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Challenges in Financing Renewable Energy B V Rao Director (Technical) Indian Renewable Energy Development Agency Limited ( IREDA) 16th March, 2016 | New Delhi Power Scenario in India Installed capacity of 288 GW, of which RE capacity is over 39 GW (as on Feb 2016) Diesel Gas 0.36% 8.36% Nuclear 2.07% Hydro 15.04% Wind 8.98% RE 13.95% SHP 1.48% Biomass 1.59% Coal 60.23% Waste to energy 0.05% Solar 1.84% 175 GW RE Target by 2022 287 GW Private Sector PSUs Commitment of 268 GW from 414 Companies Commitment of 19 GW from 48 PSUs Finance Manufacturing Commitment for financing 78 GW from 40 Banks Commitment of 62 GW from 17 Manufacturing Companies Growth in Renewable Investment in India Renewable Energy Investment in India ($ Billion) 14 13 12 10.9 10 9 8 6.3 6 4.9 4 2.7 3.1 2004 2005 5.6 8.2 8.9 7.1 4.3 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 • Investment in India’s renewable industry increased more than 22% in 2015 to reach $10.9bn • Rise largely attributed to scale, where investment reached $5.6bn, up 80% from $3.1bn last year 2015 February 2016 Investment Requirement • • • • 175 GW RE plan entails investment of Approx. $ 140 billion (Rs. 8,50,000 Crore) Multilateral and Bilateral NBFCs Commercial banks Bonds Debt (70%) Equity (30%) $ 98 Billion (Rs. 6,00,000 Crore) $ 42 Billion (Rs. 2,50,000 Crore) Annual investment in RE (Rs. Crore) 160000 140000 120000 Rs. Crore 120000 128000 136000 143000 149000 SHP and Biomass Investment (Rs. Crore) 102000 100000 80000 60000 40000 20000 Wind Investment (Rs. Crore) 58000 18000 Solar Investment (Rs. Crore) 0 2014-15 2015-16 (p) 2016-17 (p) 2017-18 (p) 2018-19 (p) 2019-20 (p) 2020-21 (p) 2021-22 (p) February 2016 Sources of Low Cost Capital Indicative Rates Sources Green Bonds 7-9% Public Deposits International Funds 6-8% Multilateral Agencies Insurance / Pension Funds 7-9% Corporate 10-12% Stock Exchange, Mutual Funds 0-3% Tax on Fossil Fuels Instruments Raising Equity Climate/ Carbon Funds GOI Initiatives to promote Renewable Energy Financing Innovative Financing Mechanisms • • • • • • Increased availability of finance Lower rates of interest Faster RE deployment Renewables accorded Priority Sector lending status: Loans up to ₹ 15 crore for renewable power projects included. Banks mandated to disburse 40% of adjusted net bank credit to priority segments. Rooftop Solar through Home Loans: DFS has issued guidelines and circulars issued by various banks to include rooftop under housing loan Tax-Free Bonds: Government approves INR 50 billion tax-free bonds to enable low interest rate funding for RE Green Bonds: Enabling low cost funding for clean energy , REC, PFC, IREDA, IDBI and private sector like ICICI, Yes Bank asked to issue green bonds to raise funding for RE projects. Increase in Clean Environment Cess from Rs.200/tonne to Rs.400/tonne to boost renewable energy. Indian Renewable Energy Fund ( 1 Billion US$) : To raise funds to invest in Renewable Energy Projects and associated value chain including equity (Proposed) Proposed Dedicated Renewable Energy Fund For India Govt. of India (through IREDA) proposes to set up USD 1 to 1.5 bn fund for renewable energy Fund is to be setup in line with National Infrastructure Investment Fund (NIIF) structure Govt. owned entities such as PFC, REC, NTPC and IREDA have in principle agreed to the fund as Anchor Investors invest USD 315 million into Fund will be managed by a reputed international fund manager whose selection is being undertaken through an ICB process Received prima facie interest from various large fund managers to act as Investment Managers (GP) for proposed fund. Structure of the fund To be setup as a ‘Category I’ Alternative Investment Fund (AIF) under SEBI (Alternative Investment Funds) Regulations, 2012. Independent trustee company will be trustee. Anchor Investors and Other Investors would be LPs in the fund and would have role on Limited Partner Advisory Committee (LPAC). LPAC would not be decision making body and all investment decisions would be made by Investment Manager. February 2016 Tax Free Bonds for Renewable Energy Tax free bonds of INR 5,000 crores have been allocated to four institutions S. No. Name of the Institution Amount allocated (INR Crores) 1 IREDA 2000 2 NTPC 1000 3 REC 1000 4 PFC 1000 IREDA Tax Free Bonds: • IREDA’s Tax free Bond Public Issue of Rs.1716 Crore was oversubscribed by 3 times on the day of opening. • The average cost of Tax free Bond of Rs.2000 Crore is 7.50% . • IREDA’s Tax free Bonds were rated as AA+ by ICRA and India Rating Research Pvt Ltd. On stand alone basis. • Entire Tax free Bond proceeds will be utilized for on lending to RE & EEC Projects. February 2016 Key Challenges in Financing RE projects • Policy Regime • Long Term & consistent policies • Visibility of tariff policy • Regulatory interventions against the existing tariffs • Compliances of RPOs and RECs • Timely approvals • Infrastructure • Grid connectivity and evacuation facilities • Must run status for RE projects • Timely payments by DISCOMs • Forecasting and re-scheduling February 2016 Key Challenges in Financing RE projects • Long terms low cost funds • Pensions funds • Sovereign fun ds • Insurance funds • Improve “east of doing business” and transparency • “Single Window Clearance” systems • Land acquisition for RE projects • Technology aspects • Experience of developers for RE projects • Emerging market – lack of organized financial sector February 2016 Thank You Indian Renewable Energy Development Agency Limited [email protected] www.ireda.gov.in