CDKN's Senior Strategic Advisor for India, Mihir Bhatt, discusses the Government of India's new initiative to promote clean energy in light of COP22.

Auspicious news from India has arrived as COP22 in Marrakech is inaugurated.

The Government of India and three state-run firms will collaborate to set up an equity fund of up to US $2 billion for renewable energy companies to tap into to help India urgently meet its clean energy goals.

Promoting clean energy in India’s private sector needs equity funds. In September 2015, CDKN and cKinetics organised a South-South Learning Event in Delhi on ‘Developing the market for decentralised renewable energy (DRE)-based energy access solutions: learning across the global south’. The event highlighted the need for such an equity fund as well as the possible collaboration of state-run firms.

Private and public companies will be able to utilise an initial amount of over US $1 billion starting in the next fiscal year. The South-South learning event highlighted the equity gap in public and private firms across India.

The Government of India hopes the Clean Energy Equity Fund (CEEF) will attract pension and insurance funds from Canada and Europe. India will be able to mobilise the required amount of resources to fund projects in the clean energy sector. Global South countries such as South Africa and Brazil are showing interest in India’s clean energy market. The sector is rapidly expanding due to the government’s thrust on promoting solar energy as well as projects related to clean and renewable energy.

Around US $600 million of the initial pool will come from the National Investment and Infrastructure Fund, under the finance ministry of the Government of India, and the rest will come from state entities such as NTPC Ltd, Rural Electrification Corp (REC) and the Indian Renewable Energy Development Agency.

All the three public sector corporations lead India’s push to move towards clean energy and thus green growth. Green growth, a rapid green growth, is becoming India’s central thrust.

A 2016 CDKN Roundtable titled, ‘Towards Green Growth: Achievements and Opportunities’, underlined the need for enhanced finance to build a clean energy ecosystem in India.

The Prime Minister of India has pushed raising India's renewable energy target to 175 gigawatts by 2022, more than five times the current usage, as part of the fight against climate change and the march towards green growth.

India is world's third-biggest greenhouse gas emitter that aims to supply power to 1.3 billion Indians as soon as possible. As a result India has to balance uncertainty and transformation in its growth.

The program will depend on getting as much funding as possible, with 70 percent of that likely from bank loans and the rest as equity. The banks are currently mapping out their capacity gaps for accessing and utilising such funds. Investing in clean energy is complex and often demands up-front skills and know-how that is normally gained with experience.

The Government of India finds that loans are not a problem but providing equity to investors may be difficult due to the lack of capabilities to deal with uncertainties over returns. The demand for clean energy loans in urban domestic consumers and small and medium municipal entities is rapidly expanding. Capabilities to address and manage such a demand is developing.

As India expands its clean energy capacity, there may be a shortage of equity. Private equity is seen as risky in India unless the Government itself creates a fund that gives confidence to investors.

India's clean energy push was set-back earlier this year when the U.S. solar company SunEdison filed for bankruptcy. Backward and forward linkages collapsed. The market suffered a setback. The company is now looking to secure partners to see through its planned projects in India.

Over dozens of companies are keen to invest in the clean energy sector in India. India has ambitious targets as part of its mission to cut dependence on coal-fired power plants and fossil fuel.

Japan's Softbank Corp, Taiwan's Foxconn and India's Bharti Enterprises have pledged to invest about US $20 billion in India's rapidly expanding renewable sector. Global solar giants like First Solar Inc, Trina Solar Ltd and Fortum are also expanding their presence in India. Their main focus is to work out a process of entering and expanding into India’s clean energy market.

The international investors in India’s renewable energy see an opportunity to develop “shared prosperity”. This sharing will depend on India’s capacity and capabilities to utilise the investment to the advantage to its citizens. It is the skills and know-how that will turn good news into good results.

Photo: Abbie Trayler-Smith / Panos Pictures / Department for International Development