Types of Renewable Energy Funding in India

1. Renewables.org - Funding Renewable Projects in India February 2022

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3. Introduction India has set a target of 175 GW of renewable energy for 2022. This includes 100 GW of Solar energy, 60 GW from wind, 10 GW from Bio-power, and 5GW from small hydropower. By the end of 2019, India has only installed 85.9 GW of total renewable energy. The broad gap between the actual and target capacity can be attributed to a number of factors. The safeguard duty, low tariffs, depreciating rupee, high taxation and interest rates, and uncertain regulations have lulled the anticipated growth. High capital costs and inadequate debt financing are also major concerns.

4. What Are The Types Of Renewable Energy Funding? • Funding based on Risk Profile:The renewable energy sector’s higher risk profile attracted more debt financing up to 70%, with 30% equity investment. • Emergence of Lenders:India’s renewable energy sector is attracting interest and concessional loans from agencies like the World Bank and the Asian Development Bank. There are other banking and non-banking institutions whose financial commitment to renewables in India is growing. • Government funding:The government has initiated the National Clean Energy Fund, now known as the National Clean Energy & Environmental Fund (NCEEF). The Indian Renewable Energy Development Agency (IREDA) lends a part of the NCEEF to banks at a 2% interest rate. The banks in turn loan out this money for renewable energy projects at a concessional interest. • Green Bonds:Bonds issued outside India, but are in Rupees, and are issued specifically for green energy projects. They show much promise and India is now among the top 10 countries issuing green bonds.

5. What Are The Challenges Involved? • Domestic manufacturers do not have the capacity to meet the demand. Almost 90% of India’s Solar panels are imported. There are also falling tariffs due to the dropping prices in solar technology. Low tariffs seem lucrative at the first glance but are actually less viable for the developers. • In the bid to promote domestic manufacturing, imports have become more expensive. • The GST reform also brought a dual tax structure for Solar-powered projects set up under installers. 70% of the installation contract value would be taxed at 5%, and the rest 30% would be taxed at 18%. This resulted in an overall tax of 8-9%, leading to an increase in capital costs. This has made investors hesitant to add Solar assets to their portfolios. • Lastly, most of the funding in the market only serves large consumers such as governments and large private commercial and industrial organizations. The market, so far, has done little to fund smaller consumers.

6. The Way Forward • Large-scale investment is necessary to bring effective transition in emerging markets like India. This scaling up will also bring down capital costs and secure better margins. • The government could subsidize domestically manufactured panels, instead of making imports more expensive. • Competitive interest rates, risk-sharing models, and longer capital tenure will additionally ensure investor retention. • A stable regulatory framework, coordinated communication between stakeholders, and healthy demand growth, all need to be supported through a robust financial system.

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