The CEFIM programme published the Clean Energy Finance and Investment Roadmap of India in 2022, focusing on energy efficiency, offshore wind and green hydrogen. Building on this roadmap, the CEFIM programme supports the Bureau of Energy Efficiency to deepen understanding on how to develop an Energy Savings Insurance scheme in the country to promote energy efficiency investments.
Clean Energy Finance and Investment Mobilisation in India
The CEFIM India programme supports the country's clean energy ambitions and provides important insights into the development of innovative financing solutions that can help attract finance and investment in India's clean sector.
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Clean Energy Finance and Investment Roadmap
Development of a Clean Energy Finance and Investment (CEFI) Roadmap can help India to achieve its clean energy ambitions, bringing together government and private sector stakeholders to agree upon a clear action plan that identifies and addresses bottlenecks complicating or constraining finance and investment in renewable energy and energy efficiency developments.
The CEFI Roadmap outlines opportunities to tailor interventions to channel capital for clean energy development at suitable scales. This includes identifying innovative financing solutions and effective investment vehicles that can help deepen local capital markets, bring in new investors and attract international capital for clean energy.
The CEFI Roadmap, developed by the OECD Clean Energy Finance and Investment Mobilisation (CEFIM) team in partnership with the Natural Resources Defense Council (NRDC) and under the guidance of the Government of India, brought together stakeholders through a series of three workshops:
- To assess critical barriers and opportunities to prioritise actions that improve clean energy finance and investment
- To identify and assess innovative solutions and effective investment vehicles that can deepen capital markets and mobilise stakeholders/investors
- To deliberate recommended actions and build consensus on the steps forward that implement and operationalise financing tools able to attract capital at suitable scale.
Through this process, the CEFI Roadmap endeavoured to set forth a clear action plan, built on consensus, to help unlock further finance and private capital for clean energy projects. Emphasis was set on the development of clean energy projects over the next five (5) years.
The CEFI Roadmap has set forth a clear action plan, providing a comprehensive overview of key enabling tools and financing mechanisms in critical areas relevant to clean energy investment. The recommendations are built by consensus, to help unblock further finance and private capital for clean energy projects. Emphasis is on the development of projects over the next decade.
Three focus areas have been selected in line with governmental priorities to unlock the potential for these segments with India's economic recovery plans and its Aatma Nirbhar Bharat (Self-reliant India) ambitions.
Building on these focus areas, the OECD organised three series of workshops covering different topics:
- Series of workshops I: Offshore wind, energy efficiency for MSMEs
- Series of workshops II: MSMEs energy efficiency, offshore wind and green hydrogen
- Series of workshops III: Focus group discussions
Offshore wind can play a critical role in meeting India’s renewable energy targets to 2030, particularly given the country’s 7 600 kilometres of coastline. Enabling the prospects for offshore wind capacity additions, however, will require targeted actions that help to channel capital to early projects whilst enabling a pipeline of future capacity additions.
A first CEFI Roadmap workshop on solutions to unlock capital for offshore wind development in India was held on Friday, 4 March 2022. The workshop brought together stakeholders from government, industry, finance and development partners to discuss key challenges and opportunities for offshore wind projects in coming years and to 2030. Discussions built upon findings from a series of stakeholder consultations held by OECD and NRDC to assess priority areas for action under the CEFI Roadmap.
Energy efficiency presents an opportunity for India’s micro, small and medium enterprises (MSMEs) to reduce their emissions footprint whilst achieving energy cost reductions. Enabling investment in energy efficiency solutions, however, will require addressing barriers to finance, including but not limited to awareness, incentive and capacity to carry out energy efficiency upgradation and the overall cost of financing faced by MSMEs.
A first CEFI Roadmap workshop on solutions to unlock capital for MSME energy efficiency investments in India was held on Monday, 14 March 2022. The workshop brought together stakeholders from government, industry, finance and development partners to discuss key challenges and opportunities for MSME energy efficiency finance in coming years. Discussions built upon findings from a series of stakeholder consultations held by the OECD and NRDC to assess priority areas for action under the CEFI Roadmap.
India has an ambitious target of 500 gigawatts (GW) of renewable energy capacity by 2030 as well as net-zero ambitions by 2070. Meeting these objectives will require development of clean energy solutions such as offshore wind and green hydrogen production.
A second CEFI Roadmap workshop was held on Tuesday, 10 May 2022. It has brought together representatives from the Government of India, energy companies, domestic financial institutions, and international development finance organisations to discuss investment needs and solutions to increase domestic and international finance for offshore wind & green hydrogen in India.
India has an ambitious target of 500 gigawatts (GW) of renewable energy capacity by 2030 as well as net-zero ambitions by 2070. Meeting these objectives will require development of clean energy solutions such as offshore wind and green hydrogen production.
A second CEFI Roadmap workshop was held on Wednesday, 11 May 2022. It has brought together representatives from the Government of India, energy companies, domestic financial institutions, and international development finance organisations to discuss investment needs and solutions to increase domestic and international finance for offshore wind & green hydrogen in India.
Targeted application of public funds, alongside international climate and development finance can “crowd in” investors and channel private capital to meet India’s clean energy ambitions. The third workshop under the Clean Energy Finance and Investment Roadmap for India, held on Thursday, 25 August 2022, convened stakeholders for in-depth focus group discussions on two key recommendations from the CEFI Roadmap: (i) an Energy Savings Insurance for energy efficiency in MSMEs, and (ii) Blended Finance Facilities for offshore wind and green hydrogen.
Global experience in catalysing renewable energy finance and investment
This online compendium considers global experiences in the design and implementation of various financing mechanisms that have been used to encourage and catalyse renewable energy investment.
The compendium is by no means an exhaustive list of vehicles that can support the scale-up of finance for renewable energy projects.
It does, however, provide insights to five financial instruments that have been used to increase the flow of capital to renewable energy projects: from small-scale household solutions and early-market technologies to partnerships with financial institutions and issuance of asset-backed securities.
These examples could be applied in a similar manner – or differently, depending on the investment size, risk and anticipated investor profile – to increase the availability, affordability and attractiveness of clean energy finance in India.
In addition, a number of studies considering the tools and strategies to catalyse renewable energy finance are mentioned in the following examples. Links to these reports, along with additional complementary information, have been provided throughout.
*Note: renewable energy refers only to renewable power (electricity) throughout this study.
Energy policy in India over the past decade focused on creating enabling conditions to deliver renewable energy technologies onto market and to bring down their costs.
The result led to a spectacular drop in prices for renewable energy solutions like solar photovoltaic (PV) and on-shore wind, where the cost of renewables in India has been less expensive than new coal-fired power and even much of existing coal-fired generation (TERI, 2019).
Global experience (e.g. in solar PV and on-shore wind) has shown that targeted public interventions can support increased flows of finance to renewable energy projects (Steffen, Egli & Schmidt, 2020).
For example, risk mitigation (e.g. the IREDA credit enhancement scheme) and financial tools such as the Ministry of Finance's Partial Credit Guarantee Scheme can help to enable flows of private capital to renewable energy projects.
A number of potential financing vehicles can build upon these initiatives, helping to catalyse the scale needed to finance India’s 2030 ambitions.
One such example is structured finance (e.g. via aggregation partnerships) to increase investment volumes and reduce due diligence costs, for instance for smaller-scale and distributed renewable energy projects.
Standardisation (e.g. of project documents) can also be used to prepare projects to be pooled as securitised assets for trading in capital markets (IRENA, 2016).
Other financial instruments such as green bond issuance, which has ramped up in India in recent years, can help scale up and recycle capital for renewable energy projects, particularly for more established, utility-scale renewable electricity developments. This could be done, for instance, through a limited-period, subsidised credit enhancement facility to support opening up India’s domestic bond market, which has seen very limited renewable energy bond issuances (CEEW, 2020).
These instruments can also expand the current investor base, for instance tapping into international institutional investors such as insurance and pension funds (CEEW-CBI, 2019).
The following case studies pull from experiences in developing and applying financing vehicles that have been used to increase overall finance and investment in renewable energy development.
Common threads across these experiences include:
•Identifying the right instrument: each of the examples targeted a particular barrier (e.g. access to finance) or need (e.g. increased capital capacity) to design tailored solutions that addressed underlying risks and paved the way for increased flows of capital.
•Engaging the right partner(s): the interventions identified key partners (e.g. local financial institutions, credit specialists, business angels and industry experts) to help structure and prepare the financing mechanisms and ensure their effective application.
•Targeting potential investors: each case worked to address perceived risks and to demonstrate financial viability, helping to open the doors for potential investors, from venture capital and commercial banks to pension funds and company shareholders.
These shared considerations can be used to identify eventual opportunities and similar design elements that could be applied in the Indian context to increase finance and catalyse private investment in renewables.
Targeted public support can improve access to finance, particularly for borrowers and technologies perceived as risky by private capital. Microfinance arrangements, for instance, can facilitate access to capital for households and small businesses looking to purchase renewable energy solutions.
De-risking tools (e.g. guarantees or using combinations of grants and equity) can similarly help prepare less-established renewable energy markets, emerging technologies and innovative businesses for private finance.
On-lending and co-lending structures can help local finance institutions to gain confidence in lending to renewable energy projects (IRENA, 2016). These partnerships also can be used for eventual aggregation and securitisation (e.g. for issuance of solar asset-backed securities).
These types of financial instruments can also help apply limited public funds strategically in a way that addresses market barriers while improving the overall “bankability” of renewable energy solutions.
As renewable energy markets mature, they generally need greater capital flows, including refinancing vehicles such as asset-backed securities that can recycle capital for new projects.
Debt capital market solutions for renewable energy projects have increased considerably in recent years and can help mobilise assets managed by institutional investors such as hedge fund and pension fund managers.
For example, IREDA Green Masala bonds and PFC off-shore bonds have helped tap into capital markets and accelerate flows of finance to renewable energy projects in India.
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Additional resources
- International Solar Alliance
- Know India - national portal of the Government of India
- Invest India - investment opportunities in renewable energy