India has moved up to the second spot from third position in this year's 'Renewable energy country attractiveness index' released by EY.
This is primarily due to a combination of strong government support and increasingly attractive economics, EY said in a statement.
According to the statement, India continued its upward trend in the index to second position with the government's programme to build 175 GW in renewable energy generation by 2022 and to have renewable energy account for 40 per cent of installed capacity by 2040.
The country has added more than 10GW of solar capacity in the last three years - starting from a low base of 2.6 GW in 2014, it said.
"In the medium term, as renewable energy penetration rates increase, the government will have to turn its attention to the ability of India's grid to manage intermittent renewables, especially around the evening peak, when solar availability falls away," Somesh Kumar, Partner & Leader, Power & Utilities, EY India, said in the statement.
The cost and availability of energy storage technology could dictate how close India gets to meeting its renewable targets. Meanwhile, India's regulators must be mindful of the erosion of electricity market peaks caused by growing volumes of renewables and storage - this can undermine the economics of thermal power plants, risking the stability of the system as a whole, he added.
The report also noted that the Indian government needs to increase compliance with the Renewable Purchase Obligation (RPO) as well as ensure that India's distribution companies, many of which are financially distressed, have the capacity to continue to purchase renewable electricity, especially if bid prices level off or rise.
As the availability of capital remains a concern, the government could ease rules around tapping foreign debt. Also, the government's additional emphasis on photo voltaic (PV) parks will help to plug the gap, but it needs to do more to encourage rooftop solar installations, it said.
The report cites that China, which has been ranked first in the index, and India have surpassed the US, which fell for the first time since 2015 to third place in the ranking of top 40 countries, follows a marked shift in the US policy under the new administration.
The report identifies the US government's executive orders to rollback many of the past administration's climate change policies, revive its coal industry and review the Clean Power Plan as key downward pressures on renewable investment attractiveness.
Economically viable renewable energy alternatives coupled with security of supply concerns are encouraging more countries to support a clean energy future. Kazakhstan (37), Panama (38) and the Dominican Republic (39) have all entered the index for the first time, it added.