ADBI Working Paper 863 G. K. Sarangi
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It can be elicited from the above that the renewable energy sector faces a whole lot
of risks of different types. Many of these risk factors can be minimized through
government interventions. It emerged from a stakeholder survey carried out by NITI
Ayogo that the public sector can act as a game changer by positioning itself strategically
to minimize the risks of the sector (GoI 2015a). Some of the risks can
be minimized by providing full and partial loan guarantees, underwriting the repayment
of loans, socializing the costs of new transmission, creating necessary institutions
to enforce the existing regulations and policy provisions, and facilitating foreign
investments by assuming currency risks. For instance, as mentioned above, the
government can support foreign renewable energy investors by reducing or removing
the fees charged for sovereign investors and by absorbing hedging costs.
The government also can play proactive role in minimizing the risks and barriers faced
during the project-development and project-commissioning phases by setting up a single
window facility or by setting up Special Purpose Vehicles (SPV) that can hasten the
process of acquiring land, getting necessary permission, connecting with the grid, and
mitigating the risks associated with performance and curtailment. The market related
risks, characterized by financial health of DISCOMs, policies related to open access,
poor volume of transaction at short-term market, and grid integration issues, can be
minimized by sustained and continuous reform of the power sector of the country. Some
efforts have been already undertaken by government; however, still more is required to
be done.
6. CONCLUSION AND POLICY RECOMMENDATION
The assessment carried out in this paper clearly indicates that financing of renewable
energy in India continues to face multiple conundrums. The problem is largely entangled
with the nature of the financial market of India in general, such as short tenure of loans,
high capital costs, and lack of adequate debt financing, etc. Sectoral contours further
exacerbate the problem of mobilizing the necessary finance because of the technological
specificities requiring high capital costs and almost no operational costs. In addition,
inconsistencies at the policy and regulatory level, the juxta positioning of the renewable
energy sector within the ambit of the power sector, and the lack of necessary support
infrastructure, such as land, further compounds the problem. Efforts have been
undertaken from time to time to minimize such risks and introduce innovative financing
mechanisms that are in tune with the technological transitions and need of the sector.
Innovative mechanisms, such as setting up of green banks, issuance of green bonds,
infrastructure debt bonds, sourcing crowd funding, etc. are proved to be successful to
some extent. This is evident, as recent statistics indicates that India globally is positioned
as the third largest country in terms of energy investments (IEA, 2017).
However, given the transformative vision of producing 175 GW of renewable energy
in the country by 2022, a whole lot more needs to be done. Most importantly, it is
important that the government should act as a facilitator and should devise innovative
policy mechanisms not only in terms of introducing innovative financing instruments, but
also creating conducive environment which minimizes the associated risk factors. One
such policy-level innovation calls for collaboration and a portfolio of investment
arrangements. Collaborative efforts between a variety of stakeholders such as
governments—both at the center as well as in provinces, financial institutions, investors,
industrial agencies, and research organizations, can go a long way toward minimizing
the risks. This has been well recognized by the NITI Ayogo in a recent report that lays
down the renewable energy roadmap for India (GoI 2015a). There is also a need to
improve and make the approvals and clearance systems more transparent to reduce the