Study: Finance Challenges Add Excessive Costs To Renewable Energy In India


High interest rates and relatively short-term loans for solar projects and other renewable energy projects in India add 24% to 32% to the cost of renewable energy developed in the country – compared to similar projects in the U.S. and Europe, according to new research from Climate Policy Initiative (CPI) and the Centre for Emerging Markets Solutions (CEMS) at the Indian School of Business.

India's national government has in place a goal of installing 4,000 MW to 10,000 MW of renewable energy by 2017 and 20,000 MW by 2022. However, debt market issues will make it more expensive for India to meet these goals.

The CPI-ISB report finds that even if the cost of debt goes down, challenges with loan terms and access to low-cost equity, limits on foreign debt and national banking practices are likely to present additional barriers for growth in India's renewable energy sector in the medium term and long term.

In 2011, India launched a renewable energy credits program, a market-based national policy intended to help the country reach its renewable energy targets more efficiently, but CPI and CEMS predict that the program is not likely to achieve government objectives. Though the design of the credit mechanism appears adequate, the performance of the market has been far from satisfactory.

‘High debt costs – common in emerging economies – are a potential barrier to the growth of renewable energy,’ says David Nelson, senior director at CPI. ‘CPI is now analyzing how other nations have addressed this issue. Brazil's national development bank has provided low-cost debt to spur these projects forward and may provide some helpful lessons for India.’

‘India has more than enough wind and solar potential to meet the country's ambitious targets,’ adds Reuben Abraham, executive director at CEMS. ‘But without policy solutions, India's financing challenges will force this sector to fall behind.’

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