India’s Solar Fund

India has set up a very ambitious solar target of 100 GW by 2022 which would require at least $125 billion in investment. Given that the country is capital starved, many analysts have dismissed this target and said that India would be lucky to meet even half of that target. The main hurdle faced by solar developers in the country is the high cost of capital. India has a number of state owned power finance companies such as REC and PFC, which are involved in lending to large power projects mainly thermal. The thermal capacity accounts for more than 60% of India’s power generating capacity.

IREDA which is a dedicated funding agency owned by the government has funded almost 60% of India’s wind power capacity. IREDA has large lines of credit from international financial developmental institutions like KFW, JICA etc. IREDA is already gearing up to shift its focus from wind energy to solar energy and looking to raise billion dollar funds. It recently raised its paid up share capital base. The government also wants some of the largest banks, both private and public sector to set up dedicated green funds. It could ask ICICI and SBI to do the needful. While most of the large banks have now got some experience in renewable energy funding, they have not been too enthusiastic as there is little security about the paying ability of discoms and the newness of solar technology. Also unlike conventional power loans renewable energy loans are long term approximately 10-15 years, given the cash flows for solar plants are distributed over 25 years with all of the costs going upfront.

India is already getting around $1 billion a year as cess from extracting coal, which goes into the National Clean Energy Fund. Like most of the other things, this fund was also misused by the last government to cover up its budget deficit, rather than fund renewable energy and climate mitigation efforts. The solar rooftop subsidy and the subsidy for solar pumps did not get disbursed on times, despite the large funds available with NCEF. Hopefully this government can not only push the macro things, but also decrease the inefficiency and lethargy from the normal government processes.