Renewable Energy in India: Getting to...
Transcript of Renewable Energy in India: Getting to...
The CPI PowerPoint Theme 1
BRAZIL
CHINA
EUROPE
INDIA
INDONESIA
UNITED STATES
235 Montgomery St. 13th Floor
San Francisco, CA
94104, USA
climatepolicyinitiative.org
Renewable Energy in India:
Getting to TargetsGireesh Shrimali
Director, Climate Policy Initiative
Fellow, Stanford University
The CPI PowerPoint Theme 2
About CPI
The CPI PowerPoint Theme 3
A global team of analysts and advisors
Climate Policy Initiative (CPI) works to improve the most important energy and land use policies around the world, with a particular focus on finance. We support decision makers through in-depth analysis on what works and what does not.
We work in places that provide the most potential for policy impact, including Brazil, China, Europe, India, Indonesia, and the United States.
Our work helps nations grow while addressing increasingly scarce resources and climate risk. This is a complex challenge in which policy plays a crucial role.
The CPI PowerPoint Theme 4
David Nelson, Executive Director of Energy Finance
• Investor and Strategic Advisor to energy and utilities companies and their
regulators for over 20 years
• Senior Vice President and Global Sector Leader, Energy, Utilities and
Commodities, AllianceBernstein
• Head of U.K. Utilities, Boston Consulting Group
• MBA, The Wharton School, University of Pennsylvania; BS, Mechanical
Engineering, University of California at Berkeley
Thomas C. Heller, Chairman of the Board and Senior Strategic Advisor
• Founder and former Executive Director of CPI
• Professor at Stanford University for 30 years
• Contributing lead author for IPCC Third and Fourth Assessment reports
• Vice-Chair, Governing Board of Global Green Growth Institute
• LLB, Yale Law School; BA Princeton University
Barbara Buchner, Executive Director of Climate Finance
• Leads the Global Innovation Lab for Climate Finance
• Named one of the 20 most influential women in climate change in 2014
• Lead author on Global Landscape of Climate Finance
• Senior Energy and Environmental Analyst at International Energy Agency
• PhD in Economics from the University of Graz; Visiting Scholar at the
Massachusetts Institute of Technology (MIT)
Key personnel: global
The CPI PowerPoint Theme 5
CPI India’s clients and stakeholders
Policymakers
• Ministry of
Finance
• Ministry of
Power/MNRE
• Central
Electricity
Regulatory
Commission
• NITI Aayog
Multilateral/
bilateral
organizations
• World
Bank/IFC
• ADB
• USAID
Public sector
banks
• RBI
• IREDA
• IIFCL
Research partners:
Indian School of Business, New
Climate Economy, ICRIER, Shakti
Sustainable Energy Foundation
The CPI PowerPoint Theme 6
CPI’s India Program
The CPI PowerPoint Theme 7
In order to meet its renewable energy targets,
India needs more availability of financing…
Total investment
required for
175 GW by 2022:
$189 bn
Total expected
investment:
up to $166 bnPreliminary analysis from forthcoming CPI study, Nov 2016
Small
Hydro,
1%
Wind
Power,
27%
Solar
Rooftop,
32%
Solar
Utility-
Scale,
37%
WtE, 3%
Investment required by technology type
The CPI PowerPoint Theme 8
…and financing at more attractive terms.
The high cost of
debt in India,
including high
and variable
interest rates and
short tenor of
debt, adds 30% to the cost of
renewable
energy.
The CPI PowerPoint Theme 9
CPI’s program for increasing investment in India’s
renewable energy targets
The CPI PowerPoint Theme 10
CPI’s India Program: Understanding Investors
The CPI PowerPoint Theme 11
The potential investment available for renewable energy
is $411 bn, more than twice the required $189 bn.
Preliminary analysis from forthcoming CPI study on renewable energy investors, Nov 2016
The CPI PowerPoint Theme 12
But the expected investment in renewable energy
will fall short of the $189 bn requirement.
Optimistic scenario:
Expected investment $166 Billion
Shortfall of $23 Billion
Optimistic scenario:
Debt vs. Equity
82%/18%
The CPI PowerPoint Theme 13
And renewable energy investments remain constrained
by barriers and risks to investors.
Investor Category Construction Risk Currency RiskWeak Financing
TermsCredit Risk Policy Risk
Government 1 4 5 2 3
Private Sector 1 5 4 2 3
Domestic institutional investors 3 0 0 1 2
Domestic private & public banks 1 4 5 2 3
Non-banking financial institutions 1 5 4 3 2
Development banks/agencies 1 5 4 3 2
Foreign institutional investors 1 2 5 3 4
Priority of risks: 1 (highest) to 5 (lowest)
0%
20%
40%
60%
80%
100%
Offtaker
Credit Risk
Land
Acquisition
Transmission
Evacuation
Infra
Regulatory/
Policy Risk
Curtailment
Issues/Integ
ration of RE
Domestic
0%
20%
40%
60%
80%
100%Forex Risk
Offtaker
Credit
Risk
Transmissi
on
Evacuati
on Infra
Regulato
ry/Policy
Risk
Unfavora
ble
Returns
Foreign
The CPI PowerPoint Theme 14
CPI’s India Program: Designing Policies
The CPI PowerPoint Theme 15
Which Federal Policies Can Be Most Cost-
Effective? (CPI, March 2014)
For wind power,
compared to the
current policy of
generation
based incentive,
reduced-cost
extended-tenor
debt is 78%more cost
effective and
provides 76% higher subsidy
recovery.
The CPI PowerPoint Theme 16
Auctions are almost always cost-effective;
however, deployment effectiveness is poor so far
• This could improve in the near future as auctions
such as California and S. Africa reach their
commissioning deadlines.
>75% Deployment
SuccessfulNSM P1 B1 & B2
50-75% Deployment
Somewhat SuccessfulKA P1
< 25% Deployment
Highly UnsuccessfulTN P1, AP, UP, U.K. NFFO 1-5,
Brazil Wind P1
17%
8%
75%
The CPI PowerPoint Theme 17
Right design can achieve cost-effectiveness and
deployment effectiveness
To increase cost-effectiveness, which is sensitive to Auction design risk:
• For tariff determination, use pay-as-bid auction instead of L1 process
• Base the volume of capacity auctioned on the market’s ability to supply
• Should be accompanied with (to exclude non-serious bidders):
– Stringent qualification criteria
– Strong penalties for not commissioning on time
To improve deployment effectiveness, which is more sensitive to common risks:
• Improve transmission infrastructure to manage completion risk
• Payment guarantees to reduce off-taker risk
• Wind power auctions
– Start with location-specific bidding in which the govt. procures land and other regulatory permits, and plans for transmission infrastructure in advance
The CPI PowerPoint Theme 18
CPI’s India Program: Designing Instruments
The CPI PowerPoint Theme 19
Innovative financial instruments can mobilize
more investment at attractive terms
Innovative financing mechanisms could reduce the cost of debt
by up to 4.5 percentage points and extend tenor by up to 10
years.
The CPI PowerPoint Theme 20
The new India Innovation Lab for Green Finance
www.greenfinancelab.in
The CPI PowerPoint Theme 21
Four instruments selected for further development
Loans4SME
• Aurus Lending Solutions
• A peer-to-peer lending platform to
help small and medium enterprises
operating in renewable energy
and energy efficiency raise debt
finance using a credit rating
algorithm
Rooftop Solar Private Sector Financing
Facility
• International Finance Corporation
and Azure Power
• A facility to provide debt financing for
rooftop solar PV projects that provide
power to private sector off-takers
using an aggregation and
securitization model.
P50 Risk Solutions
• P50 Risk Managers and Swiss Re
Corporate Solutions
• A facility to reduce the cost and
increase the amount of long-term
debt for renewable energy
projects by transferring resource
risk from banks to insurers through
a blending of commercial and
donor capital
Renewable Energy Integrated Hedging,
Equity & Debt Facility
• RR Corporate Ltd
• A fund to facilitate large-scale
international institutional investment
into renewable energy by managing
currency risk and aligning the cost of
capital with the risk profile during and
post construction
BRAZIL
CHINA
EUROPE
INDIA
INDONESIA
UNITED STATES
235 Montgomery St. 13th Floor
San Francisco, CA
94104, USA
climatepolicyinitiative.org
Thank you!www.climatepolicyinitiative.org
The CPI PowerPoint Theme 23
Dr. Gireesh Shrimali, Director, CPI India
• Professor, Energy Economics at Middlebury Institute of International Studies
• Professor, Indian School of Business, Hyderabad
• Interim Director, CPI-ISB Energy and Environment Program
• Over 20 years of experience in clean and information technologies
• PhD, Electrical Engineering, Stanford University
• BTech, Electrical Engineering, IIT-Delhi
Key personnel: India
Rituraj Borah, Senior Associate, India Innovation Lab for Green Finance• 9 years of experience in clean energy
access and energy efficiency• Project Manager for CLASP, supporting
India’s Bureau of Energy Efficiency• M.S. in Energy Efficiency and Business
Management, IIM Lucknow
Charith Konda, Consultant• Led the Business Insights energy team at
Datamonitor• Business and energy analyst for Deloitte
and RR Donnelly• Masters in Finance from ICFAI
Labanya Prakash, Consultant• 10 years of experience in investment
analysis and research and capital management
• Masters in Economics, Utkal University• CFA Charterholder
Vivek Sen, Consultant• 10 years of experience in power and
energy finance• Finance analyst for IMaCS, PXIL, PwC and
Enercon• MBA in Power Management from
National Power Training Institute
The CPI PowerPoint Theme 24
The total investment required to meet the
targets by 2022 is $189 billion.
Technology
Solar utility
scale
Solar rooftop
grid
Solar rooftop
off-grid
Wind SHP(Bio
+Bagg)Total
Capacity (GW)
60 28 12 60 5 10 175 GW
Debt 49.19 27.76 14.90 35.84 0.69 4.03 $132 bn
Equity 21.08 11.90 6.39 15.36 0.30 1.73 $57 bn
Total 70.27 39.65 21.29 51.19 0.99 5.75 $189 bn
The CPI PowerPoint Theme 25
Which Federal Policies Can Be Most Cost-
Effective? (CPI, March 2014)
For solar power,
compared to the
current policy of
viability gap
funding,
reduced-cost
extended-tenor
debt is 28%more cost
effective and
provides 49% higher subsidy
recovery.
The CPI PowerPoint Theme 26
Auctions are almost always cost-effective …
• Tariff reductions were up to 58% from the
baseline.
0-10% Reduction
Somewhat SuccessfulNSM P1 B1, UK NFFO-3&4 Wind, Brazil Wind P1, S. Africa Wind P1
10-20% Reduction
SuccessfulTN P1, AP, UP, Brazil Wind P2
> 20% Reduction
Highly SuccessfulKA P1 & P2, NSM P1 B2, MP, UK
NFFO-5 Wind, S. Africa Wind P2, S. Africa Solar P1 & P2
47%29%
24%
Cost-effectiveness of auctions:
The CPI PowerPoint Theme 27
Status of Net Metering and Open Access
No Net
Metering
Policy
Draft
stages
Notified Operational (with active
connections)
10 States 1 State
(GJ)
24
States
6 States (AP, DL, KA, TN,
UK, & WB)
State of Net Metering Policy
Successfully
ImplementedPoorly Implemented Not Allowed
AP, AR, AS, GA, GJ, HR,
KA, KL, ML, PB, RJ, TN, TS,
UK
CH, HP, JK, MP, MH, MN,
MZ, NL, OD, TR, BR, JH, SK, UP, WB
State of Open Access Policy
No state has successfully implemented net metering yet
The CPI PowerPoint Theme 28
Expected IRR for the third party financing model for financier in
different consumer segment
(a) IRR with fiscal
incentives
(b) IRR without fiscal
incentives
Re
sid
en
tia
l
Ind
ust
ria
l
Co
mm
erc
ial
Re
sid
en
tia
l
Ind
ust
ria
l
Co
mm
erc
ial
Andhra Pradesh 15.8% 18.2% 24.3%
8.9% 14.4% 19.4%
Assam 8.9% 10.1% 17.5%
4.2% 7.7% 13.9%
Bihar 9.3% 17.4% 17.4%
4.5% 13.8% 13.8%
Chhatisgarh 9.6% 11.4% 12.5%
4.7% 8.9% 9.8%
Delhi 14.9% 23.5% 37.7%
8.3% 18.7% 30.2%
Gujarat 11.3% 10.7% 10.7%
5.9% 8.3% 8.3%
Haryana 15.3% 24.3% 24.3%
8.6% 19.4% 19.4%
Himachal Pradesh 14.9% 14.4% 18.2%
8.3% 11.3% 14.4%
Jharkhand 18.2% 17.1% 17.4%
10.4% 13.5% 13.8%
Karnataka 17.2% 16.3% 26.5%
9.8% 12.8% 21.1%
Kerala 17.2% 13.7% 19.4%
9.8% 10.7% 15.4%
MP 13.5% 12.5% 14.4%
7.4% 9.8% 11.3%
Maharashtra 24.7% 23.9% 42.4%
14.4% 19.0% 34.0%
Odisha 14.0% 22.2% 23.1%
7.7% 17.7% 18.3%
Punjab 19.1% 20.2% 22.2%
11.0% 16.0% 17.7%
Rajasthan 16.7% 19.0% 20.2%
9.5% 15.1% 16.0%
Tamil Nadu 14.9% 18.6% 30.9%
8.3% 14.7% 24.7%
Telangana 18.6% 18.2% 24.3%
10.7% 14.4% 19.4%
Uttar Pradesh 24.1% 22.2% 23.1%
14.1% 17.7% 18.3%
Uttarakhand 7.0% 7.0% 13.3%
2.9% 5.3% 10.4%
West Bengal 19.6% 19.4% 22.2%
11.3% 15.4% 17.7%