through tax and regulatory policies. Neither model is right or wrong. They are just different.’

With a climate-sceptic president in the White House, commentators have suggested that Beijing may seek to fill that leadership void by taking a more proactive role in global climate policy. For example, at a climate conference in April, President Xi told world leaders that ‘instead of talking the talk, we must walk the walk […] we must turn our goals into tangible results.’

But while China’s clean energy push has been extraordinarily successful in scaling capacity, turning the country into a clean tech powerhouse and boosting economic output, coal remains the backbone of electricity generation and will continue to do so for some time. It accounted for approximately 59 per cent of electricity generation in 2024, with investment expected to exceed $54bn in 2025.

Although the long-term impact of China’s energy transition policies is projected to drastically reduce coal generation, the fossil fuel will probably serve as a backup to renewables for the foreseeable future. Xiong says the scale of investment points to a deeper reliance on thermal power, driven by persistent concerns over electricity security. ‘China has […] ambitious climate goals, but energy security still takes priority,’ he says.

India’s road to self-sustainability

Energy security is also critical for India if it’s to fulfil its ambitious plan of becoming a $5tn economy. Demand for electricity has been rising sharply due to increases in the amount of commercial and residential space, a surge in the ownership of air conditioners and appliances, and rising demand from industry. A recent report by the nonprofit clean energy think-tank RMI (Rocky Mountain Institute) found that electricity demand is expected to triple by 2050.

To meet this demand, India has recorded the third-largest growth in power generation capacity in the world over the past five years, behind China and the US, according to the 2025 IEA report. Notably, India has seen a surge in investment in renewables. Here, solar photovoltaic power leads the way, accounting for more than half of total non-fossil investment over this period.

Coal currently accounts for approximately 270 to 300 gigawatts of capacity, with renewables close to 236 gigawatts – almost 50 per cent. The country has a target of reaching 500 gigawatts of renewable energy by 2032. ‘India has the third largest reserves of coal in the world,’ says Neeraj Menon, an officer of the IBA Oil and Gas Law Committee. ‘If there is energy scarcity, it is natural to use those reserves. We don’t have domestic gas for power generation, and we import most of our oil and gas. Coal capacity is significant. I don’t think there is any policy to stop new coal power plants, but the government is encouraging more renewable plants.’

In the first half of 2025, India’s renewable power output increased by 24.4 per cent, with non-hydro renewables, such as solar and wind, reaching over 17 per cent of electricity generation by June. Since 2020, the country has rapidly built enough solar-module-making capacity to free itself from the need to import. However, it remains heavily dependent on China for the cells that go into solar panels and for other upstream products, such as wafers and polysilicon.

Nusrat Hassan, Co-Chair of the IBA India Working Group, believes that the successful SCO summit, coupled with shifts in trade relations between New Delhi and Washington, suggests that China and India will probably move towards more cooperation in renewable energy. ‘In the short- to mid-term, I don’t see supply disruptions,’ says Hassan, who’s also Managing Partner at Dentons Link Legal in Mumbai. ‘In fact, we’ll probably see more technology transfer, local manufacturing and collaboration in areas such as solar modules and electric vehicles.’

He notes that in terms of reliance on Chinese imports, ‘the government is exploring alternatives, but it’s complex. Critical products can’t easily be restricted by legislation alone. India’s long-term strategy has always been to become self-sustainable. Even if we import today, the objective remains to reduce dependency and build domestic capability.’

India aims to have achieved net zero by 2070 and Hassan says the target is being taken very seriously. ‘Many initiatives are underway to achieve it,’ he explains. ‘India has committed $360bn in renewable energy and infrastructure by 2030.’

Approximately 83 per cent of power sector investment was directed towards clean energy in 2024. While a large proportion of that was met by domestic sources, foreign direct investment (FDI) has been growing steadily too. FDI levels reached $5bn in 2023 – nearly double the amount seen before the Covid-19 pandemic. This is promoted in part by rules permitting 100 per cent FDI across electricity generation sources – with the exception of nuclear – and transmission infrastructure.

Continued investment from the private sector is essential if India is to achieve its ambitious goals of reaching 500 gigawatts of renewables by 2032 and becoming net-zero by 2070. This was addressed in the current 2025-26 budget, with basic customs duties on solar cells reduced from 25 to 20 per cent and on modules from 40 to 20 per cent. A new rooftop solar scheme was launched, offering households up to 300 free units per month, thereby creating opportunities for private companies. And farmers were supported with subsidies for solar pumps, which again benefits private manufacturers.

In addition, proposals currently under consideration to amend India’s legislation on electricity will allow greater private participation in power distribution and promote open access. And India’s Green Energy Open Access Rules, issued in 2022, make it easier for corporates to procure power directly from renewable generators.

Menon, who’s a partner at Trilegal in New Delhi, says the government has introduced a range of policies to help with renewable generation. Private commercial and industrial consumers are now being encouraged to procure renewable energy directly from generating stations, for example. Formerly, ‘they were largely supplied through state or central power grids from coal-fired generation, but these new measures have incentivised consumers to increase their renewable share,’ he says.

Meanwhile, for new technologies such as offshore wind, Menon says the government is providing viability gap funding to help projects achieve price parity. ‘Investments are also going into transmission infrastructure, since that is a bottleneck today,’ he says. ‘Battery energy storage is being incentivised so power can be provided around the clock. Many new bids for renewable energy capacity require hybrid solar/wind plus storage projects. These measures are all aimed at scaling renewable capacity.’

America’s pivot

These initiatives stand in stark contrast to the position taken on clean energy by the US under the second administration of President Donald Trump. Here, there has been a significant pivot in policy, away from former President Joe Biden’s Inflation Reduction Act 2022, which represented the largest investment by the US in climate to date and channelled $400bn into clean energy, including tax credits for renewables, electrification, resilience and environmental justice. Replacing this initiative and others like it is President Trump’s One Big Beautiful Bill Act, which reverses American support for clean energy and preserves or expands subsidies for fossil fuels and nuclear power projects.

While China surges ahead in building wind and solar facilities, the US appears to be betting on a very different future – one where the world continues to run on the burning of fossil fuels and where America’s vast supply of oil and gas will be utilised. According to an executive order issued by President Trump in January, it’s in the country’s national interest to ‘unleash America’s affordable and reliable energy and natural resources [to] restore American prosperity.’

Blumental says the worldview of the current US administration is very difficult to discuss rationally. ‘What the US is doing on renewables and how it approaches them is not as simple as saying the US wants to maintain energy dominance because it has large reserves,’ he says. ‘Other countries also have reserves.’

Surging consumption

China and India’s current trajectory for energy consumption is resembling that of the US or Western Europe in the 1950s and 1970s – a period of rapid growth in economic output, living standards and energy use. And, again similar to the US and Western Europe, the transition of China and India’s economies from pre-modern agricultural to modern urban and industrial is being accompanied by a huge increase in the consumption of energy.

With demand rising quickly, and renewables such as solar and wind not yet ready to replace thermal power, fossil fuels and renewable energy sources will continue to act in a complementary fashion rather than the latter fully replacing the former.

Getting the balance right will remain key, says Xiong. ‘Governments must provide subsidies while also allowing foreign investment to build domestic industries,’ he says. He highlights that China’s vehicle manufacturing sector, for example, stagnated under joint ventures until the EV revolution, which was led by Chinese companies supported by Tesla’s technology. ‘India should allow leading foreign manufacturers to enter its market, invest and help develop its own industry over time,’ adds Xiong.

Stephen Mulrenan is a freelance writer and can be contacted at smulrenan@lextelpartners.com