Greentech Lead India: High interest rates and relatively
short term loans for renewable energy projects in India add 24-32
percent to the cost of renewable energy in India compared to similar projects
in the U.S. and Europe, according to a new finding from Climate Policy
Initiative (CPI) and the Centre for Emerging Markets Solutions (CEMS) at
the Indian School of Business (ISB).
The national government has a goal to reach 4,000-10,000
MW of renewable energy by 2017 and 20,000 MW by 2022. Debt market issues make
it more expensive for India to meet these goals.
The CPI-ISB Energy and Environment Program report,
“Meeting India’s Renewable Energy Targets: The Financing Challenge,”
finds that even if the cost of debt goes down, issues with loan terms, access
to low-cost equity, limits on foreign debt, and national banking practices are
likely to present additional barriers for growth in India’s renewable
energy sector in the medium and long term.
In 2011, India launched Renewable Energy
Credits, a market-based national policy, to help the country reach its
renewable energy targets more efficiently. The CPI-ISB
report, “Falling Short: An Evaluation of the Indian Renewable
Certificate Market,” finds that the Indian Renewable Energy Certificate
market is not likely to achieve government objectives.
Though the design of the Renewable Energy Certificate
mechanism appears adequate, the performance of the market has been far from
satisfactory.
“High debt costs, common in emerging economies, are
a potential barrier to the growth of renewable energy,” said David
Nelson, senior director, CPI. “CPI is now analyzing how other nations have
addressed this issue. Brazil’s national development bank has provided
low-cost debt to spur these projects forward, and may provide some helpful
lessons for India.”
“India has more than enough wind and solar
potential to meet the country’s ambitious targets,” said Reuben
Abraham, executive director, CEMS, ISB. “But without policy solutions,
India’s financing challenges will force this sector to fall behind.”
“While most policy analysis organizations
in India focus on the technical aspects of policy design, this
program focuses on the impact of policy on business actions, in-depth review of
the political economy, and comprehensive analysis of policies across
sectors,” said Reuben Abraham, executive director, CEMS, ISB.
“These first projects look squarely at the real-world problem of financing
renewable energy.”