Unlocking climate finance india

1. RAISING INVESTMENTS FOR INDIA'S CLIMATE COMMITMENTS

2. The international climate agreement that emerged from the Paris negotiations in Dec 2015 marks a
historical turning point for the whole world and particularly for India.
As a part of the global climate deal, national governments have shared plans for their countries'
action on climate change, and India's contribution is ambitious -- promising that
• Renewable energy will be 40% of the country's expected electricity generation capacity in 2030
• There would be a 35% reduction in carbon intensity by 2030 from 2005 levels.
• India will have 100GW of solar power by 2022.
• And a wind power target of 60GW by 2022, up from 25GW currently.

3. KEY CHALLENGES
• Shortage of available financing
• Financing at unattractive terms -- such as high cost of debt, short tenure and variable
interest rates -- which can add up to 30% to the cost of renewable energy in India, compared
to the US or EU.
Public-private collaboration will be essential to raising the finance needed for India's cleaner
growth. While the right domestic policies will be key to facilitating finance, greatly scaling up
investment from the private sector will be the only way to mobilize the full amount of capital
needed to meet India's renewable energy targets.

5. IDEAS
FOR
INNOVATIVE GREEN FINANCE INSTRUMENTS

6. Rooftop Solar Private Sector Financing Facility aims to drive capital at a lower cost of financing for
developers of rooftop solar projects, by providing long term debt financing through securitization. It also
aims to demonstrate the commercial viability of sustainability-focused, asset-backed securities for the
Indian rooftop solar sector. Over 2017-2022, the Facility can mobilize USD $320 million of private capital
for rooftop solar power. It has the potential to help raise further investment, beyond 2022, by supporting
rooftop solar power developers to grow and by demonstrating the commercial viability of the sector.

7. Type of instrument: Commercial investment
Focus area: Rooftop solar power
Goal: To drive capital at a lower cost for financing rooftop solar projects that
provide power to consumers, by providing long term financing through
securitization
Private finance targets: Institutional investors, venture capital/private equity, commercial banks, and
foreign investors
Strengths: The Facility can operate well under the current institutional framework and existing
financial regulations. There is high potential to attract private capital by expanding the investor base
for rooftop solar power – assisted by the presence of the International Finance Corporation (IFC) as
the implementing agency.
Challenges:The implementation timeline of 12-18 months is long, while the need is immediate.

10. Loans4SME is a peer-to-peer lending platform that would increase access to debt financing for small
and medium enterprises (SMEs) for renewable energy and energy efficiency initiatives, by connecting
them directly with lenders. Loans4SME has the potential to mobilize around USD $2.2 billion in debt
financing for SMEs in renewable energy and energy efficiency by 2022, and thereby help in providing
access to finance almost 800 MW of rooftop solar projects.

11. Type of instrument: Commercial investment
Focus area: Off-grid renewable energy, ESCOs, RESCOs, energy efficiency
Goal: A peer to peer lending platform to help SMEs operating in renewable energy
and energy efficiency raise debt finance
Private finance target: Banks, NBFCs, individual lenders, corporate treasuries, family businesses
Strengths: The platform has high potential to mobilize needed private finance for SMEs in
renewable energy and energy efficiency, estimated at around $2.20 billion. The potential leverage of
private finance is also very high because of the low amount of public capital required to implement.
Challenges: Lack of impact capital can delay implementation of the platform, or may
completely prevent it from going live. There would be need for additional clarification on the
operational and institutional model of the credit rating, know-your-customer, and risk management
components of the platform. Also, the platform will require a donor to fund the roll-out.

14. The FX Hedging Facility aims to facilitate large-scale foreign investment into renewable energy in
India by providing a cheaper currency hedging solution. Currency risk – the risk of unexpected
devaluation when investing in a foreign currency – is the greatest risk facing potential foreign
investors in renewable energy. It requires currency hedging, but commercially available currency
hedging products can be expensive. The FX Hedging Facility can reduce the cost of currency
hedging by around 30% and has the potential to mobilize a minimum of $9 of foreign debt per
dollar of donor grant.

15. Type of instrument: Hedging facility
Focus area: Renewable energy (utility-scale, distributed, and off-grid)
Goal: To facilitate large-scale foreign investment into renewable energy in India by
providing a cheaper currency hedging solution
Private finance target: Foreign institutional investors, retail investors and other private equity;
Foreign and local commercial banks
Strengths: The Facility could potentially address the complicated currency risk issues with foreign
investments and, therefore holds promise to drive more foreign private investment. The structure
has the potential to reduce the cost of currency hedging by around 22% and mobilize $28 of private
investment for every dollar of donor grant.
Challenges: There could be concerns around the costs and level of risk coverage used in the financial
model, and the sustainability of the model after a few years.

18. An estimated 1.2 billion people -almost one in every five people in the world- are living in areas affected
by conflict and fragility today. Some of these people are fleeing from war, while others have escaped natural
disasters. Most are trying to earn a living in very challenging environments. These are not abstract numbers —
we are talking about real people, with real problems. Hence, we need to ask ourselves, in the public and private
sectors, what strategies can help them. We know that the private sector is an indispensable force for economic
growth. It’s also crucial in countries emerging from crises. These communities need investment to create jobs,
spur economic growth, generate tax revenues, bolster infrastructure, and create a sense of hope for their
people. And, simply put, a society with an economic stake in peace is less likely to return to conflict. However, all
too often investors perceive doing business in fragile and conflict environments as too risky. Of course, one may
find big challenges in these countries ; but also opportunities and they need to be exploited to the benefit of
all.