Accelerated Deployment of Renewable Energy Sector
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Accelerated Deployment of Renewable Energy Sector Financial Instruments for catalyzing private sector investment for Indian RE sector Draft Report for Discussion Disclaimer This Report has been prepared on the basis set out in our contract for ‘Service Provider for Supporting Structural Reforms in the Indian Power Sector’ with the Secretary of State for International Development at the Department for International Development (“the Client”) dated 4 November 2016 (the “Services Contract”), and should be read in conjunction with the Services Contract. Nothing in this report constitutes a valuation or legal advice. We have not veried the reliability or accuracy of any information obtained in the course of our work, other than in the limited circumstances set out in the Services Contract. This Report is for the benet of the Client only. This Report has not been designed to be of benet to anyone except the Client. 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This report has been prepared under the Technical Assistance titled “Supporting Structural Reforms in the Indian Power Sector” funded by UK aid from the UK government; however the views expressed do not necessarily reect the UK government’s ofcial policies. Contents 1. INTRODUCTION 7 2. GRID BASED RENEWABLE ENERGY 9 3. OFF-GRID/ DRE SEGMENT 37 4. IDENTIFYING FINANCIAL INSTRUMENTS 58 5. SHORTLISTED FINANCIAL INSTRUMENTS 69 6. WAY FORWARD – LARGER INTERVENTION REQUIRED 86 List of Figures Figure 1: RE target in FY2022 and potential capacity in FY2030, sub-sector wise ....................10 Figure 2: Source wise installed capacity in GW - Historical trend ............................................11 Figure 3: Recent bids and the capacity offered in India .........................................................12 Figure 4: RE targets till FY2022 and current performance of key states ..................................14 Figure 5: Incremental RE capacity addition and Potential for gap to meet target .......................18 Figure 6: Investment requirement in power sector and share of RE ........................................22 Figure 7: Stakeholders’ viewpoints at a glance ...................................................................23 Figure 8: Credit requirement and pool for power sector in India for FY 2017 – 2022, in USD Bn..25 Figure 9: Share of Banks and NBFCs in future commitments to the RE sector ..........................26 Figure 10: Marginal cost of capital of banks and cost of capital for NBFCs as on 26 Feb 2018 ......28 Figure 11: Risk free rate and typical borrowing cost of RE sector ............................................29 Figure 12: Credit Enhanced Bonds by ReNew Power .............................................................31 Figure 13: Effective cost of foreign borrowing and domestic debt ............................................32 Figure 14: Exchange rate, INR/ USD ..................................................................................32 Figure 15: State wise un-electrified rural households (as on 31st August 2017) ...........................38 Figure 16: Mini-grids/ DRE systems layout and typical business model .....................................40 Figure 17: DRE business models ........................................................................................41 Figure 18: Stakeholders’ viewpoints at a glance – Overall Scenario ..........................................42 Figure 19: Assessment of market potential for Off-grid sector in India .....................................46 Figure 20: Un-electrified villages to be covered under DDG scheme .........................................47 Figure 21: Independent mini-grid model ............................................................................48 Figure 22: Competency mapping of various agencies across the rural value chain ......................49 Figure 23: Storage backed revenue based model .................................................................50 Figure 24: Mini-grid operators enters into a strategic tie up with discom for connecting the un electrified areas ...............................................................................................51 Figure 25: BOT-o, Post grid extension: Discom owned model ..................................................51 Figure 26: BOT-o, Post grid extension: Discom owned – Mini-Grid Operator managed model .......52 Figure 27: BOT-o, Post grid extension: Discom coverage model ..............................................53 Figure 28: Lending potential to off-grid under PSL ...............................................................55 Figure 29: Immediate priorites emerging for scaling RE growth in sub sectors ............................59 Figure 30: Effectiveness index’s parameters and ranks for Grid RE ..........................................62 Figure 31: Scalability Index’s parameters and ranks for Grid and Off-grid RE .............................64 Figure 32: Evaluation Matrix for instruments .......................................................................64 List of Figures Figure 33: Relative ranking of financial instrument for Grid RE sector ......................................65 Figure 34: Relative ranking of financial instrument for DRE/ Off- grid RE sector .........................65 Figure 35: Proposed structure of MFI backed masala Bond .....................................................71 Figure 36: Proposed structure for PCG ..............................................................................77 Figure 37: Current Structure of IDF...................................................................................82 Figure 38: Investments from MFI ......................................................................................83 Figure 39: InVITs Structure ..............................................................................................90 Figure 40: Renewable Energy Asset Platform (REAP) .............................................................91 Figure 41: REAT Fund of Funds ........................................................................................95 Figure 42: Framework for RE deployment in States ..............................................................97 Figure 43: Hybrid Investment Model ..................................................................................99 List of Tables Table 1: RE scenario in bottom five states (in terms of per capita income, excluding NE states) - States in increasing order of per-capita income ...................................................................15 Table 2: Key players – Incremental capacity addition for key players by FY 2022 ...........................16 Table 3: Profile of new/ potential entrants in the solar segment .................................................16 Table 4: List of new entrants..............................................................................................17 Table 5: Predominant risk in the sector ................................................................................18 Table 6: Stakeholders’ perspective on RE capacity addition by FY2022, in Gw ..............................21 Table 7: Summary of the stakeholder consultations ...............................................................23 Table 8: Current Lending terms of Banks and NBFCs .............................................................28 Table 9: A brief snapshot of bond issuance by India corporates .................................................30 Table 10: Central government programmes supporting rural electrification ..................................39 Table 11: Levelised tariff for an MGO ...................................................................................43 Table