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Key Findings

Renewable energy financing in India has transformed over the past decade to include a plethora of different players vying for a piece of the growing sector.

It is clear the sun – literally – will shine on this massive growth area for a long time ahead, building India's energy security while driving both system deflation and decarbonisation.

The international bond market has demonstrated immense depth, proactiveness and boldness towards the renewable energy sector, thanks to global understanding, high yield offerings and the initial success and pedigree of large players.

Executive Summary

The Indian renewable energy sector has witnessed unprecedented growth in the past decade, rivalling capacity additions anywhere in the world. The country has had the highest growth in renewable energy capacity addition among all global economies in the past seven or eight years, with capacity (including large hydro) increasing 1.97 times and solar energy increasing nearly 18 times.

The growth has been supported by an equally large amount of domestic and global capital, both in the form of debt and equity, invested in Indian RE infrastructure. Debt, the main fodder for RE projects, has come through various channels as the industry matured and as financiers from all quarters gained a better understanding of its risk return dynamics.

Private Non-Banking Financial Companies (NBFCs) were the first entities to test the waters by lending to renewable projects, when capital from other conventional sources such as banks, private or public, found it best to avoid exposure to a nascent and evolving technology. In addition, the long duration and large debt size typical of RE projects limited banking support, as did the banks’ over-exposure to the greater power sector.

Financing has transformed significantly since then, with the entry of varied sources of funding such as banks, bond market (domestic and global), international lenders and development finance institutions (DFIs) vying for a piece of the growing RE sector. Private NBFCs, the flag bearers at the start of the journey, have been overshadowed by larger banks, primarily the State Bank of India (SBI), then HDFC Bank, Axis Bank and, more recently, ICICI Bank – completely changing the renewable energy competition landscape.

Domestic bonds entered the market soon after the banknote demonetisation undertaken by the Government of India in 2016, helping RE companies by providing lower rates, increasing lender competition, adding a new avenue for funding operating projects and helping companies reduce exposures with certain lenders where exposure norms were hit.

The biggest boon for the sector has been access to global bond markets for the incumbent players. The international bond market has demonstrated immense depth, proactiveness and boldness towards the sector, thanks to global understanding of the sector, high yield offerings and buoyed by the initial success and pedigree of large players.

After a wait-and-watch approach for most of the past decade, even foreign banks (led by the likes of Standard Chartered Bank) have also started taking substantial exposure in renewable energy projects.

With increasing complexity and project sizes, the meaningful presence of these different players bodes well for continued growth of the sector. For a capital-intensive area, a highly competitive funding landscape is arguably the biggest growth driver.

On the equity side, by virtue of the social, environmental and economic impact, renewables have – since the very beginning – evinced interest from multiple long-term investors. Deep investments have come from sovereign entities such as ENEL, CDPQ and Canada Pension Plan Investment Board (CPPIB). Global private equity players Goldman Sachs, KKR and Global Infrastructure Partners (GIP) joined in, as did oil and gas majors Total SE, Shell and Petronas and national conglomerate majors like Adani, Tata and most recently Reliance Industries.

India’s ambitious RE targets clearly suggest an upward trajectory in renewable energy. Momentum is accelerating, as is global investor interest, so the opportunities are huge for India, if planned successfully.

Critical factors for sustained financing solutions for the sector include continuous learning of the evolving renewable market by lenders, tapping the capital base of environment focused investors, building a dedicated infrastructure finance bank in India and careful evaluation and financial structuring of the technological shift towards Indian modules and inverters.

For lenders, there are still untapped opportunities in green field projects, hybrid, storage and round the clock bids, and household plus commercial and industrial (C&I) rooftop projects.

All these and more such opportunities will lead to more innovation, more aggression and more opportunities for all stakeholders in the sector.

Ankur Saboo

Ankur Saboo, an XLRI alumnus, is an infrastructure finance specialist and a guest contributor at IEEFA. 

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Shantanu Srivastava

Shantanu Srivastava is responsible for leading the sustainable finance and climate risk initiatives at IEEFA South Asia. He specializes in the financing, policy, and technology aspects of the Indian electricity market.

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