Financing clean energy in India : Milestones and hurdles
India's current stance reckoning not only with the economic growth of the state but also its citizens' overall well-being is in profound deep waters, and the only straw to grasp is access to a galore of energy. India's energy needs are estimated to rely on clean and renewable sources heavily in the context of the global slant of combat towards the impending climate change and the country's own NDCs(Nationally Determined Contribution). Upholding the climate consensus in its overseas collaborations will help India set a firm foot on the ground of climate diplomacy. Now buckling down to the real India, the rural India, the transition to clean cooking energy is of equal prominence. As per the census of India 2011, out of over 240 million households, 100 million were relying on traditional solid biomass, such as firewood and dung cakes. Pertinently, the inception has proved to be remarkably illustrious, with over 80 million gas connections provided to BPL households under the Pradhan Mantri Ujjwala Yojana (PMUY). Leastways, connections do not automatically translate into shifts of households to LPG as primary cooking fuel. Numerous rungs from sustained campaigning around health impacts and affordability to acceptability for households has helped India to climb up the energy ladder. A distinctive way of taking up the last mile fuel accessibility challenge is an extensive shift to power-optimized electric induction cooktops vitalized from decentralized renewables. Another critical step forward can be to promote Renewable Energy MSMEs with a good track record for the capital market. Notably, MSMEs are the backbone of the Indian economy employing over 120 million people.
“A Debt problem is, at its core, a budgeting problem". A country whose gross debt is set to cross 80% of its GDP in the pandemic contained 2021 should not by any rule of law risk its liquidity in a speculative venture as the renewable energy sector—but owing to the rationale cited in the above paragraph, it's pivotal for India as a state to have its whack in this bull-headed situation. Sanderson Abel, a senior economist of BAZ, explains in Advantages and Disadvantages of Financial Innovation | Bankers Association of Zimbabwe the floor benefits of calculated financial innovation.
Convincingly, it's crucial to deploy innovative and sustainable financial
instruments to improve the coordination among the stakeholders, such as short-term
subsidized credit enhancement and a green taxonomy for an affordable capital infusion
into the Renewable Energy (RE) sector.
Not much back in time, when major Research & Analysis big shots concurred in unison for India to miss its 2022 RE target by substantial percentages, the country not only took care of locking the gun to completion of its target well before time but also set a feasible goal of 450 kW RE capacity by 2030. Making hay under the shining sun of COVID-19 induced pandemic, Indian companies administered 9 sustainability linked bonds in only 5 months of 2021, amassing $4.96 billion.
Sustainable bonds are a breed of fixed-income tool that is
categorically hinged on building capital for climate and environmental-related
projects, which are generally target-wed, posing no restriction on the line of
usage of capital.
Sustaining the green financing facet of all the solutions present, it's a sine qua non to critically analyze it for advancements, being least concerned about scores of successes achieved in it so far. India's 2030 RE initiative requires $200 billion in radical investments for generation capacity only, which self-deciphers to challenging debt financing demands of $160 billion measured up to the entire current power sector exposure of domestic banks and Non-Banking Financial Institutions (NBFCs). Agitating the MSME sector afresh, these obstacles further suppress the thirst of financial institutions to lend to these soft set business cases such as fruitful use applications of distributed renewables (DREs), which have a market potential of $50 billion.
Privileged green capital with under-written risks can prove to be beneficial in scaling up the deployment of DRE applications. Credit enhancement is another way to make RE issuances inviting to hesitant investors. Although, while credit enhancement tones down bond yields, the fees associated with pre-existing offerings make overall borrowing costlier than bank financing. Subsidized first-loss guarantee scheme can come into action here, a CEEW (Council on Energy, Environment and Water) Centre for Energy Finance analysis suggested that subsidy support adding up to $61.5 million which is about 4 percent of the 2021-22 budgetary expenditure for power and renewables would empower such a facility to refinance RE debt amounting to $10376 million through the bond market. As an added benefit, this would free up an equivalent amount of bank and NBFC capital for fresh lending, supplementing capital flows to the RE sector.
Nevertheless, India can still learn a lot from the likes of
product packages by DEG, GurantCo, Global Climate Partnership Fund (GCPF), and
Regional Liquidity Support Facility (RLSF) to develop definitions that are not
only scientifically robust but also feasible.
By: Saurabh Mishra
Department of Chemical Engineering
Batch: 2019
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