The real risk of the energy transition is delaying it: Lessons from India

The global energy transition is generally framed as a difficult trade-off between climate ambition and economic development. This is especially so for emerging economies: move too fast, and you jeopardize growth; move too slow, you jeopardize the climate goals. Our new study covering Indian power firms suggests that the assumption is no longer tenable, and that greater risk may lie in postponing action rather than accelerating it. Clearly, such a framing overlooks a critical reality – that the biggest economic risk is not the transition itself, but the cost of delaying it.

Climate transition risks are turning into financial risks, as governments and businesses struggle to face an uncertain energy future. Although climate transition risks have been discussed in the financial sector by banks and investors for a long time, they are now starting to be understood by real-economy firms, especially power companies. This is particularly true in India, the world’s fastest-growing energy market and key to global decarbonization efforts. While the Indian power sector still relies heavily on electricity generated from coal, other generation technologies such as gas, oil, renewables, hydropower and nuclear are playing a key role in meeting its growing demand. Our study reveals differentiated financial impacts varying by technology with minimal impacts for hydropower, mixed for nuclear, moderate gains for renewables, and substantial losses for all fossils, i.e. coal, oil and gas.

Because these conditions – surging electricity demand, fossil fuel reliance and tight fiscal constraints – are shared by many emerging economies across Asia, Africa and Latin America, the implications of our study extend far beyond India. In these contexts, the energy transition can no longer be viewed solely through an environmental lens; it must be approached as a core economic and financial imperative.

The energy transition is fundamentally reshaping how markets and investors value energy assets, rapidly shifting the financial attractiveness of different technologies.

The Indian power sector perfectly illustrates this shift. Our study finds that while fossil-fuel companies could face significant value erosion – with coal and gas companies facing declines of up to 85-90% and 29-75% respectively – renewable energy companies are projected to benefit from the transition and could experience valuation gains ranging from 14% to 30% under different transition scenarios. Meanwhile, the impacts on hydro and nuclear are more muted, varying slightly depending on the specific transition pathway.

These results indicate a broader reallocation of capital away from fossil assets. Investors increasingly favour assets that are aligned with long-term decarbonization pathways such as renewable energy and low-carbon technologies. But this transition may not be as simple as swapping one asset type with another. One of the main findings is that the gains for renewables in the short term are not commensurate with the significant losses of fossil firms, which could potentially pose economic and political problems. Even as renewable industries grow, communities dependent on fossil fuels face severe economic disruption, as workers cannot simply or instantly transition into these new, greener sectors.

One of the most important lessons is that we are facing a race against time, particularly in coal-dependent countries like India. While policy-makers might think that postponing difficult transition decisions will give more time for industries, investors and consumers to adapt, in practice delayed action would require more abrupt policy interventions over much shorter timeframes, sharper declines in fossil-fuel demand, and faster deployment of alternative technologies. Such sudden shifts increase the likelihood of stranded assets: power plants, infrastructure and investments that could lose economic value before the end of their intended lifespan.

Our study shows that delaying the transition from 2025 to 2030 – a five-year deferral that might seem politically convenient – actually worsens financial losses for firms by at least 10% to 15%. Far from preserving value for incumbents, inaction accelerates asset destruction while handing a larger share of future market value to renewable competitors. Ultimately, the choice is not between transitioning or not, but between a managed transition now or a chaotic one later.

For emerging economies, the stakes are incredibly high: delaying the transition is never a risk-free strategy. Instead, procrastination locks in higher future adjustment costs while squeezing the time available to manage them effectively. This finding should fundamentally reframe how capital markets, credit rating agencies and sovereign wealth funds evaluate exposure to coal and gas assets in emerging markets.

The implications for financial institutions are significant. Banks, insurers, and investors with heavy exposure to carbon-intensive sectors face mounting transition risks, forcing them to reallocate capital toward cleaner, greener assets. The energy transition is therefore actively reshaping the investment landscape. Companies that adapt early by diversifying portfolios away from fossils, investing in clean technologies and strengthening resilience may be better positioned to attract capital. Those that fail to adjust could face declining competitiveness, rising financing costs and shrinking market valuations. For investors, the lesson is clear: climate transition scenarios are rapidly becoming investment scenarios.

The global energy transition is no longer a distant possibility; it is already reshaping energy markets and investment decisions. India’s dynamics – where capital is concentrated in fossil-dependent firms, renewable and storage costs are falling rapidly, and climate-risk disclosure frameworks are evolving – characterize much of the developing world’s power sector. For India – and for much of the developing world – the energy transition is becoming as much an economic imperative as a climate one. The evidence increasingly suggests that the cost of delay may exceed the cost of action. It is for the policy-makers and the power firms to realize and price them into their decision-making before markets, institutions and investors force them to.

The views expressed in this article are personal.