Renewable deployment in India: Financing costs and implications for policy

Gireesh Shrimali, David Nelson, Shobhit Goel, Charith Konda and Raj Kumar

Energy Policy, 2013, vol. 62, issue C, 28-43

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.

Keywords: Renewable finance; Renewable policy; India (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:62:y:2013:i:c:p:28-43

DOI: 10.1016/j.enpol.2013.07.071

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