Financing Innovation Key To India’s Renewable Energy Expansion, Says NRDC

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Growth in India’s renewable energy sector has accelerated at a rapid pace over the last few years through the support of favourable policy initiatives. In order to sustain this growth momentum India needs to implement innovative financing initiatives and ensure strict adherence to existing policies.

Gujarat Solar Park
The Charanka solar park in Gujarat has an installed capacity of 224 MW

A series of reports released recently by the Natural Resources Defense Council (NRDC) analyses the possible policy and financial initiatives that the Indian government and supporting institutions need to implement to boost the expansion of the country’s renewable energy infrastructure. Through these reports the Council has put forward some recommendations for policy makers and financial institutions.

Among the policy initiatives that would likely increase the pace of renewable energy capacity addition is the replication of successful state renewable energy policies. Some states in India have been able to implement significantly larger capacities compared to others.

The southern state of Tamil Nadu has 35% of the 21 GW wind energy capacity installed in India; the state has been among the early adopters of the technology and has among the lowest cost of wind power generation in the country. Similarly, Western states of Gujarat and Rajasthan have almost 70% of the solar power capacity operational in India; both the states have robust solar power policies.

The Indian government has set a target to source 15% of the electricity demand from renewable energy sources by 2022. To achieve this target state governments have taken up Renewable Purchase Obligations varying according to the availability of renewable energy resources in their respective states. All governments have been urged to fulfill their obligations in order to boost the demand for electricity generated from renewable energy projects.

Timely implementation of projects is another initiative that would significantly boost investor confidence. The Indian central and state governments have recently started levying financial penalties on project developers who fail to meet commissioning deadlines. Missed deadlines not only create supply-demand mismatch but also rock confidence of the financial institutions in renewable energy projects.

A number of financial initiatives proposed by NRDC can help the Indian renewable energy sector sustain healthy growth over the next few decades. Policy makers have been urged to expand the viability gap funding scheme that offers financial support to project developers on the capital cost investment of a project. Developers seem more comfortable with such an approach compared to reverse auction.

India collects about $1.6 tax on every metric ton of coal produced and imported in India which has led to the creation of the multi-million dollar National Clean Energy Fund. This largely untapped fund should be used for financing renewable energy projects. For low-cost financing purposes separate renewable energy lending quotas should be established for national banks; infrastructure debt funds can also be used for financing renewable energy projects. Pilot projects to finance renewable energy power plants through green bonds and green bank can also be considered.

NRDC feels that India’s renewable energy sector holds tremendous potential to expansion and job creation. The sector already employs at least 70,000 people, the NRDC report claims.

Image Credit: Gujarat Power Corporation Limited

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