🔊 Listen to this article

India has committed to ambitious action on climate change mitigation, pledging that renewable energy will be 40 percent of country’s expected generation capacity in 2020, which includes a wind power target of 60 GW and Solar power target of 100 GW by 2022. Meeting this target requires an investment of approximately USD 189 billion by 2022[1]. Hence it is crucial that financing for Renewable energy is scaled up.

In response to the government's commitment, several progressive policies, both at the Union Government and at the State level have been put in place. Union government policies have been supported by instruments such as accelerated depreciation, generation based incentives and vaiablity gap funding, while state level policy support in the form of feed in tariff , net metering , and tax/ duty exemptions. These instruments are resourced through Union government’s budgetary sources which are being implemented as Center sector or Centrally Sponsored schemes by the Ministry of New and Renewable Energy (MNRE).

With the limited budgetary resources with the public system, clean energy sector continues to face financing challenges given the high capital cost of the sector. Cost effectiveness and efficient management of financing system has become an important criterion for policy makers. Over the years, compounding of government efforts in implementation of these policies and their financing with Private sector participation has become desirable not only to ensure a larger flow of resources but also to introduce greater efficiency and cost effectiveness in public finance.

Leveraging Private Financing of Climate Change Mitigation Actions through robust public policy design can enable the achievement of Renewable targets. There is need to address the gaps in public  policy for Renewable energy which have been  leading to discouraging environment for leveraging financing of RE sector . Few examples of tangible gaps in public policy in the sector are as follows:

1. Currently, State Governments are moving towards buying the Renewable Energy Certificate (REC) instead of buying the RE for meeting their Renewable Energy Purchase Obligations (RPOs) targets in compliance with NAPCC, due to non-availability of RE power with the state. As per observation shared by the Comptroller and Auditor General of India (CAG) in  its  Performance Audit  for RE sector, this had affect planned cash flow of generators registered for REC regime and private project investors  due to non -availability of  policy guidelines by the Government for unredeemed RECs[2]. As a priority, MNRE, being the Nodal Ministry should ensure firming up of clear policy guidelines on the life of Renewable Energy Certificates and management of unredeemed Certificates, in a time bound manner.

2. Ineffectiveness of net-metering policies posed a major challenge for rooftop solar application. With less than four years left to meet its targetof installing 40,000 megawatt (MW) of rooftop solar power capacity by 2022, India has installed just about 2,538 MW ( that is , 6 percent )as of March 2018. Expert believes that current Grid connected Solar Roof Top Policy are too restrictive for financing the solar roof top technology. Current policy though stipulated 30 percent subsidy for residential buildings for installation of solar roof top energy. But this has failed to enthuse homeowners, the majority of whom pay small electricity bills and find the cost of solar equipment prohibitive in comparison.. Hence, Under the current policy there is need to  bring flexibility on  technology size in terms of increasing capacity limit( more than one megawatt), type of connections, consumer categories ( expanding to commercial consumer), bring power utility on board for safe grid connectivity with user charges  and various financing instruments[3].

3. Government announced draft National Energy Storage Mission (NESM) in February this year which sets a target of 15-20 gigawatt hours (GWh) of grid-connected storage within the next five years. Central Electricity Authority is considering regulation to make storage mandatory for large scale solar projects ranging between 100 MW and 200 MW in order to improve the grid instability due to intermittency of renewable energy generation. However, adding storage cost in investors bid could result in solar power spiking ₹ 3-4 per unit above its current low price of ₹ 2.44 per unit, making it unattractive to investor. Hence, Government should think of policy measures to address the issue of expected increase in RE cost due to addition of storage cost with some financial instruments such as subsidies on storage equipments or promotion of indigenous battery manufacturing by giving incentives such as free land availability or exemption of tax etc.

4. Over the years, the Government is venturing into new financing resources and regulatory measures such as green bonds or Masala bonds to accelerate financing of Green projects such as Renewable Energy. The Indian government has mandatedseveral public sector companies to launch green bonds worth at least $1 billion [4]. Given the current global interest and appetite for green bonds to fund ‘green’ projects, relating to renewable energy, emission reductions, etc., municipalities in India are well placed to finance clean energy related infrastructure through these instruments. Since, financial transparency and sound financial management, as demonstrated through audited financial statements, is the first and foremost step for any  ULBs to raise private capital through green bonds it is utmost necessary to strengthen the financial management system of ULBs in India and implementation of related public policies.

Greater clarity in public policy design and a proactive effort by government is needed to create favorable conditions to leverage financing in Renewable energy sector.  Successful implementation of more and more Renewable energy projects will improve expectations among investors and reduce perceptions of risk of financing climate mitigation actions.

 

References:

1. Gireesh Shrimali, “Renewable Energy in India: Solutions to the financing Challenge”, Asie Visions, No.98, ifri, February 2018
2. CAG’s Report No. 34 of 2015 - Performance Audit on Renewable Energy Sector in India Union Government, Ministry of New and Renewable Energy
3. What need to be done to achieve 40 GW of solar rooftop target in India? Available at: http://cdn.cseindia.org/userfiles/Jasmeet-Khurana_Bridge-to-India.pdf
4. Indian Companies Line Up Green Bonds Worth $1 Billion Available at: https://cleantechnica.com/2017/04/21/indian-companies-line-green-bonds-worth-1-billion/

The views expressed in this piece are those of the author, and don’t necessarily reflect the position of CBGA. You can reach Jyotsna Goel at jyotsna@cbgaindia.org.