Environmental Finance in India

Financing India’s renewable revolution

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The country has about 37GW of renewables currently, but is planning to catapult this to 175GW by 2022, in an explosion of development that would make it one of the hottest markets under the sun.

If its ambitious targets are met, there will be 100GW of solar (up from 3.3GW currently), 60GW of wind, 10GW of biomass, and 5GW of small hydro.

Such a build-out will require a massive injection of capital, a figure estimated by some at $300 billion.

It is clear that India cannot finance this revolution on its own, says Yes Bank, which is believed to be one of only a handful of Indian private banks to lend significantly to renewables projects.

Domestic renewable energy developers depend largely on banks and non-bank financial companies for debt, which has been constrained by limits on how much banks can lend to the power sector, and the high cost of borrowing, often between 12.5% and 14.5% for term loans. Equity, which is often provided by wealthy families or conglomerates, is in short supply.

“Large investors such as pension funds and insurance companies have stayed away from significant investments in renewable energy. The use of foreign sources of debt has also has been limited,” says Namita Vikas, group president and country head of responsible banking at Yes Bank. “There is definitely the need for foreign investors to step in, as the funding may not be domestically available.”

But is there demand from western investors to fill this gap? The Indian solar investment opportunity remains compelling, argues Andrew Newman, co-founder of Armstrong Energy, a UK-based developer with big plans for India.

India has a “unique” combination of high levels of sunshine, high power prices – meaning solar can compete in some areas without subsidies – and the size of the market is huge. For these reasons, he argues India is currently the most attractive solar market in the world.

Armstrong is already involved in two projects with a combined capacity of 6MW in the country, and has “an extensive pipeline”.  Its plans for a London IPO of an Indian-focussed solar ‘growth-co’ were postponed this summer, as emerging markets suffered a severe sell-off. But Armstrong continues to privately raise funds for its Indian enterprises and remains optimistic about the planned float.


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