India could cut the cost of subsidizing wind energy by as much as two-thirds by introducing new policies to allow projects to raise cheaper, longer-term loans, according to a study.
A new study by Climate Policy Initiative, a San Francisco-based analysis firm, and Bharti Institute of Public Policy at the Indian School of Business, finds that India’s renewable energy financing policies – especially wind and solar—are not as cost effective as they could be.
The report, titled “Solving India’s Renewable Energy Financing Challenge: Which Federal Policies can be Most Effective,” says a policy that both reduces the cost of debt and extends its tenor is the most cost-effective.
In the case of wind, reducing debt cost to 5.9 percent and extending tenor by 10 years can cut the cost of total government support by up to 78 percent. For solar, reducing debt cost to 1.2 percent and extending tenor by 10 years can cut the cost of support by 28 percent, the report said.
“Although there are no clear winners across all criteria, our analysis presents policymakers with crucial tradeoffs that would enable them to choose appropriate federal policies based on relevant policy goals,” CPI senior director David Nelson said.
Such interest subsidies are more attractive than existing policies, the report said. For wind energy, compared to the existing Generation-Based Incentive (GBI) of Rs 0.5 per unit, an interest subsidy of 3.4 percent would be 11 percent less expensive and support 83 percent more deployment.
Similarly, for solar energy projects, as compared to the current policy of 30 percent viability gap funding (VGF), an interest subsidy of 10.2 percent would be 11 percent less expensive and support 30 percent more deployment, the study said.
Indian commercial banks offer 10-year loans with interest rates of about 12 percent to renewable plants. Such unfavorable terms add as much as 32 percent to the cost of renewable energy in India, according to the report.
India has set an ambitious target of generating 15 percent of its power from clean sources by 2020. The country targets to double renewable energy capacity to 55,000 Megawatt over four years through 2017.
picture source: wikipedia