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Meeting India’s renewable energy targets: the financing challenge

This paper analyses the challenges for designing Indian national policy to attract investment in wind and solar energy at a reasonable cost. It also examines the impact of national and state policies on various classes of renewable energy investors, as well as the overall relative costs or benefits of policies on the final cost of renewable energy projects. The paper particularly focuses on the cost and availability of equity and debt, respectively, and the consequent implications for Indian renewable and financial policy.

The main sections of the paper address discuss:

  • renewable energy industry trends;
  • finding equity and raising debt;
  • high cost of debt;
  • equity;
  • state of renewable energy finance’;
  • government policy framework;
  • policy analysis, including case studies from Brazil and China, and of India versus the United States and Europe.

Conclusions and next steps forward include the following.

  • The most pressing problem facing renewable energy financing in India is the high cost of debt.
  • General Indian financial market conditions are the main cause of high interest rates for renewable energy.
  • The structure and regulation of the Indian power sector are significantly challenged, resulting in increased project risk and national policies that do not accurately reflect the realities of financial markets or state-level risks.
  • Lessons learnt from, and policies developed by, developed economies may not be very useful due to differences in national financial markets that impact renewable energy policy design and effectiveness.
  • The Brazilian Development Bank (BNDES) is an especially promising example of bridging the financing gap (it plays a major role in almost every renewable project in the country, often by offering long-term loans at below-market rates), which deserves further study and consideration by Indian policymakers.