Renewable Energy in India: Getting to Targets

Transcription

1 Renewable Energy in India: Getting to Targets Gireesh Shrimali Director, Climate Policy Initiative Fellow, Stanford University BRAZIL CHINA EUROPE INDIA INDONESIA UNITED STATES 235 Montgomery St. 13th Floor San Francisco, CA 94104, USA climatepolicyinitiative.org The CPI PowerPoint Theme 1

2 About CPI The CPI PowerPoint Theme 2

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 3

4 Key personnel: global 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) 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 The CPI PowerPoint Theme 4

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 5

6 CPI s India Program The CPI PowerPoint Theme 6

7 In order to meet its renewable energy targets, India needs more availability of financing Solar Utility- Scale, 37% WtE, 3% Small Hydro, 1% Wind Power, 27% Total investment required for 175 GW by 2022: $189 bn Solar Rooftop, 32% Total expected investment: up to $166 bn Investment required by technology type Preliminary analysis from forthcoming CPI study, Nov 2016 The CPI PowerPoint Theme 7

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 8

9 CPI s program for increasing investment in India s renewable energy targets The CPI PowerPoint Theme 9

10 CPI s India Program: Understanding Investors The CPI PowerPoint Theme 10

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 11

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 12

13 And renewable energy investments remain constrained by barriers and risks to investors. Priority of risks: 1 (highest) to 5 (lowest) Investor Category Construction Risk Currency Risk Weak Financing Terms Credit Risk Policy Risk Government Private Sector Domestic institutional investors Domestic private & public banks Non-banking financial institutions Development banks/agencies Foreign institutional investors Curtailment Issues/Integ ration of RE Offtaker Credit Risk 100% 80% 60% 40% 20% 0% Land Acquisition Unfavora ble Returns Forex Risk 100% 80% 60% 40% 20% 0% Offtaker Credit Risk Regulatory/ Policy Risk Domestic Transmission Evacuation Infra Regulato ry/policy Risk Transmissi on Evacuati on Infra Foreign The CPI PowerPoint Theme 13

14 CPI s India Program: Designing Policies The CPI PowerPoint Theme 14

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 15

16 Auctions are almost always cost-effective; however, deployment effectiveness is poor so far < 25% Deployment Highly Unsuccessful TN P1, AP, UP, U.K. NFFO 1-5, Brazil Wind P1 75% 17% >75% Deployment Successful NSM P1 B1 & B2 8% 50-75% Deployment Somewhat Successful KA P1 This could improve in the near future as auctions such as California and S. Africa reach their commissioning deadlines. The CPI PowerPoint Theme 16

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 17

18 CPI s India Program: Designing Instruments The CPI PowerPoint Theme 18

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 19

20 The new India Innovation Lab for Green Finance The CPI PowerPoint Theme 20

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 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 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. 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 The CPI PowerPoint Theme 21

22 Thank you! BRAZIL CHINA EUROPE INDIA INDONESIA UNITED STATES 235 Montgomery St. 13th Floor San Francisco, CA 94104, USA climatepolicyinitiative.org

23 Key personnel: India 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 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 23

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) GW Debt $132 bn Equity $57 bn Total $189 bn The CPI PowerPoint Theme 24

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 25

26 Auctions are almost always cost-effective Tariff reductions were up to 58% from the baseline. Cost-effectiveness of auctions: > 20% Reduction Highly Successful KA P1 & P2, NSM P1 B2, MP, UK NFFO-5 Wind, S. Africa Wind P2, S. Africa Solar P1 & P2 47% 29% 0-10% Reduction Somewhat Successful NSM P1 B1, UK NFFO-3&4 Wind, Brazil Wind P1, S. Africa Wind P1 24% 10-20% Reduction Successful TN P1, AP, UP, Brazil Wind P2 The CPI PowerPoint Theme 26

27 Status of Net Metering and Open Access State of Net Metering Policy No Net Metering Policy Draft stages 10 States 1 State (GJ) Notified 24 States Operational (with active connections) 6 States (AP, DL, KA, TN, UK, & WB) No state has successfully implemented net metering yet State of Open Access Policy Successfully Implemented AP, AR, AS, GA, GJ, HR, KA, KL, ML, PB, RJ, TN, TS, UK Poorly Implemented CH, HP, JK, MP, MH, MN, MZ, NL, OD, TR, Not Allowed BR, JH, SK, UP, WB The CPI PowerPoint Theme 27

28 Expected IRR for the third party financing model for financier in different consumer segment Residential Industrial Commercial Residential Industrial Commercial (a) IRR with fiscal incentives (b) IRR without fiscal incentives 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% The CPI PowerPoint Theme 28