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India has set an aggressive target to reach 175 GW renewable
capacity by 2022 and 450 GW by 2030 from about 100 GW at present.
To meet this target, India will need more than $28 billion of
investments annually in the sector. In comparison, India received
an estimated investment of roughly $7 billion annually over the
past five years. Therefore, India will need to quadruple its
renewable investment to be able to reach its target to add more
than 350 GW of new renewable capacity during 2021-30.
Debt constitutes 70-75% of the capital requirement for renewable
generation projects. This would translate to about $200-215 billion
debt financing needs during 2021-30 and the rest in the form of
equity investments. In addition, India will need substantial
investments for renewable integration through transmission
infrastructure augmentation and building storage capacity. For
example, the targeted battery storage capacity of 27 GW by 2030
will require an estimated additional $30 billion investment.
While on the one hand local banks reach the regulator capped
limits of their exposure to the sector, the share of overseas
investments is witnessing a rise in the renewable sector. To
overcome the local financing constraints, renewable developers are
increasingly looking for alternative modes of financing through
foreign banks, bilateral and multilateral financing institutions,
and green bonds to both finance new projects and refinance
operational assets.
Overall, India's external commercial borrowings (ECBs),
including dollar- and rupee-denominated bonds, in the renewable
sector have increased from $476 million in 2016 to about $1.6
billion in 2020 as reported by the RBI statistics. In 2021, the
ECBs have crossed $3.9 billion in the first six months, about half
of which are going toward refinancing rupee loans, and another 45%
are toward financing greenfield renewable projects.
Green bonds are emerging as an important financing instrument;
however, access is limited to a few large portfolio owners. Green
bonds of more than $14 billion have been raised by renewable
developers, banking, and nonbanking financial institutions during
2016-21 year to date and are estimated to be about 20% of the total
renewable investment during the period. However, only a handful of
large renewable IPPs and conglomerates have been able to access
finance through this mode.
Leading developers in the country are adopting a mix of
strategies to attract investments from international players and
grow their renewable portfolio including listing the business on a
foreign stock exchange, partnerships with foreign private equity
and institutional investors, M&A deals, and infrastructure
investment trusts.
To improve access to low-cost international capital and improve
financial sustainability of renewable projects, India needs to
improve regulatory transparency and introduce a uniform green
taxonomy. These measures will help address the concerns of foreign
institutional investors with respect to the relatively low credit
ratings of renewable projects. Further, offering credit guarantees
by underwriting the currency, policy, and offtaker risks through
public financing institutions can help enhance the attractiveness
of renewable assets.
Posted 22 October 2021 by Ankita Chauhan, Senior Renewable Analyst, Gas, Power, and Energy Futures, IHS Markit
