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India’s renewable energy targets: How to overcome a $200 billion funding gap

Rohan Singh

Rohan Singh explores the main issues relating to financing renewable energy projects in India, offering up some solutions to help domestic and foreign companies alike meet the challenges head on.

India is set to become one of the world leaders in Renewable Energy. Since his election in May 2014, prime minister Narendra Modi and his government have embarked upon an ambitious target of increasing renewable energy capacity five-fold by 2022 (from 30GW currently to a projected 175GW). This would require additional funds of about US$200 billion.

Financing woes

To understand a little about India’s financial landscape, the main financial actors and capital providers are as follows: 

  • Private equity firms – local & international: Actis, 3i, Aditya Birla, Aloe Private Equity, EIG Partners, etc.
  • International Development Finance Institutions: IFC, Proparco, FMO, OPIC, etc.
  • Domestic Debt-oriented institutions: PFS, Yes Bank, IDFC, Axis Bank, etc.

The major issues regarding those sources of financing are numerous. It would be hard to list all. The main issues are:

  • High &variable interest rates given by Indian commercial banks - a traditional solar or wind energy project is getting a loan with an interest rate around c.12%;
  • Short tenor of debt from Indian commercial banks - traditional maturity in senior debt is about 10-12 years;
  • Hedging currency for international financing - the cost of hedging currency is a component to carefully keep in mind and before addressing any international institutions, an arbitrage between local and international financing solutions should have been completed upfront.

A recent report from Climate Policy Initiative (CPI) suggests these barriers mean the cost of renewable energy in India is 24-32% higher than similar projects in the US. The Indian government has attempted to bridge this gap in infrastructure investment through a number of initiatives, such as Infrastructure Debt Funds and the National Clean Energy Fund. However, given the ambitious renewable energy targets and limited resource availability, there is a need to explore alternative modes of financing for renewable power projects, by leveraging existing resources more effectively.

Optimistic moves

Despite several hurdles, India is currently adopting a very optimistic pace. Recent achievements include:

  • The Reserve Bank of India (RBI) now Notifies Renewable Energy under priority sector lending. This means banks can now provide loans up to a limit of INR 150 million to borrowers for renewable energy projects. This can also help commercial local banks to raise infrastructure bonds which are exempt from PSL but still use the money to lend to renewable energy;
  • The Asia Development Bank (ADB) is increasing its sovereign and non-sovereign lending to support India’s new initiatives from the present $7 billion to $9 billion in three years from 2015 to 2017 and then from $10 billion to $12 billion between 2016 and 2018 using ADB’s expanded lending capacity;
  • International investors have increased their market share in India with more than 78% of capacity under development. More than half of large Indian renewable energy projects are internationally funded. The UK Green Investment Bank, for example, has agreed terms on a £200m international pilot development.

India is currently receiving a growing demand from international companies in the RE landscape. These include French-based Fonroche, Solaire Direct, EDF EN (through its subsidiary ACME Solar) and US-based companies SunEdison, First Solar. Besides such internationally recognised players, local firms such as Welspun Energy, OGPL, and Renew Power have also scaled up their footprint in the Indian RE sector.

Innovative financing solutions

So what can be brought to the table to put India on a faster track?
The answer, primarily, is that there is no need for an entire, new revolution, but just to build on what has already been done:

  • New policies and clarifications from the State Government on the solar sector (solar parks allocation, distributed solar, etc.) will bring more confidence from potential investors and thus decrease the cost of financing;
  • Existing actors should continue developing projects and investments;

In the meantime, innovative financing solutions can be used including:

  • Green bonds - they still remain sparsely known in India even if in March 2015 the Exim Bank of India launched India’s first dollar-denominated green bond issue ($500 million fiver-year bonds), which was subscribed nearly 3.2 times. This solution has to be applied to corporate as well.
  • Yieldcos - renewable energy projects face some uncertainty during the development stage but tend to produce low-risk cash flows once they are operating. Yieldcos have the potential to unlock the value of these renewable assets. Yieldcos may attract new investors who may otherwise perceive unacceptable risk or lack the appropriate channels to invest capital in renewables.
  • Dollar denominated PPA - this solution can decrease the cost of financing especially for companies who borrow internationally (i.e. from multilateral agencies) and then can avoid to hedge currency risk;

These are few of the many solutions that can definitely unlock India’s potential in renewable energy. Finergreen is currently working on these challenges and helping clients (local or international developers, IPPs, etc.) to get access to affordable, long-term and adequate funds. The company carefully selects clean energy projects that fit with its ethical philosophy and ambition to help local populations gain access to electricity 24/7 electricity.
To quote a Finergreen partner: “When we give a family extra hours of light every night, we extend their day, we give them more time to be together, more time to work, more time to study, more time to talk. We not only give them more hours of light, we give them more hours of life… every day.”


Rohan Singh is project manager at Finergreen. With its head office in Paris, France, and offices in New Dehli, India, the company is a financial advisory company specialising in renewable energy and energy efficiency projects.



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