India’s energy demands are increasing with GDP and population growth and these demands come from all aspects of the economy – industrial, commercial, agricultural and residential. The key area of demand side management will be to monitor energy intensity. With increasing energy intensity, investments must be multiplied or added (at least). The $189 billion requirement includes $57 billion in equity and $132 billion in debt for our country as a whole, according to Niti Ayog’s report.
The investment potential until 2022 is 411 billion dollars worldwide. Equity investment potential is $220 billion (four times the equity investment required) and debt investment potential is $191 billion, 45% more than required. This indicates that more than enough investment potential is available to fund renewable energy targets by 2022.
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Energy scenario in India
Although India is blessed with geological advantages, what it lacks is unhealthy infrastructure and standards on the transmission and distribution of this energy. Although currently it is recorded that the main contributors to the total energy supply with more than 60% of our energy needs are satisfied by coal, of which many states have large deposits of the same, it is high time post -Covid, which has made us question sustainability and therefore renewable energy investments will increase (see footnote #1 for reference).
Investments have been solicited from foreign and domestic institutional investors, but they face significant barriers to investment in renewable energy. These barriers to investment by domestic and foreign institutional investors are (in order of priority): buyer’s risk, lack of transport evacuation infrastructure, foreign exchange risk, regulatory risks and mismatch of market expectations. yield.
Beyond these barriers, India’s renewable energy sources are wind, solar, biomass and small hydro, for which they have installed capacities of 37.5 GW, 33.7 GW respectively. , 9.9GW and 4.7GW.
With growing energy needs and now that the world is expecting a major automotive e-boom, India too is set to stand out to fulfill its 2022 mission. India has an estimated potential capacity of 720 GW only in solar, 102 GW in wind capacity, 25 GW in biomass and 20 GW in small hydro (see footnote #2 for reference). However, the estimated potential capacity is not equivalent to the power supply; but the two are positively correlated, because an increase in potential capacity implies a proportional increase in supply. It is therefore imperative to amplify investment in renewable energy to achieve India’s growth potential. Beyond that, many ministerial debates and policies have revolved around this sector, which is planning massive investments.
On the government side, the Central Electricity Regulatory Commission (CERC) estimates that the capital investment required is Rs. 50 million/MW and according to CERC standards, the capital structure of power generation projects should be a debt ratio of 70:30.
The Eleventh Plan shares with us that private sector capacity expansion is substantially high with 33% of total additional capacity coming from the private sector. And in the twelfth plan, the share increased to 50%. The government expects investments from group companies such as Tata Group, Reliance Group, GVK Group, Adani Group, GMR Group and Torrent Group which are active in power generation. Apart from these, the investments of Domestic Independent Power Producers (IPPs) like Hero Future Energy, Mytrah Energy, ACME Solar, Azure Power and CLP India are also welcome, but due to bad DISCOM, the sector is facing investment shortages at the generation stage.
Attracting investment through banks
In line with RBI standards, banks’ credit exposure to domestic IPPs cannot exceed 15% and an additional 5% for the infrastructure account. These risk exposures relate to all infrastructure projects, including energy-related projects. Since the exposure of banks in the electricity sector is huge, these banks are under pressure to finance other infrastructure/electricity projects. The Bank’s investments in the electricity sector are mainly through loans to project promoters for terms of up to 12 years. During these crucial and critical times, banks have also supported the power sector in India but the raw side of reality is that this is done through reform and on several occasions DISCOMs have been bailed out of situations financially weak.
Commercial banks in India are the most popular option to finance the construction phase of renewable energy projects which carries higher risks, while institutional investors are well suited to refinance the outstanding debt of renewable energy projects. operational renewable energy. When commercial banks start financing a project, they determine the initial lending rate assuming a long-term loan that incorporates high construction risk in the early years and reduced project risks after construction. Due to averaging effects, relative to the risk taken, this may cause the interest rate to fall. Thus, the banks have a strong incentive to remain invested in the project once construction is complete.
In addition, improving the distribution segments is key to sustained long-term growth in the power sector. This would depend significantly on decoupling the electricity sector from politics and decoupling the political will from state DISCOMs. Efforts have been made to resolve the problems related to the distribution segment while ensuring competition in the unbundled segments of the sector, in particular for bulk electricity. In addition, farmers are encouraged under the PM-KUSUM program to install solar panels, produce and then sell the electricity produced at home.
In addition, a gradual reduction in the cross-subsidy burden on the sector and improved operational and commercial efficiency would help improve the financial situation of the Indian power sector. Transition management has no longer proven to be the most difficult task and has effectively and efficiently attempted to balance business objectives and social obligations facing the sector. This balanced commercial prudence on the one hand and the social acceptability of reform on the other.
- Energy Statistics India 2021, Department of Statistics and Program Implementation, Government of India
- Ministry of New and Renewable Energy (India), “National Solar Mission Grid Connected Solar Rooftop Program in India”, 2019.
- Central Electricity Authority (India), “Renewable Energy Sources”, 2020; India Brand Equity Foundation, “Renewable Energy”, 2017
- Central Electricity Regulatory Commission (Tariff Terms and Conditions) Regulations 2014
- RBI, 2015; Infrastructure Debt Fund (IDF):
Consultant (Strategy) and Author