Parliamentary Standing Committee Highlights India’s Financial Constraints to Meet 2030 Clean Energy Targets
India has made notable progress in the production of renewable and non-fossil energy in recent years. As of December 31, 2021, the government has announced that India has achieved its NDC target as committed at COP21. However, as the parliamentary standing committee recently pointed out, financial constraints remain a challenge in India to meet the “clean energy” targets set for 2030.
India had pledged that 40% of the country’s installed power generation capacity would come from clean energy sources by 2030. As of December 31, 2021, the Indian government announcement that India has achieved its Nationally Determined Contribution (NDC) target with a total installed non-fossil energy capacity of 157.32 Giga Watts (GW), or 40% of the total installed electricity capacity as it stands is committed during the COP21.
In 2015, India had decided that by 2022, 175 GW of renewable energy capacity would be installed in the country, including 100 GW of solar power, 60 GW of wind power, 10 GW of biomass and the 5 remaining GW of small hydraulics. Later, in 2019, Prime Minister Narendra Modi said that India’s renewable energy capacity would be increased to well over 175 GW and eventually to 450 GW. At the recently concluded COP26, he announced that the government had committed to reaching 500 GW of installed electricity capacity from non-fossil fuel sources by 2030.
Recently, the parliamentary standing committee on energy, which deals with the Ministry of New and Renewable Energies (MNRE), tabled a report on “financial constraints in the renewable energy sector” in which the committee presented a list recommendations for the government to explore innovative ways to address the issue of financial constraints in the sector.
India on track to meet 2022 targets
As of January 31, 2022, with approximately 11 months remaining to achieve the target of 175 GW of renewable energy capacity by 2022, 105.42 GW has been achieved. In other words, approximately 60% of the objective has been achieved. However, based on the targets per segment, the 10 GW target set for bioenergy has been met while almost 97% of the 5 GW target for small hydro has been met. In the case of wind energy, only two-thirds of the 60 GW have been reached, while barely around 50% have been reached in the case of solar energy.
Significant progress in the renewable energy sector in recent years
According to Invest in India, the country’s investment promotion agency, India was ranked 3rd in the Attractive Renewable Energy Countries Index in 2021. The country’s installed renewable energy capacity stood at over 151.4 GW (including large hydro), accounting for 39% of the country’s total capacity, as of December 31, 2021. In addition, the increase in installed solar energy capacity has increased 17 times over the past 7 years and reached 50 GW. Overall, India’s installed renewable energy capacity, including large hydroelectric plants, increased from 76.4 GW in March 2014 to 151.4 GW in December 2021, registering an increase of about 98 %. As reported earlier, India has achieved its Nationally Determined Contributions (NDC) target of 40% electricity generation from clean energy sources by 2022.
The financial constraints of the sector were highlighted by the MNRE
If the progress of recent years has been notable, the country has set itself ambitious objectives for the installation of renewable energies to be achieved by 2022, and by 2030 which have a very significant need for financing, such as the said the MNRE during the committee meetings. To meet long-term commitments, India would need an annual investment of Rs. 1.5 to 2 lakh crore. Despite this, the estimated investments for the past few years have been in the range of only Rs. 75,000 crores, thus leaving a large gap between required and actual investments. To achieve the target of 450 GW of installed capacity by 2030, the ministry has considered a total additional investment of Rs. 17,000,000 crore including transmission cost based on certain assumptions.
The committee noted that bridging this huge gap between required and actual investments will be a gargantuan task. Noting the large need for overall debt and the need to reduce the cost of financing for renewable energy developers, the committee recommended that the ministry explore the following:
- Innovative financing mechanisms and alternative financing routes such as Infrastructure Development Fund (IDF), Infrastructure Investment Trusts (InVIT), Alternative Investment Funds, Green Bonds/Masala, Crowdfunding, etc
- Revolving funding obligation requirement based on the Revolving Purchase Obligation (RPO) model for banks and financial institutions.
- Establish a green banking system capable of responding to the persistent financial challenges facing the sector
8407 million USD of FDI inflows in the sector in 10 years
Between 2010-2011 and 2019-2020, the ministry said there was a total FDI equity inflow of USD 8,407.38 million in the unconventional energy sector. Automatic 100% FDI has been authorized in the renewable energy sector. This is one of the measures taken by the government to stimulate investment in the sector, along with other measures such as the deployment of tax incentives such as accelerated depreciation, GST at lower rates, concessional customs duties, etc., payment security mechanism for projects tendered by SECI, establishment of a dispute resolution committee to deal with disputes between solar / wind energy developers and SECI / NTPC beyond contractual agreement, establishment of Renewable Energy Industry Promotion & Facilitation Board, Ultra Mega Renewable Energy Parks to provide land and plug and play transmission base, Green Energy Corridor Scheme, etc.
IREDA should benefit from a special window to borrow from the RBI in pension rate
The Indian Renewable Energy Development Agency (IREDA) is the only public sector financial institution dedicated to financing renewable energy projects in India. As of March 31, 2021, IREDA had financed 2,800 renewable energy projects with cumulative loan sanctions of Rs. 96,250 crores and disbursement of Rs. 63,158 crores supporting the addition of green energy capacity of over of 16,165MW. The committee noted that, in accordance with RBI guidelines, IREDA must maintain a minimum capital to risk-weighted assets (CRAR) ratio of 15%. But, its CRAR had fallen from 23.1% in 2014-15 to 14.3% in 2019-20 limiting the borrowing window. There was a slight improvement to 17.1% in 2020-21. Additionally, IREDA has planned to propose an IPO to allow for more funding. Noting the pivotal role of IREDA, the committee suggested that IREDA be granted a special window to borrow from the RBI at a repo rate in line with other specialized financial institutions such as NHB, SIDBI and NABARD , to ensure the availability of low-cost financial resources. resources for the sector.
The committee requested the ministry to explore the possibility of exempting PFC Ltd, REC Ltd and IREDA from paying guarantee fees for raising funds from international multilateral agencies such as KfW, JICA and ADB. Alternatively, he suggested a guarantee fee at a concessional rate as in the case of the National Bank for Financing Infrastructure and Development (NABARD).
The committee has asked banks to restructure loans so that the EMI is higher during peak revenue-generating season and lower during off-season to prevent renewable energy projects from becoming NPAs. Further, he recommended that the ministry actively engage with state governments to avoid any unilateral cancellation/renegotiation of Power Purchase Agreements (PPAs) as this causes uncertainty and negatively affects investment in the sector. renewable energies.
Ministry urged to sue DISCOMS and states to pay dues
To avoid delays in processing applications for tariff approvals by electricity regulatory commissions, the committee suggested that amendments be made to the Electricity Act to set a maximum time limit for granting approvals. /disposing of petitions by state electric regulatory commissions. Furthermore, he called for proper implementation of the Electricity (Late Payment Surcharge) Rules 2021 so that developers are compensated for delays caused by distribution companies (DISCOM) in paying dues.
He also called for providing payment security instruments in every PPA signed by renewable energy developers with DISCOMs. The department was urged to sue states and DISCOMs to pay dues on a first-in, first-out basis so that older dues are paid first. The ministry has also been asked to pursue the issue of banks’ reluctance to lend to local banks and to ensure the availability of funds for the installation of renewable energy capacity under programs such as rooftop solar and the KUSUM. In addition, he called for increasing the lending limit in the sector.
Government promotes PLI program to reduce reliance on China for solar PV modules
Through the Production Linked Incentive Schemes (PLIs), the government aims to attract foreign investors to set up manufacturing units in India and induce local manufacturers to expand their units, which would also boost employment. In the renewable energy sector, the Cabinet in 2021 approved a “National Program on High Efficiency Solar PV Modules” of the PLI, with an expenditure of Rs. 4,500 crores to promote the manufacture of high efficiency solar PV modules in India and thereby reduce import dependency in the renewable energy sector. An additional allocation of Rs. 19,500 crore was announced by the Ministry of Finance in the 2022-23 budget to meet targets of 280 GW of installed solar capacity and increase non-fossil power capacity to 500 GW by 2030 .
The featured image: Clean Energy Goals