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Presentation by Climate Policy Initiative

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Rooftop Solar Project and Finance Possibilities in India

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Presentation by Climate Policy Initiative

  1. 1. 11 BRAZIL CHINA EUROPE INDIA INDONESIA UNITED STATES Office #210-211, DLF South Court Saket, New Delhi 110017 Rooftop Solar Projects and Finance Possibilities in India November 2017
  2. 2. 2 Agenda 1. Distributed Renewable Energy in India 2. Rooftop Solar- Current Scenario 3. Financing Lines for Rooftop Solar 4. Barriers and Solutions 5. About USICEF 6. About USICFP 7. About Climate Policy Initiative.
  3. 3. 3 Distributed Renewable Energy in India
  4. 4. 4 India’s renewable energy sector is an attractive market to invest in… solar potential: 750 GW; wind potential: 300 GW 2nd in Renewable Energy Country Attractiveness Index 100% transport electrification by 2030, Installation target of 175 GW by 2022 (100 GW-Solar, 60 GW- Wind) Significant investment of about $189 bn to be mobilised to achieve targets
  5. 5. 5 Role of Distributed Solar Energy in India  Distributed Solar Projects- Rooftop Solar (RTS) and Off Grid Solar (OGS), including mini- grids and off-grid solar products, offer a promising alternative to improve quality energy access in India – Extensive load-shedding and erratic electricity supply compels people to resort to use of local, private and expensive solutions such as diesel generators, which raises both environmental and health concerns  40% of the Govt. of India’s solar installation target for 2022 to be met through RTS – 10 GW target to be met through residential and institutional rooftop consumers – 30 GW target to be met through industrial and commercial consumers  OGS to play a crucial role in Govt. of India’s “Power for all” programme – Programme aims to provide electricity access to every household by 2019 – 41 million households yet to be electrified in India
  6. 6. 6 Rooftop Solar- Current Scenario
  7. 7. 7 Rooftop Solar- Current Scenario  India added 678 MW of rooftop solar capacity in FY 2016-17  Total installed rooftop solar capacity reached 1.7 GW as of August 2017  Commercial and industrial customers (C&I) remains the biggest market segment  Public sector segment is also expected to show robust growth in the coming years because of a strong government push combined with 25-30% capital subsidy. Source: Bridge to India
  8. 8. 8 Rooftop Solar: Business Models  OPEX model has been gaining market share, doubling from 12% in FY 2014-15 to 24% last year. Large public sector procurement programs will drive further growth in this market in the next few years  Fairly consolidated market as access to capital remains tight and on-the-ground execution is challenging. Top five developers account for over 60% market share. Govt. enablers/ Incentives - 30% capital subsidy on system cost (residential) - benefits of accelerated depreciation of 40% - encouraging financing of systems under the priority sector - lower interest rates. Unit FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Source: Bridge to India Unit FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Annualcapacityinstallation,MW CAPEX (Ownership Model) – bids invited on project cost OPEX (PPA Model) – bids invited on tariff
  9. 9. 9 Rooftop Solar: Economics • Rooftop projects are marked by high initial capital investment and low operating costs • Typical rooftop project – Typical size < 200 KW (C&I space). – Average life of the project 25 years. – Debt equity ratio 70:30 – Capital costs • INR 5 million per 100 KW • Installation time less than 3 months ( inclusive of the time required for the structure and the various permissions) – Marked by moderate debt coverage • DSCR of 1.2x – Moderate but constant returns to the investor • Equity IRR > 12% • Which with proper bundling, higher ratings and track record can attract investors looking for constant flows
  10. 10. 10 Financing Lines for Rooftop Solar
  11. 11. 11 Financing Lines • SBI- World Bank Line ( $ 625 million for grid connected solar rooftop) – Door to door tenor of 15 years – Cost – One year MCLR + ( 20 Bps to 50 BPs) – Credit rating required ( Investment grade i.e. BBB and above) – Fixed asset coverage ratio above 1.25x – Average DSCR • at P75 > =1.35 & P90 >= 1.15 • PNB-ADB line ( $500 million multi-tranch facility by ADB) – Door to door tenor of 15 years – Cost – One year MCLR + ( 30 Bps to 50 BPs) – Credit rating required ( Investment grade i.e. BBB and above) – Fixed asset coverage ratio above 1.25x ( No collateral for loans < INR 1 million) – Average DSCR • at P75 > =1.35 & P90 >= 1.15 • IREDA – Cost – Cost of domestic borrowing +( 80BPs to 175 BPS) ~ 9.80 % to 10.75% • RBL ( guaranteed by USAID) – cost ~ <11%
  12. 12. 12 Barriers and Solutions
  13. 13. 13 Barriers and Solutions- Rooftop Solar Rooftop Resource Assessment and Off- taker Credit Assessment Limited information and validation on bankability and impact of business projects. Small ticket size investments leading to high transaction costs Financialbarriers SOLUTIONS (Market needs) Technology-driven platform to enable technical and off-taker credit risk assessment Project Preparatory Support
  14. 14. 14 Barriers and Solutions- Rooftop Solar Concerns on the credit quality of off-takers Lack of project financing options for small ticket sizes due to which collateral requirements are high Shortage of long-term capital with Indian financial institutions makes funding for this sector more difficult Limited equity investments due to small ticket sizes and high return expectations Financialbarriers SOLUTIONS (Market needs) Portfolio level guarantee constructs to provide comfort to lenders. Financial facility to drive inflow of long-term foreign capital Blended Equity Model Payment security mechanism to address liquidity concerns.
  15. 15. 15 USICEF India’s first Distributed Solar Energy focused portfolio preparation facility sourced equally from US foundations and MNRE with Overseas Private Investment Corporation (OPIC) of US as the anchor lender for distributed solar projects to address the early-stage project capital gap Instruments through which these solutions can be implemented USICFP USICFP is a $40 million joint commitment focused on the provision of catalytic finance made between the government of India and a consortium of US foundations during Prime Minister Modi’s 2016 visit to the US
  16. 16. 16 About USICEF
  17. 17. 17 USICEF: Process Flow India’s first project preparation facility to scale up distributed solar power projects and drive long-term financing
  18. 18. 18 Key objectives:  Increase prospects for getting debt financing from OPIC and other DFIs/ lenders  Enable critical mass of projects to unlock access to capital from public and private sources US Investors …USICEF, managed by CPI, provides a suitable partnership for investing in this sector… Keystone of the commitment made between the Indian and US governments at COP21 in Paris to mobilize finance for Indian distributed clean energy projects USICEF OPIC/IREDA/other lenders Project Developer (RTS/ OGS) Target segments: 1. Mini-Grid & Micro-Grid Power Generation 2. Market-Based Solutions 3. Renewable Energy Infrastructure Catalyzers
  19. 19. 19 About USICFP
  20. 20. 20 ...USICFP, advised by CPI, provides an opportunity to engage in risk mitigation in this sector US-India Catalytic Finance Program (USICFP) is a $40 million joint commitment focused on the provision of catalytic finance made between the government of India and a consortium of US foundations during Prime Minister Modi’s 2016 visit to the US. These instruments will serve as a tool for joint decision making for ICFP, between the Government of India and the consortium of US foundations. Catalytic financing interventions selected for detailed design and structuring for ICFP:  Rooftop Solar Financing Facility  Foreign Exchange Hedging Facility  Rooftop Solar Payment Security Mechanism  Venture Debt Facility  Small and medium-sized enterprise support facility
  21. 21. 21 Role of CPI in USICFP  CPI will be serving as a communications liaison between the Government of India(GOI) and the consortium of US foundations.  Providing analytical support, preparing a report identifying the potential market development, best implementation methods and the risks associated with it. As a facilitator CPI will be supporting the program to achieve its objectives. That is, providing flexible financing to attract commercial capital from domestic and international financing sources into high impact projects and mobilize capital flow in the distributed solar sector in India. As an overseeing agency
  22. 22. 22 About Climate Policy Initiative (CPI)
  23. 23. 23 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.
  24. 24. 24 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
  25. 25. 25 CPI’s program to enable and scale up investment to India’s renewable energy targets
  26. 26. 26 Annexure
  27. 27. 27 The India Innovation Lab for Green Finance
  28. 28. 28 Lab Members use experience and expertise to help develop instruments Secretariat:
  29. 29. 29 Innovative and implementable financial instruments launched by the India Lab can drive investment Loans4SMEs (endorsed) • Peer-to-peer lending platform to help small and medium enterprises operating in renewable energy and energy efficiency raise debt finance • Potential to mobilize $2.20 billion of debt to the SME sector for renewable energy and energy efficiency initiatives by 2022 • Has closed transactions with a total deal size of $5.7 mn, 80% in support of SMEs in renewable energy and infrastructure. Rooftop Solar Financing Facility (endorsed) • Financing facility to provide long debt financing at a reasonable rate to rooftop solar developers through aggregation of loan pools and securitization • Potential to mobilize USD $32.3 billion of capital to the rooftop solar sector, and create an additional 20,000 jobs by 2022 • A $100 mn pilot requires $30 mn of concessional finance at 8% INR; the pilot can support in adding 168MW capacity of rooftop solar FX Hedging Facility (endorsed) • A customizable currency hedging product that lowers currency hedging cost, allowing allocation of risks to suitable parties and eliminating the credit risk premium • Can reduce cost of currency hedging by ~30% • In discussions with three foreign institutional investors/lenders to facilitate hedging of a total of approximately $900 mn.
  30. 30. Thank you!