renewable energy in india: getting to...

The CPI PowerPoint Theme 1

BRAZIL

CHINA

EUROPE

INDIA

INDONESIA

UNITED STATES

235 Montgomery St. 13th Floor

San Francisco, CA

94104, USA

climatepolicyinitiative.org

Renewable Energy in India:

Getting to TargetsGireesh Shrimali

Director, Climate Policy Initiative

Fellow, Stanford University


About CPI


A global team of analysts and advisors

Climate Policy Initiative (CPI) works to improve the most important energy and land use policies around the world, with a particular focus on finance. We support decision makers through in-depth analysis on what works and what does not.

We work in places that provide the most potential for policy impact, including Brazil, China, Europe, India, Indonesia, and the United States.

Our work helps nations grow while addressing increasingly scarce resources and climate risk. This is a complex challenge in which policy plays a crucial role.


David Nelson, Executive Director of Energy Finance

• Investor and Strategic Advisor to energy and utilities companies and their

regulators for over 20 years

• Senior Vice President and Global Sector Leader, Energy, Utilities and

Commodities, AllianceBernstein

• Head of U.K. Utilities, Boston Consulting Group

• MBA, The Wharton School, University of Pennsylvania; BS, Mechanical

Engineering, University of California at Berkeley

Thomas C. Heller, Chairman of the Board and Senior Strategic Advisor

• Founder and former Executive Director of CPI

• Professor at Stanford University for 30 years

• Contributing lead author for IPCC Third and Fourth Assessment reports

• Vice-Chair, Governing Board of Global Green Growth Institute

• LLB, Yale Law School; BA Princeton University

Barbara Buchner, Executive Director of Climate Finance

• Leads the Global Innovation Lab for Climate Finance

• Named one of the 20 most influential women in climate change in 2014

• Lead author on Global Landscape of Climate Finance

• Senior Energy and Environmental Analyst at International Energy Agency

• PhD in Economics from the University of Graz; Visiting Scholar at the

Massachusetts Institute of Technology (MIT)

Key personnel: global


CPI India’s clients and stakeholders

Policymakers

• Ministry of

Finance

• Ministry of

Power/MNRE

• Central

Electricity

Regulatory

Commission

• NITI Aayog

Multilateral/

bilateral

organizations

• World

Bank/IFC

• ADB

• USAID

Public sector

banks

• RBI

• IREDA

• IIFCL

Research partners:

Indian School of Business, New

Climate Economy, ICRIER, Shakti

Sustainable Energy Foundation


CPI’s India Program


In order to meet its renewable energy targets,

India needs more availability of financing…

Total investment

required for

175 GW by 2022:

$189 bn

Total expected

investment:

up to $166 bnPreliminary analysis from forthcoming CPI study, Nov 2016

Small

Hydro,

1%

Wind

Power,

27%

Solar

Rooftop,

32%

Solar

Utility-

Scale,

37%

WtE, 3%

Investment required by technology type


…and financing at more attractive terms.

The high cost of

debt in India,

including high

and variable

interest rates and

short tenor of

debt, adds 30% to the cost of

renewable

energy.


CPI’s program for increasing investment in India’s

renewable energy targets


CPI’s India Program: Understanding Investors


The potential investment available for renewable energy

is $411 bn, more than twice the required $189 bn.

Preliminary analysis from forthcoming CPI study on renewable energy investors, Nov 2016


But the expected investment in renewable energy

will fall short of the $189 bn requirement.

Optimistic scenario:

Expected investment $166 Billion

Shortfall of $23 Billion

Optimistic scenario:

Debt vs. Equity

82%/18%


And renewable energy investments remain constrained

by barriers and risks to investors.

Investor Category Construction Risk Currency RiskWeak Financing

TermsCredit Risk Policy Risk

Government 1 4 5 2 3

Private Sector 1 5 4 2 3

Domestic institutional investors 3 0 0 1 2

Domestic private & public banks 1 4 5 2 3

Non-banking financial institutions 1 5 4 3 2

Development banks/agencies 1 5 4 3 2

Foreign institutional investors 1 2 5 3 4

Priority of risks: 1 (highest) to 5 (lowest)

0%

20%

40%

60%

80%

100%

Offtaker

Credit Risk

Land

Acquisition

Transmission

Evacuation

Infra

Regulatory/

Policy Risk

Curtailment

Issues/Integ

ration of RE

Domestic

0%

20%

40%

60%

80%

100%Forex Risk

Offtaker

Credit

Risk

Transmissi

on

Evacuati

on Infra

Regulato

ry/Policy

Risk

Unfavora

ble

Returns

Foreign


CPI’s India Program: Designing Policies


Which Federal Policies Can Be Most Cost-

Effective? (CPI, March 2014)

For wind power,

compared to the

current policy of

generation

based incentive,

reduced-cost

extended-tenor

debt is 78%more cost

effective and

provides 76% higher subsidy

recovery.


Auctions are almost always cost-effective;

however, deployment effectiveness is poor so far

• This could improve in the near future as auctions

such as California and S. Africa reach their

commissioning deadlines.

>75% Deployment

SuccessfulNSM P1 B1 & B2

50-75% Deployment

Somewhat SuccessfulKA P1

< 25% Deployment

Highly UnsuccessfulTN P1, AP, UP, U.K. NFFO 1-5,

Brazil Wind P1

17%

8%

75%


Right design can achieve cost-effectiveness and

deployment effectiveness

To increase cost-effectiveness, which is sensitive to Auction design risk:

• For tariff determination, use pay-as-bid auction instead of L1 process

• Base the volume of capacity auctioned on the market’s ability to supply

• Should be accompanied with (to exclude non-serious bidders):

– Stringent qualification criteria

– Strong penalties for not commissioning on time

To improve deployment effectiveness, which is more sensitive to common risks:

• Improve transmission infrastructure to manage completion risk

• Payment guarantees to reduce off-taker risk

• Wind power auctions

– Start with location-specific bidding in which the govt. procures land and other regulatory permits, and plans for transmission infrastructure in advance


CPI’s India Program: Designing Instruments


Innovative financial instruments can mobilize

more investment at attractive terms

Innovative financing mechanisms could reduce the cost of debt

by up to 4.5 percentage points and extend tenor by up to 10

years.


The new India Innovation Lab for Green Finance

www.greenfinancelab.in


Four instruments selected for further development

Loans4SME

• Aurus Lending Solutions

• A peer-to-peer lending platform to

help small and medium enterprises

operating in renewable energy

and energy efficiency raise debt

finance using a credit rating

algorithm

Rooftop Solar Private Sector Financing

Facility

• International Finance Corporation

and Azure Power

• A facility to provide debt financing for

rooftop solar PV projects that provide

power to private sector off-takers

using an aggregation and

securitization model.

P50 Risk Solutions

• P50 Risk Managers and Swiss Re

Corporate Solutions

• A facility to reduce the cost and

increase the amount of long-term

debt for renewable energy

projects by transferring resource

risk from banks to insurers through

a blending of commercial and

donor capital

Renewable Energy Integrated Hedging,

Equity & Debt Facility

• RR Corporate Ltd

• A fund to facilitate large-scale

international institutional investment

into renewable energy by managing

currency risk and aligning the cost of

capital with the risk profile during and

post construction

BRAZIL

CHINA

EUROPE

INDIA

INDONESIA

UNITED STATES

235 Montgomery St. 13th Floor

San Francisco, CA

94104, USA

climatepolicyinitiative.org

Thank you!www.climatepolicyinitiative.org


Dr. Gireesh Shrimali, Director, CPI India

• Professor, Energy Economics at Middlebury Institute of International Studies

• Professor, Indian School of Business, Hyderabad

• Interim Director, CPI-ISB Energy and Environment Program

• Over 20 years of experience in clean and information technologies

• PhD, Electrical Engineering, Stanford University

• BTech, Electrical Engineering, IIT-Delhi

Key personnel: India

Rituraj Borah, Senior Associate, India Innovation Lab for Green Finance• 9 years of experience in clean energy

access and energy efficiency• Project Manager for CLASP, supporting

India’s Bureau of Energy Efficiency• M.S. in Energy Efficiency and Business

Management, IIM Lucknow

Charith Konda, Consultant• Led the Business Insights energy team at

Datamonitor• Business and energy analyst for Deloitte

and RR Donnelly• Masters in Finance from ICFAI

Labanya Prakash, Consultant• 10 years of experience in investment

analysis and research and capital management

• Masters in Economics, Utkal University• CFA Charterholder

Vivek Sen, Consultant• 10 years of experience in power and

energy finance• Finance analyst for IMaCS, PXIL, PwC and

Enercon• MBA in Power Management from

National Power Training Institute


The total investment required to meet the

targets by 2022 is $189 billion.

Technology

Solar utility

scale

Solar rooftop

grid

Solar rooftop

off-grid

Wind SHP(Bio

+Bagg)Total

Capacity (GW)

60 28 12 60 5 10 175 GW

Debt 49.19 27.76 14.90 35.84 0.69 4.03 $132 bn

Equity 21.08 11.90 6.39 15.36 0.30 1.73 $57 bn

Total 70.27 39.65 21.29 51.19 0.99 5.75 $189 bn


Which Federal Policies Can Be Most Cost-

Effective? (CPI, March 2014)

For solar power,

compared to the

current policy of

viability gap

funding,

reduced-cost

extended-tenor

debt is 28%more cost

effective and

provides 49% higher subsidy

recovery.


Auctions are almost always cost-effective …

• Tariff reductions were up to 58% from the

baseline.

0-10% Reduction

Somewhat SuccessfulNSM P1 B1, UK NFFO-3&4 Wind, Brazil Wind P1, S. Africa Wind P1

10-20% Reduction

SuccessfulTN P1, AP, UP, Brazil Wind P2

> 20% Reduction

Highly SuccessfulKA P1 & P2, NSM P1 B2, MP, UK

NFFO-5 Wind, S. Africa Wind P2, S. Africa Solar P1 & P2

47%29%

24%

Cost-effectiveness of auctions:


Status of Net Metering and Open Access

No Net

Metering

Policy

Draft

stages

Notified Operational (with active

connections)

10 States 1 State

(GJ)

24

States

6 States (AP, DL, KA, TN,

UK, & WB)

State of Net Metering Policy

Successfully

ImplementedPoorly Implemented Not Allowed

AP, AR, AS, GA, GJ, HR,

KA, KL, ML, PB, RJ, TN, TS,

UK

CH, HP, JK, MP, MH, MN,

MZ, NL, OD, TR, BR, JH, SK, UP, WB

State of Open Access Policy

No state has successfully implemented net metering yet


Expected IRR for the third party financing model for financier in

different consumer segment

(a) IRR with fiscal

incentives

(b) IRR without fiscal

incentives

Re

sid

en

tia

l

Ind

ust

ria

l

Co

mm

erc

ial

Re

sid

en

tia

l

Ind

ust

ria

l

Co

mm

erc

ial

Andhra Pradesh 15.8% 18.2% 24.3%

8.9% 14.4% 19.4%

Assam 8.9% 10.1% 17.5%

4.2% 7.7% 13.9%

Bihar 9.3% 17.4% 17.4%

4.5% 13.8% 13.8%

Chhatisgarh 9.6% 11.4% 12.5%

4.7% 8.9% 9.8%

Delhi 14.9% 23.5% 37.7%

8.3% 18.7% 30.2%

Gujarat 11.3% 10.7% 10.7%

5.9% 8.3% 8.3%

Haryana 15.3% 24.3% 24.3%

8.6% 19.4% 19.4%

Himachal Pradesh 14.9% 14.4% 18.2%

8.3% 11.3% 14.4%

Jharkhand 18.2% 17.1% 17.4%

10.4% 13.5% 13.8%

Karnataka 17.2% 16.3% 26.5%

9.8% 12.8% 21.1%

Kerala 17.2% 13.7% 19.4%

9.8% 10.7% 15.4%

MP 13.5% 12.5% 14.4%

7.4% 9.8% 11.3%

Maharashtra 24.7% 23.9% 42.4%

14.4% 19.0% 34.0%

Odisha 14.0% 22.2% 23.1%

7.7% 17.7% 18.3%

Punjab 19.1% 20.2% 22.2%

11.0% 16.0% 17.7%

Rajasthan 16.7% 19.0% 20.2%

9.5% 15.1% 16.0%

Tamil Nadu 14.9% 18.6% 30.9%

8.3% 14.7% 24.7%

Telangana 18.6% 18.2% 24.3%

10.7% 14.4% 19.4%

Uttar Pradesh 24.1% 22.2% 23.1%

14.1% 17.7% 18.3%

Uttarakhand 7.0% 7.0% 13.3%

2.9% 5.3% 10.4%

West Bengal 19.6% 19.4% 22.2%

11.3% 15.4% 17.7%

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