India has pledged 175 gigawatts (GW) of renewable energy capacity by 2022, up from around 43 GW today, and for non-fossil fuels to be 40% of total generating capacity by 2030, which equates to 300 GW of capacity. Are these targets realistic?
This is obviously a very steep target and I would say that it is more of an aspiration right now. But the Indian government is very serious and they have announced an array of operational and financial measures to support the growth of renewables in India. It is also worth noting that India has all the fundamental drivers for renewables in place — growing energy demand, huge resource potential, competitive costs and an urgent need to reduce carbon emissions.
The theme of Abu Dhabi Sustainability Week in 2017 is ‘Practical steps towards a sustainable future’. What are the practical steps that India should be taking towards delivering on its ambitious renewable energy goals, particularly with respect to the key challenges of accessing affordable finance, technology and outdated distribution infrastructure?
India has already been taking many practical measures to drive the growth of the renewable sector. The UDAY package has improved the finances of some of the weakest utilities in the country and improved their offtake risk. The solar parks policy where the government is developing 20,000 megawatts (MW) of solar park infrastructure (land, transmission, transport connectivity etc) and providing it to developers on a ‘plug and play’ model has also been very helpful in dealing with the operational concerns of developers. There are many ongoing initiatives on the transmission side including the green corridor programme and national smart grid and storage missions. We have also seen pilot storage projects being tendered by various state governments.
In my view, upgrading the transmission and distribution infrastructure and making it sufficiently robust to deal with the fluctuations in renewable energy output is the biggest practical challenge for the sector. This requires proactive government support and planning, billions of dollars in investment and high-tech intervention.
Financing 100 GW of solar and 60 GW of wind requires, according to industry estimates, a massive capital injection of nearly US$300 billion. How much money is the Indian government prepared to spend? What will be the contribution of Indian financial institutions? Where are the main foreign investments coming from, and how much foreign investment has been pledged so far?
The Indian government does not have the capacity or willingness to spend this amount of money. The good news is that the private sector is increasingly willing to do so provided there are appropriate systems and policy mechanisms in place. On the power generation side, we see huge investment interest in the sector from around the globe. Some of the leading international utilities, private equity funds and corporate houses are active players in the sector. I believe that out of the total solar installed plus the pipeline capacity of 25 GW, approximately 20% is sponsored by international investors.
On the debt side, more than 80% of capital is coming from Indian lenders comprising banks, financial institutions and private finance companies. The government’s role is restricted to being a catalyst by providing seed capital, capital subsidies and tax incentives to selected target segments. The Government of India has very recently announced a US$2 billion equity fund specifically for the sector.
The government is also playing a more active but indirect role in the financing of the transmission system where most of the national state level transmission companies are owned by different arms of the government.
How can overseas investors and stakeholders, including those from the Middle East & North Africa, support India’s renewable energy transformation? What is the role of the private sector?
Middle East investors have been looking at this market with increasing interest. Abu Dhabi Investment Authority (ADIA) has a substantial minority stake in ReNew, one of the largest renewable IPPs in India. FRV has also been bidding successfully in the Indian market. These investors can bring much needed capital to the sector but also contribute by transfer of international technology and project development expertise. We also see a great commonality of interest between MENA and India from a renewable energy consumption, technology development and investment perspective.
How can the private sector and government collaborate more effectively in realizing India’s energy transition from fossil fuels to renewable energy?
We believe that the current government, particularly the Ministry of New and Renewable Energy (MNRE), is already working very closely and proactively with the private sector. One area with substantial scope for improvement is for the different state governments to learn from each other and share best practices. That will go a long way in streamlining administrative processes and helping the private sector. There also needs to be more dialogue on addressing key long-term issues such as building skills for the sector.
India recently announced US$750 million in funding for a 30% capital subsidy for rooftop solar installations, mainly to improve energy access for India’s poorest communities. How will the subsidy scheme work, and is it the right strategy?
This subsidy is actually targeted towards residential and institutional consumers. Some major changes have been announced in the subsidy scheme whereby instead of the central government providing subsidies directly to private installers through an open window process, funds will be channeled to state level nodal agencies and utilities, who will then be disbursing subsidies to lowest cost bidders decided through a tender process. The government is trying to improve the process but we believe that this process will again be highly inefficient and controversial. Running a well-structured tender process with adequate safeguards is a very time consuming and costly exercise wiping away much of the subsidy benefit.
We believe that these funds could be put to much better use in other ways, for example, skill building initiatives, setting up standards, training utilities and regulators on various aspects of distributed generation, net metering and grid management.
Why is ‘Bridge to India’ attending ADSW 2017? What will be your message to visitors and delegates?
We are keen to attend the event to meet international stakeholders, understand their perspective and share our views on the Indian renewable market. We want to give a balanced and independent perspective and hopefully address some of the investment related concerns of MENA investors in this market.
About Vinay Rustagi, Managing Director of Bridge To India: Vinay has more than 15 years of experience in financing of energy and infrastructure projects across India and Europe. He has worked in a mix of financing and advisory roles at Standard Chartered Bank, National Australia Bank, SMBC (Sumitomo Mitsui Banking Corporation) and ICICI Securities. Over the last few years, his work has been concentrated primarily on large scale renewable projects including both solar and wind. This has given him a deep understanding of the solar energy sector including project development and related technical, operational and regulatory issues. He is passionate about developing a successful rooftop solar energy business because of its unique ability to meet India’s growing energy needs without having an adverse impact on the environment.