India’s renewable energy industry faces financial challenges
- A recent report from a parliamentary group said that India needed Rs. 2.61 trillion to install the balancing capacity to meet its target of 175 gigawatts of renewable energy by 2022, but made facing financial challenges.
- The report called on the Indian government to tackle the issues of non-performing assets in the sector and focus on attracting international funds to boost growth.
- Experts say India needs to send a signal to investors that it is preparing the market in accordance with climate change demands in order to attract vast volumes of institutional and private capital.
As India moves forward to meet its clean energy goals, it faces a funding shortage – billions of rupees needed to grow the renewable energy sector.
India has a target of 450 gigawatts of installed renewable energy capacity by 2030 and 175 GW by 2022. But this clean energy transition scenario lacks momentum in terms of funds. At present, India’s installed renewable energy capacity is approximately 97 GW.
Based on a March 2021 report report According to a panel of the Indian parliament, India needs Rs. 2.61 trillion (Rs. 261,000 crore) more to finance the balancing energy capacity and meet the 175 GW renewable energy target of by 2022. But the average annual investment in the renewable energy sector has been around Rs. 823 billion (Rs. 82,300 crore) over the past five years and if investments continue at the same pace, the funds needed will not be reunited by 2022.
The parliamentary panel said that the Indian Renewable Energy Development Agency (IREDA) being the only public sector financial institution dedicated to financing renewable energy projects, must prepare to take on the additional responsibility. He said IREDA should make available the necessary capital for the installation of renewable energy projects so that they are not delayed due to the unavailability of the required funds.
The panel recommended that the Indian government’s Ministry of New and Renewable Energies (MNRE) mobilize â€œas much as possible long-term finance and concessional loans through multilateral and bilateral agenciesâ€.
While the MNRE says the government has taken many steps to encourage the flow of funds to the sector, experts are not convinced and demand more.
The ministry, while listing measures taken to boost investment in the renewable energy sector, said it was allowing foreign direct investment (FDI) up to 100% under the automatic path, ensuring timely payments to renewable energy producers, authorized Ultra Mega Renewable Energy Parks (UMREP) to provide land and transmission on a plug and play basis to investors, focused on laying transmission lines as part of a green energy corridor project for the evacuation of electricity in states rich in renewable energies, etc.
Aarti Khosla, director of Climate Trends, said that “although the sector is accelerating, the rise may not be dramatic on the scale needed.”
â€œIndia is expected to add 38 GW of capacity each year if we are to meet our stated ambition of 450 GW by 2030. Experts say it could at best add around 8 GW per year over the next several years. The gap is huge. Even if the market prepares and strengthens, there must be a way to spark more private sector capital flows, and not focus on climate finance, which remains a dream, â€Khosla told Mongabay- India.
She explained that “it is the flow of private capital that is not happening as expected and experts say it is becoming a cause of dissonance.”
Samrat Sengupta, Climate Change and Renewable Energy Program Director at the Center for Science and Environment, a Delhi-based think tank working on environmental issues, said: / Attractive opportunities for investors around the world.
“The privileged status of renewable energies is mainly due to its financial attractiveness and its low risk horizon, the branding of investments for renewable energies in the climate (finance) is the additional intangible brand equity but not the main one. determinant. The initial renewable energy market will be finished soon and the consolidation and correction has already started, â€he told Mongabay-India.
Read more: India risks missing 2022 renewable energy targets
Are the NAPs having an impact on the overall growth of the clean energy sector?
According to the parliamentary panel report, (in June 2020), IREDA has financed 229 projects of 11.83 GW with a loan amount of Rs. 259 billion (Rs. 25,922.60 crore) but it has 86 NPA accounts (non-performing assets) with a total outstanding loan of Rs. 21.1 billion (Rs. 2110.64 crore) as of March 2020 and 31 projects are overdue accounts with outstanding loans of Rs. 17.48 billion (Rs. 1748.146 crore) ).
The panel expressed concern over the huge amount of outstanding loans from IREDA and the transformation of some of them into NPAs. He said he felt that “a full analysis of the reasons responsible for such a scenario needs to be done critically to ensure better financial management by IREDA in future projects.”
To address issues related to NPAs, the panel recommended that IREDA review its entire project appraisal and loan disbursement process in order to incorporate more stringent due diligence before sanctioning large projects involving huge investments to prevent them from turning into NPA in the future.
When asked if investments for renewable projects are hampered by the sector’s NAPs, Khosla said: â€œEnergy investors are of the opinion that investments in assets, which do not offer a futuristic bet, block the system. Eliminating NPAs could ease the burden on the electricity industry and provide a new lease of life. Sengupta said that “NPAs in the renewable energy sector are not overwhelming and well within the confines of other traditional industries … although the downtime in the development of new wind turbines over the past five years has created significant challenges. serious NPA in the MSME sectors in the wind supply chain. “
â€œConsidering that the wind will slowly return to pace by 2023/24, we will see the debt market restructuring to process these NPAs again,â€ he said.
Meanwhile, the panel also noted that states and power utilities owed Rs. 117.5 billion (Rs 11,752.71 crore) to renewable energy producers / developers (as of July 2020). The committee felt that non-payment of contributions to producers / developers can lead to “the accumulation of more stressed / non-performing assets which can, in turn, add to the stress of lending financial institutions, thus creating a vicious cycle. with possible cascading effects. . “
It recommended that the MNRE address this issue with the state governments concerned without further delay and that unpaid contributions be made immediately and that the timely payment of contributions to renewable energy producers / developers be ensured in the future.
Read more: Subsidies for renewable energy sector in India are shrinking and need renewed support, study finds
Can India attract international climate finance for its clean energy dreams?
India has advocated for international climate change funding from developing countries, including itself, to achieve climate change targets, including installation of renewable energy systems . He also focused on raising funds from other multilateral and bilateral routes.
According to the MNRE, the steps taken to boost India’s renewable energy sector have paved the way for several global funds that have entered the sector or are at an advanced stage of investment talks, such as GIC Holdings, based in Singapore, Abu Dhabi Investment Authority, Softbank, Brookfield, CPPIB and CPDQ of Canada, ORIX (Japan), Sembcorp and APG (Holland) and others, who have decided to invest in the history of renewable energy growth in India.
Arunabha Ghosh, CEO of the Council on Energy, Environment and Water (CEEW), a nonprofit policy research institution, stressed that India must first view public climate finance as seed money or as a cushion to leverage more private investment in climate change.
â€œSecond, we also need to make sure that the public finance available for climate change is used to a large extent to finance adaptation work, as it is much more difficult to obtain private capital for such investments,â€ he said. he told Mongabay-India. â€œThird, I also believe that India’s regulatory architecture should be increasingly geared towards attracting green capital and greening the financial ecosystem as a whole. This notably involves maintaining the sanctity of calls for tenders or power purchase agreements signed with developers, but also on green taxonomy, the definition of green bonds, more disclosure of climate risks, etc. . Â», Underlined Ghosh.
â€œWe need to send a signal to investors that we are preparing our market in accordance with the demands of climate change. For this, we need innovative blended finance to underwrite various types of risks (technology, currency, buyer, policy, etc.) in order to attract large volumes of institutional and private capital into sustainable infrastructure â€, he added. he declares.
Khosla added that countries such as the United States, which attaches great importance to bilateral cooperation, would be able to offer a financial package that would make the transition out of coal more possible.
â€œAt the Climate Leaders Summit in April 2021, the United States and India launched the 2030 Climate and Clean Energy Partnership to strengthen cooperation on strong actions during the decade in order to achieve the goals of the Paris Agreement and help each country achieve their respective goals. climate and clean energy goals. He was supposed to have a dialogue on financial mobilization as well, but there is no clarity on where that is at the moment, â€she said.
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