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(GIST OF YOJANA) Financing Renewables in India [MAY-2019]

(GIST OF YOJANA) Financing Renewables in India

[MAY-2019]

Financing Renewables in India

Introduction

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 by 2030.
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
2027.
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.

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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 similar assets.
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.