(GIST OF YOJANA) Financing Renewables in India [MAY-2019]
(GIST OF YOJANA) Financing Renewables
Financing Renewables in India
For India the success of the renewable energy sector will be
crucial to meet its Nationally Determined Contribution ( NDC) under the
Paris Agreement and its transition towards a sustainable future.
In its NDCs, India has committed to reducing its greenhouse gas
emissions intensity by 33 to 35 percent below 2005 levels, and to achieving
40 per cent of its installed electric power capacity from non-fossil sources
Simultaneously, India has set an ambitious domestic target of 175
GW of renewable energy by 2022.
The National Electricity Plan 2018 reaffirms further expansion to
275 GW by
Undoubtedly, this is a significant departure front business as
usual and would entail a new paradigm with support mechanisms, facilitate
policies and access to new technologies and investment.
Over the period India has become a favourable investment
destination for renewable.
A variety of investors finance renewable energy projects in India,
including institutions, banks and registered companies.
Institutional investors are either state-owned private or
bilateral and multilateral institutions. Among banks both private sector and
public sector are involved.
The National Solar Mission has provisioned PSM for ensuring
payment to the developers in case the distribution company falters in
payment. Putting in place a well structured PSM helps in lowering the
off-takers risk and increasing investment attractiveness.
The major areas for action are detailed herein under:
First, pension or sovereign funds potent sources for patient capital for
renewables, 'fop 400 Global funds assets of around US % 75 are manage
trillion. Green bond issuance has surpassed US $120 billion. Even a small
portion of proceeds from these funds could easily meet the investment
required for renewables over a decade, assuring a constant and low risk
yield that simultaneously makes our planet green. In 2014, the Securities
and Exchange Board of India ( SEBI) introduced infrastructure Investment
Trusts (InvITs). The feedback from industry suggests that due to the current
limitation of 49 per cent cap on leverage, InvITs are unable to offer
adequate returns in comparison to alternative investment avenues with
Second, reducing the cost of the foreign debt by reducing the currency
hedging cost has potential to mobilize foreign capital and spur investment
by reducing the cost of the capital. This would reduce the delivered
cost of renewables and make them more competitive. An analysis by the
climate Policy Initiative suggests that the expected cost of providing a 10
year currency hedge through a Foreign Exchange hedging facility would be
around 3.5 percentage points per year that would be broadly 50 per cent
below the market rate.
Third, robust Payment Security Mechanism (PSM) will also contribute to
de-risking the investment. Successive studies have confirmed that one of the
most important risks to the Indian renewable energy sector is the
counterparty credit risk, associated with the risk of state-owned utilities
delaying or defaulting on their contractual payments to power producers. The
timeliness and reliability of payments for power purchase by state
distribution companies remains a persistent: risk for investments. The
National Solar Mission has provisioned PSM for ensuring payment to the
developers in case the distribution company falters in payment. Putting in
place a well-structured PSM helps in lowering the off-takers risk and
increasing investment attractiveness.
Fourth, absence of dedicated ecosystem that looks at the financing needs
of the renewables in most of the bilateral and multilateral financing
institutions. In furtherance to the policy of building financial frameworks
for sustainable energy sectors, the banks may consider to earmark a certain
percentage of their loan portfolio for renewables. This will be a critical
factor for unlocking significantly sealed-up investment in renewables.