Renewable deployment in India: Financing costs and implications for policy

Shrimali, G and Nelson, D and Goel, S and Konda, C and Kumar, R (2013) Renewable deployment in India: Financing costs and implications for policy. Energy Policy, 62. pp. 28-43.

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Abstract

India's ambitious goals for renewable energy raise many questions regarding the nature of investment required. We conduct financial modeling of actual renewable projects in India; and derive the following insights. First, the high cost of debt is the most pressing problem: higher cost and inferior terms of debt in India may raise the cost of renewable energy by 24-32% compared to the U.S. Second, even if cost of debt goes down, loan terms - including short tenors and variable interest rates - will become significant impediments, given that they add 13-14% to the cost of renewable energy in India compared to the U.S. Finally, due to the high cost of debt, policy lessons from the U.S. and Europe; which focus on finer instruments such as duration of revenue-support, revenue-certainty, investor-risk-perception, and completion/cost-certainty; are not likely to be as effective, with potential impacts on the cost of renewable energy in the 3-11% range. In fact, we find that an interest-rate subsidy, which reduces the cost of debt, reduces the overall subsidy burden by 13-16%. This suggests that Indian policymakers need to prioritize the provision of low-cost, long-term debt and take a closer look at the successful efforts by China and Brazil. © 2013 Elsevier Ltd.

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