Investment & Financing of RE Projects: Issues and Challenges

1. Investment & Financing of RE Projects: Issues and Challenges PTC India Ltd. 1st December 2010 Solar Energy Chandigarh

2. Key Trends: Global RE Market • RE Sector has grown strongly and steadily in last few years, even during • Economic recession, low oil prices, and the lack of an international climate agreement • 55 countries/2005 vis-à-vis 100 countries/2010 • Wind power and solar PV additions reached a record high in 2009 • Over half of newly installed power capacity in US and Europe accounted for by RE • More than USD 150 Billion ($30 Billion in 2004) invested in new renewable energy capacity and manufacturing plants • For the second year in a row, more money was invested in new RE capacity than in new fossil fuel capacity RE reaching a tipping point!

3. Key Trends: Global RE Market The World has tapped only a small amount of the vast supply of RE resources Policy efforts now need to be strengthened and taken to the next level in order to encourage a massive scale-up of renewable technologies That level of scale-up is needed to enable the renewable sector to play its critical role in building a long term, stable, low carbon global economy – one that promotes energy security industrial development and competitiveness, local economic developments and jobs, climate change mitigation and universal access to energy Ministry of New and Renewable Energy -DIREC 2010-

4. Estimated Investment for Low Carbon Infrastructure How much financing will be required? Various estimates are available at the global level OECD Study: 0.5% of global GDP by 2030 IPCC 4th Assessment Report: 0.6% of global GDP by 2030 UNDP Hunan Development Report 2007-08: 1.6% of global GDP No readymade estimates are available for India. Such an estimation would require a great deal of information about physical impacts of low carbon infrastructure: Funding requirements would be huge/easily run into billions of US$ A study by McKinsey & Company corroborates this. Incremental capital of $874 Billion to $1.1 Trillion between 2010-2030

5. Key Drivers: Indian RE Market Accelerated growth of RE sector in India RE power capacity a significant portion of total installed capacity (17,593 MW as on 30.06.2010) –about 9-10% of total installed capacity (3.5% of generation) A component of larger energy eco-system 3 key factors for rapid growth: Demand-supply gap RPOs by Regulatory Commissions as per EA’2003 5% to 15% - NAPCC Increasing need to decrease carbon intensity and move towards a low carbon economy High Resource Potential: (1,83,000 MW) Solar, Wind, Biomass, Cogen, Ethanol, Waste-Heat Recovery Feed-in Tariff ( Example: Maharashtra, Punjab) Generation –based incentive Enabling policy framework - JNNSM

6. Sources of Funds (1)GTZ Germany is leading the global race in RE development The country ranked no 1 in new capacity investment and grid-connected solar PV, no 2 in solar hot water/heat added and 4th in wind power added in 2009 Ranks no 1 in existing capacity as of end 2009 in Solar PV , no 3 in RE power capacity, Wind power and biomass power India has also shown good progress and ranks 5th in wind power added and solar hot water system. India also ranks 5th in RE power capacity and wind power Germany is leading in RE technologies, particularly wind and solar and also quite active in Indian RE scene through GTZ Quite a possibility of synergy between the two countries– by learning through best practices and adopting new RE technologies KfW invests in RE power provided equipment supply is through them

7. Sources of Funds (2)Norway Keen to increase investments in the Indian RE sector Leading technology provider in wind (off-shore), solar In discussion with MNRE to scale-up Solar village electrification projects Collaboration and co-funding projects that aim at developing sustainable and scalable business models for accelerating large-scale roll-out of community solar power plants (CSPPs) Pilots of solar projects are being run in about 30villages of MP, UP, Jharkhand and Jammu& Kashmir ( Scatec, Norway, MNRE) Different models and solutions are being tested: Technology Local revenue models Co-operation models with NGOs and Entrepreneurs etc Proposed grid-connected 1.4 MW Solar power project to cover 52 villages in Jharkhand

8. Sources of Funds (3)Multi-lateral Funding World Bank/ADB/OECD/Bi-lateral development institutions/International Financial Agencies Most of them are willing to view RE sector preferentially and could undertake funding based on RE project strengths They support RE Projects through various forms: Credit lines to DFIs/ guarantees to mobilize domestic lending by sharing credit risks Debt financing by entities other than DFIs Private equity funds Venture Capital funds Carbon finance facilities grants to share project development costs Technical assistance to build the capacity along the financing chain

9. Sources of Funds (4)France Two countries are expected to enter into an agreement to promote investment and technology transfer in the renewable energy segment Investment by French companies Promoting sharing of technology The French Government themselves have set an ambitious target of Wind power from 810 MW (year 2006) to 25,000 MW (year 2020) Solar PV 32.7 MW in year 2006 to 3000 MW by year 2020 Through collaboration and co-funding, large number of RE projects could be undertaken 2-way trade India could be a preferred source for producing solar equipment-PV modules, mirrors, ceramics and a range of other components Policy contours to be clear Due to inadequacy of scale, some government support Incentives could be based on outputs

10. Sources of Funds (5)Copenhagen Accord: Funding Commitment The collective commitment by developed countries: ~ US$ 30 Billion for the period 2010-2012 To provide new and additional resources, including forestry and investment through international institutions A balance between adaptation and mitigation Funding for adaptation to be prioritized for the most vulnerable developing countries (LDCs, small Islands developing states and Africa) Developed countries commit to a goal of mobilizing jointly US$ 100 Billion a year by 2020 Need for a cohesive strategy to tap the resources Foreign currency loans – Hedging mechanism

11. Issues and Challenges: States with high RE potentials not so upbeat due to following concerns Infirm nature of power Environment issues Land acquisition ( Both Solar PV and wind require large tract of land) How to ensure steady flow of bio-mass Government of India has set a target of 20,000 MW solar power by 2022 and also to exploit wind power potential Evacuation Infrastructure from source to load centers System guarantee that power will be absorbed Open access regime Achieving Grid parity is one of the stated purpose of the Mission: Rapid indigenization through technology transfer, R&D, Ramping up local manufacturing base Demonstration effect – for example: wind power ( Forecasting that improves predictability and 6 hrs scheduling options- banking etc.) Main challenge lies in translating the intents into practice i.e. the implementation strategy!

12. Financing Issues: RE Power still not having parity with conventional sources to compete with other sources on tariff Poor investment climate- political, regulatory, administrative complexities Quite dependent on how RPO regime evolves including penalty for non-compliance Also set the contours of REC market Banks/FIs –exposure to power sector (lumpy) RE to be a distinct segment Lack of familiarity in lending community –inability to assess risks properly High transaction costs-lack of maturity of clean technologies Absence of long tenure funds (Insurance, Pension) /Technology Innovation Funds Grants and subsidies, Tax breaks, depreciation benefits – long term view

13. Policy and Regulatory Framework Government need to devise pro-active long term policy Certainty and continuity in policy is essential for investment RE – location specific, limitations (bio-mass – more volume, less weight) Employment opportunity Coal dependency to be reduced Progressive Regulatory framework that facilitates on one hand the demand creation and on the other hand enables the industry to take up the challenges and fulfill the defined goals CERC Regulation Fundamentally, there is an absence of visibility as to how the subsidy regime in Solar would be beyond the year 2013!

14. Conclusion • Investment will flow if: • framework is strong and around long-term government support • market-based, • competitive, • Level playing field and • stable regulatory regime

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