INDIA’S RE SECTOR POISED FOR HIGH GROWTH WITH IREDA
IREDA has geared itself to spearhead growth of the RE sector envisioned to make a quantum jump and achieve accelerated capacity addition, ‘moving from megawatt to gigawatt’. It has been continuously developing new, innovative, and appropriate financial instruments that caters to the needs of its existing customers and new investors. The high growth path in the coming years for IREDA will require new ideas and strategies to remain as the market leader, to help meet the Government of India’s scaled up targets for renewable energy capacity to 175 GW by 2022.
India’s path towards sustainable development has made a remarkable shift in priorities since 2015. Renewable energy sector landscape in India has witnessed tremendous changes in the policy framework with accelerated and ambitious plans to increase the contribution of solar energy. India has an estimated renewable energy potential of about 1,095 GW from commercially exploitable sources with 750 GW solar power potential assuming only 3 per cent wasteland is made available. Wind power development has reached to commercial stage in India and is fastest growing renewable energy option today with revised estimated potential of 302 GW at 100 m hub height, as estimated by the National Institute of Wind Energy (NIWE). The estimated potential biomass and small hydro in the country is about 23 GW and 20 GW, respectively. India also has around 7,600 km of coastline which offers great potential for off-shore wind power development. The Government has scaled up the target of renewable energy to 175 GW by the year 2022 which includes 100 GW from solar, 60 GW from wind, 10 GW from biopower, and 5 GW from small hydropower. The above capacity of 100 GW of solar is proposed to be achieved through deployment of 40 GW rooftop solar projects and 60 GW large and medium scale solar projects. With this increased target, India will become one of the largest green energy producers in the world, surpassing quite a few developed countries.
Further, India’s submission to the UNFCCC on Intended Nationally Determined Contribution (INDC) firmly stated that India will achieve 40 per cent cumulative power generation from non-fossil fuel based energy resources by 2030 (equivalent to 26–30 per cent of generation in 2030), and to create an additional (cumulative) carbon sink of 2.5–3 GtCO2 e through additional forest and tree cover by 2030 with transfer of technology from advance countries and low-cost international funding.
Investments and Financing
To achieve the 175 GW of renewable energy capacity, it would need approximately $120 billion in capital investment and $40 billion in equity. The $160 billion needed over the period of next 6–7 years (until 2022)— at an average of $23 billion a year—will help meet the stated goal.
Towards this end, Renewable Energy Sector has been given ‘Priority Sector Lending’ status by the Reserve Bank of India (RBI). Banks can extend loans up to a limit of `15 crore to corporate borrowers and up to `10 lakh to individual borrowers for RE projects under priority sector. Investors’ interest in India from domestic and foreign investors has grown significantly in the last two years. India recently surpassed the USA and China as the biggest FDI destination in the world. India has permitted uninterrupted foreign investment for renewable energy development and deployment, allowing 100 per cent FDI in the renewable energy sector. The market opportunities in renewable energy have attracted a number of strategic and financial investors to India. Many have leveraged international financing to build their initial portfolio and are now looking at alternative financing models for their operating assets.
Role of IREDA
Renewable energy projects are capital intensive in nature and generally associated with a long payback period, making the commercial banks wary in providing lending services to these projects. Government of India had in 1987 created a dedicated public finance institution— ‘Indian Renewable Energy Development Agency’ (IREDA), under the administrative control of the Ministry of New and Renewable Energy, with an objective to provide financial services to the renewable energy sector in India.
IREDA has well defined mission, objectives and also a strategically aligned motto that defines its purpose. IREDA’s motto is ‘ENERGY FOREVER. IREDA’s Mission is to ‘be a pioneering participant friendly and competitive institution for financing and promoting self-sustaining investment in energy generation from renewable sources, energy efficiency, and environmental technologies for sustainable development.’ The key objectives of IREDA are:
- To give financial support to specific projects and schemes for generating electricity and/ or energy through new and renewable sources and conserving energy through energy efficiency.
- To maintain its position as a leading organization to provide efficient and effective financing in renewable energy and energy efficiency/ conservation projects.
- To increase IREDA’s share in the renewable energy sector by way of innovative financing.
- Improvement in the efficiency of services provided to customers through continual improvement of systems, processes, and resources.
- To strive to be competitive institution through customer satisfaction.
IREDA has been playing pivotal role in developing renewable energy. IREDA has been maintaining its leadership position in renewable energy space for the last 29 years and developing several innovative financial schemes/solutions for meeting the market requirement from time to time. IREDA has an excellent track record of financing more than 2,200 clean energy projects in the country. It has been profit making since inception, with successful business operations.
As a result of efforts made by IREDA towards development of the Renewable Energy sector in the country, the Indian Renewable Energy sector has experienced a year-onyear growth. The current installed RE capacity has reached more than 45,916 MW approximately, which is contributing about 15 per cent in country’s installed capacity of 307 GW.
Innovative Schemes and Models
IREDA has always been the prime mover and showing the way to its peers. As part of its business operations to meet growth aspirations, IREDA has been constantly developing new instruments/innovative products for the renewable energy sector. A few new and innovative schemes/models introduced by IREDA are:
- Structured financing
- Additional finance through ‘securitization of future cash-flows’ Bridge Loan Scheme to project developers
- Short-term loan assistance to RE developers/ suppliers/contractors Underwriting of debt/loan syndication
- Take-over financing
- Co-financing/consortium with banks
- Refinancing banks and FIs—Lines of Credit (LoC)
- Guarantee Assistance Scheme to re suppliers/promoters
- IREDA loan/SDF Scheme for IPP cogeneration in cooperative sugar mills
- Intermediary Loan Scheme— financing farmers for SPV water pumps though an aggregator SPV/ sugar mills.
- IREDA support for supplier credit/ letter of comfort for RE projects
- IREDA scheme for solar rooftop through aggregator (RESCO)
- Direct discounting of GBI for grid interactive wind and solar power projects
- Direct discounting of capital subsidy payable to channel partners/SNAs for their solar water heaters
- NCEF Refinance Scheme to banks/FI
During the year 2016–17 IREDA has launched another new scheme, namely: ‘Credit Enhancement Scheme for raising Bonds towards Renewable Energy Projects (Solar/Wind)’.
Impact of IREDA’s Efforts on Indian RE Sector
The unstinted and pro-active efforts being made by IREDA have enabled the commercialization of renewable energy sector in India, resulting in active participation from domestic commercial banks, international funding agencies and FDI, enabling the sector to attain a critical mass. IREDA’s principal focus has remained towards financing those renewable energy sectors where the technological efficacy has been adequately demonstrated but market and industry dynamics make it difficult to make a dent in the country’s energy mix. Today, several commercial banks and financial institutions are actively financing renewable energy projects. IREDA has constantly been in dialogue with all stakeholders, often impressing upon the government to suitably change policies to address any critical problem afflicting the sector.
Renewable energy is seen as the next big technology industry, with the potential to transform the trillion dollar energy industry across the world. Investing in renewable energy would enable India to develop globally competitive industries and technologies that can provide new opportunities for growth and leadership by corporate India. The renewable energy sector in India that is full of opportunities and merits, is becoming increasingly attractive for investment. In addition to increasing share of renewable energy in India’s energy supply mix, India could become a manufacturing hub for renewables.