Meeting India's Renewable Energy Targets: The Financing Challenge - Climate Policy Initiative
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Meeting India’s Renewable Energy Targets: The Financing Challenge Climate Policy Initiative David Nelson Gireesh Shrimali Shobhit Goel Charith Konda Raj Kumar December 2012 CPI-ISB Report
Descriptors
Sector Power
Region India
Keywords Renewable Energy, Finance, Solar, Wind
Related CPI The Impact of Policy on the Financing of Renewable Projects; Supporting Renewables
Reports While Saving Taxpayers Money; Improving Effectiveness of Climate Finance
Contact Gireesh Shrimali, Hyderabad Office David Nelson, San Francisco Office
gireesh.shrimali@cpihyd.org david.nelson@cpisf.org
Acknowledgements
The authors thank the following for their collaboration and input: Alipt Sharma of GEF, Amit Oke of ICICI
Bank, Charlie Donovan of EADA Business School, Don Purka and Sujata Gupta of ADB, Gaurav Malik
of Olympus Capital, Harsh Shah of L&T Infra, Robert Collier, Saravanan Nattanmai of Nereus Capital,
Srinivas Kara of IDFC, and developers of renewable projects analyzed in this report. The perspectives
expressed here are CPI’s own.
About the Indian School of Business
The Indian School of Business (ISB) was established in 2001 with an aspiration to put India on the global
map of management education. In less than a decade since its inception, the ISB has successfully pio-
neered several new trends in management education in India, and firmly established itself as a world-
class management institution. In 2008, the ISB became the youngest institution to be ranked among the
Top 20, in the Global B-school Rankings by the Financial Times, London, and since then has been ranked
consistently among the top B-schools globally. The ISB today has a strong pool of research-oriented
resident faculty and invites high caliber international faculty from reputed B-schools to teach in its Post
Graduate Programme in Management (PGP), Post Graduate Programme in Management for Senior
Executives (PGPMAX), and Executive Education Programmes. In addition to teaching, the visiting faculty
also participates in collaborative research with the resident faculty. The school has over 4000 PGP Alumni
and 13,000 Executive Education Alumni making an impact on business and society across the world.
About CPI
Climate Policy Initiative (CPI) is a policy effectiveness analysis and advisory organization whose mission is
to assess, diagnose, and support the efforts of key governments around the world to achieve low-carbon
growth.
CPI is headquartered in San Francisco and has offices around the world, which are affiliated with distin-
guished research institutions. Offices include: CPI Beijing affiliated with the School of Public Policy and
Management at Tsinghua University; CPI Berlin; CPI Hyderabad, affiliated with the Indian School of Busi-
ness; CPI Rio, affiliated with Pontifical Catholic University of Rio (PUC-Rio); and CPI Venice, affiliated with
Fondazione Eni Enrico Mattei (FEEM). CPI is an independent, not-for-profit organization that receives
long-term funding from George Soros.
Copyright © 2012 Climate Policy Initiative www.climatepolicyinitiative.org
All rights reserved. CPI welcomes the use of its material for noncommercial purposes, such as policy discus-
sions or educational activities, under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported
License.
For commercial use, please contact admin@cpisf.org.November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
Executive summary In the short term:
• The high cost of debt — that is, high interest
India’s power sector has two overlapping, historic chal- rates — is the most pressing problem currently
lenges — one that has grabbed international headlines facing the financing of renewable energy. Our
and another that has largely flown below the radar. financial modeling of actual renewable energy
The widespread blackouts that brought much of India projects in India and elsewhere indicates that
to a sputtering halt in 2012 were a dramatic signal of a the higher cost and inferior terms of debt in
power sector that requires attention. But a challenge no India may raise the cost of renewable energy by
less central to India’s future, and arguably much more 24-32% compared to similar projects financed
so, is that of the country’s goals for renewable energy. in the U.S. or Europe.
The national government’s ambitious goals for solar • Interviews with investors and developers
energy, coupled with the country’s rapid progress in suggest that neither the cost nor availability
developing wind energy, raise many questions regard- of equity is currently a major problem. In fact,
ing the sources and costs of the investment that will be our analysis suggests that when adjusted for
needed to install and operate this infrastructure. differences due to the less attractive nature of
debt in India, expected returns on equity (ROE)
Under the Jawaharlal Nehru National Solar Mission
India may actually be lower than in the U.S. or
(JNNSM), grid-connected solar PV capacity increased
Europe, despite potentially higher country risks.
by 165% in 2011 to reach 427 MW. However, the
ambitious targets for 4,000-10,000MW by 2017 and • General Indian financial market conditions
20,000 MW by 2022 may be hard to achieve under are the main cause of high interest rates for
current policies and programs, and financing may be the renewable energy. Growth, high inflation,
biggest obstacle. Likewise, with 16 GW installed, India competing investment needs, and country
had already become the world’s fifth largest market for risks all contribute. A shallow bond market
wind by 2011, but ambitious plans for a further expan- and regulatory restrictions on foreign capital
sion to 31 GW by 2017 will face similarly daunting policy flows also adds to the problem, while the cost
and financing problems. of currency swaps and country risk negate the
advantages that could come from access to
In this report, Climate Policy Initiative (CPI) analyzes the lower cost foreign debt.
challenges for designing national policy that will attract
the investment needed to spur rapid growth in wind and In the medium to long term:
solar energy at a reasonable cost. CPI has conducted
detailed financial modeling of actual Indian renewable • A declining availability of debt for renewable
projects; numerous interviews with developers, finan- energy projects, whether high cost or not, may
ciers, and policy makers; and examined, in depth, the become an impediment. Interviews with lenders
idiosyncrasies of Indian financial markets. This report and analysis of debt markets indicate that
describes and analyzes the impact of national and state many lenders may be reaching the limit for the
policies on various classes of renewable energy inves- amount of money they will lend to the sector.
tors, as well as the overall relative costs or benefits of Their withdrawal from the market may restrict
policies on the final cost of renewable energy projects. project development.
We focus particularly on the cost and availability of • Continued high borrowing by the Government
equity and debt, respectively, and the consequent impli- of India and related regulatory restrictions are
cations for Indian renewable and financial policy. likely to keep interest rates high.
Table ES-1 summarizes the main financing issues facing • Even if the cost of debt goes down, our analysis
renewable energy policy currently and evaluates how suggests that loan terms – including short
these issues might grow or diminish in importance in tenors and variable interest rates – will become
the medium to long term. To summarize its findings: more significant impediments, especially in
lower interest rate environments.
• Finally, attractive, low cost equity may be less
available in the future. First, as debt becomes
less available, current equity investors may not
A CPI Report INovember 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
be able to recycle their investment capital into and what that means for the impact of policy,
new projects by borrowing against the operating means that policy levers used to decrease
projects. Second, as the market matures, many financing costs in the U.S. and Europe have a
investors may no longer be willing to invest at less impact in India.
relatively low returns in order to establish a
• Other developing countries have bridged the
strategic foothold, as they currently appear to
financing gap in unorthodox but successful
be doing in solar photovoltaic (PV) projects.
ways. The Brazilian Development Bank (BNDES)
is an especially promising example that
Beyond Debt and Equity: deserves further study and consideration by
• Regulation and the structure of the Indian power Indian policymakers.
sector also raise significant issues. State-level
policies – including the financial weakness of As a next step, CPI proposes to investigate potential
the state electricity boards that buy much of the policy solutions to bring lower cost, long-term debt into
output from renewable generators – increase the Indian renewable energy market. Given that renew-
project risk. National policies designed to weave able energy will require some financial support in the
state policies together, particularly the recently medium term, until renewable energy costs reach a
established Renewable Energy Certificate (REC) degree of parity with conventional sources of electricity,
market, do not adequately reflect the realities of we will ask the question: Within a portfolio of policies,
financial markets or state-level risks. is it more effective to close the gap between renew-
able energy costs and alternatives through subsidies,
• Our analysis shows that renewable energy tax benefits, or other support mechanisms, or through
policy lessons from the U.S. and Europe may not concessional debt, or a mix of two or more?
apply to India’s financial realities. The economy
and financial markets in which renewable As part of this investigation, we will explore the mecha-
energy policies operate partly determine the nisms used to finance renewable energy in other rapidly
effectiveness of these policies. The significant developing economies including China and Brazil. The
differences between India and developed world BNDES example should be particularly instructive.
financial markets, including the high cost of debt
A CPI Report IINovember 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
Table ES-1: Current and future impact of major issues in Indian renewable energy finance
Negative impact of issue:
medium to
Now
issue LoNg term
Equity returns required by investors are reasonable for good projects NONE LOW
COST AND
TERMS
Required returns depend on technology maturity and developer strategy NONE MEDIUM
Equity is generally available for good renewable energy projects
EQUITY
NONE MEDIUM
Equity is available from foreign investors but facing a shortage of attractive
AVAILABILITY
LOW MEDIUM
projects
Equity availability is heavily skewed towards a few states with good policy
MEDIUM MEDIUM
regimes and attractive business environments
Lack of debt may reduce available equity in the medium term as equity investors
LOW HIGH
cannot recycle investments from current projects to future investments
High general Indian interest rate environment raises renewable project debt cost VERY HIGH VERY HIGH
Longer tenor debt is generally unavailable MEDIUM HIGH
COST AND TERMS
Fixed interest rate debt is rare; market relies on variable rate debt LOW HIGH
Debt is not strictly non-recourse as it is usually offered on a relationship basis MEDIUM MEDIUM
Shortage of debt may raise its cost in the longer term LOW MEDIUM
DE BT
Banks limit lending to any one sector for risk purposes LOW HIGH
Renewable energy debt is often classified within power or energy sectors, which
MEDIUM HIGH
are already nearing sector limits
Some banks are not lending to renewable projects due to unfamiliarity with
AVAILABILITY
MEDIUM HIGH
renewable energy policy and markets
Limits on foreign debt may restrict foreign lending LOW HIGH
Technology risk is limiting debt to some technologies MEDIUM MEDIUM
State-level policy, the poor financial condition of the State Electricity Boards, and
MEDIUM HIGH
unfavorable local business environments restrict lending to some states
A CPI Report IIINovember 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
Contents
1. Introduction 1
2. Renewable energy industry trends 2
2.1 Renewable energy development in India 2
2.2 Sources of finance 2
2.3 The cost of renewable energy in India 3
3. Finding equity and raising debt – Two very different issues 5
4. India’s Achilles heel – High cost of debt 9
4.1 The high general interest rate environment in India 9
4.2 Longer tenor debt is generally unavailable 10
4.3 Fixed interest rate debt is rare 11
4.4 Debt is not strictly non-recourse 11
4.5 Availability of debt 12
4.6 Many banks do not lend, or limit lending, to renewable energy projects 12
4.7 Limits on foreign lending - Capital controls on foreign debt 13
4.8 Limits on foreign lending - Interest rate ceilings 13
4.9 Technology risks 14
4.10 State-level issues 15
5. Equity – Ample availability, but can it last? 16
5.1 Cost of equity or required return on equity (ROE) and differentiation between technologies 16
5.2 The availability of equity 17
6. Summary of the state of renewable energy finance 18
7. Government policy framework 22
7.1 Renewable Energy Certificate markets 22
7.2 State-level policy issues 24
8. Policy analysis - Case studies and international comparisons 27
8.1 Case study analysis – India versus the U.S. and Europe 27
8.2 Brazil and China 29
9. Conclusions and Next Steps 31
9.1 Next Steps for Research and Analysis 31
A CPI Report IVNovember 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
1. Introduction In India, the role of development financial institutions
(DFIs), a major source of long-term funding for energy
As India wrestles with the historic challenge of pro- infrastructure prior to the 1991 financial reforms, has
viding enough electricity for its huge population and markedly diminished in recent years. Because of the
booming economy, the national government is pursuing deregulation of financial markets, DFIs have been
another equally difficult and impressive goal — mark- obliged to compete with commercial banks to raise
edly expanding the share of renewable sources in its funds at market rates. This undermined the business
energy supply mix. model of the DFIs; many were forced to convert them-
selves into commercial banks. This change, combined
The government has embarked upon an ambitious with the shallowness of the corporate bond market, has
plan, Jawaharlal Nehru National Solar Mission, to build left a gap in funding for renewable energy.
20,000 MW of solar power nationwide by 2020. At the
same time, India is already the fifth-largest market for In Brazil, by contrast, the Brazilian Development Bank
wind turbines, with cumulative installations of 16GW at (BNDES) plays a major role in almost every renew-
the end of 2011.1 able project in the country, often by offering long-term
loans at below market rates. BNDES’s role in financing
This flurry of activity demonstrates the seriousness renewable energy has led to lower prices and, arguably,
of India’s intentions. But the scale of these ambitions, enhanced the performance of other policies such as
and the financial resources required, raise many ques- wind energy auctions designed to create competition
tions regarding the sources and costs of the needed amongst potential wind park developers.
investment, about the adequacy of the investment to
reach these goals, and the efficacy of that investment in In this paper we analyze the impact of Indian policies on
reaching the most suitable projects. the attractiveness of renewable energy investments to
various classes of investors, and we assess the overall
The question of whether India’s financial system is relative costs or benefits of polices on the fully financed
adequately financing the renewable energy sector — cost of renewable projects. We have used detailed
and if not, why — is especially poignant in light of the financial modeling of actual Indian renewable projects
differences between India’s financing system and those as a key element of this analysis.
of Europe and North America as well as developing
nations such as China and Brazil. This study does not address the subject of off-grid
renewable energy projects, which present different
Of course, the challenges of the renewable energy financing challenges and require different policy solu-
sector cannot be completely divorced from India’s tions than on-grid renewable energy projects. Nor does
overall infrastructure financing challenges. According it discuss in depth the overlap between the financing of
to the Planning Commission of India, infrastructure renewable energy and conventional power generation.
investment will need to increase from about 8% of GDP CPI will address these topics in future research.
in 2011-12 to approximately 10% of GDP by 2016-17. The
total investment in infrastructure is required to be over
INR 45 lakh crore (USD 1 trillion) during the 12th Five
Year Plan period (2012-17). 2 However, the Indian gov-
ernment estimates a 30%, or USD 300 billion, gap in
the targeted infrastructure investments by 2017, largely
due to the lack of long-term finance. 3
Given the emerging nature of renewable energy tech-
nologies and business models, financial and regulatory
sectors must adapt quickly — a task they have carried
out somewhat unevenly. For this reason, the renewable
energy sector’s current challenges are especially acute.
1 BP Statistical Review of World Energy, 2012
2 An Approach to the Twelfth Five Year Plan, Government of India, Planning
Commission, October 2011
3 India estimates a USD 300 billion infrastructure funding gap, Infrastructure
Investor, October 2010
A CPI Report 1November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
2. Renewable energy industry Figure 2-1: India wind power installed capacity and future targets
trends
12th plan target
2.1 Renewable energy development in India
30,000
Historically, the growth of wind power in India was
primarily driven by state-level incentives in conjunc- 31,078
Installed capacity (MW)
tion with an accelerated depreciation benefit extended
20,000
by the national Government of India beginning in 1995. 11th plan target
Wind power installed capacity increased from 230 MW
in 1994-95 to 16,078 MW by 2011, reaching approxi-
mately 94% of the 11th plan (2007-12) target. 17,164
10,000
In 2007-11, wind capacity installations increased
at a compound annual growth rate of 19.7% as the
Government of India introduced additional incentives
such as the generation-based incentive (GBI) as well as
0
accelerated depreciation. However, both the acceler- 2006 2011 2012 2017
ated depreciation and the GBI, which comprised 10% Source: BP Statistical Review, 2012; Central Electricity Authority; Ministry of
of wind energy incentives,4 expired in March 2012. New and Renewable Energy; India Infoline. Note: Yearly data is at the end of
Reaching India’s ambitious target of total wind installed December every year.
capacity of 31,078MW by 2017, will now depend upon
new mechanisms, including the Renewable Energy
Certificate (REC) market discussed in Section 7.
Figure 2-2: India grid-connected solar PV installed capacity
India’s solar power industry began significant growth vs. Phase 1 target
only in 2010, when the Jawaharlal Nehru National Solar
Mission (JNNSM) was announced. After the announce-
2,000
ment of JNNSM, grid-connected solar PV capacity
increased by 165% in 2011 alone to reach 427MW.
However, a failure to address the remaining financ-
Installed capacity (MW)
JNNSM
ing challenges will make the targets set under JNNSM
— Phase 2 (4,000-10,000MW by 2017) and Phase 3 Phase I
1000
(20,000MW by 2022) — difficult to achieve.
target 0
2007 2009 2011 2013
Source: BP Statistical Review, 2012 Note: Yearly data is at the end of December
every year.
4 See section 7.
A CPI Report 2November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
2.2 Sources of finance Figure 2-3: Renewable energy investment trends in India
A variety of investors finance renewable energy projects
12
in India, including institutions, banks, and registered
companies (Table 2-1). Institutional investors are either
Investment (billions of USD)
state-owned or bilateral and multilateral institutions.
Among banks, both private sector and public sector
8
banks are involved. In addition to registered companies,
venture capital and private equity investors contribute
equity investment. Return expectations of the investors
vary according to the sources of their funds and the risk
4
attached to specific projects.
During 2006-09, India’s annual total renewable energy
investment remained between USD 4 billion and USD
0
5 billion. Investment has risen rapidly since then, from 2006 2007 2008 2009 2010 2011
USD 4.2 billion in 2009 to USD 12.3 billion in 2011 Source: Global trends in renewable energy investment 2012
(Figure 2-3).
Figure 2-4: Renewable energy investment trends in India by
While wind continues to receive the majority of invest-
technology
ment, solar has seen the highest growth, and the gap
between the two is falling rapidly, as shown in Figure
6
2-4.
Investment (billions of USD)
4
Wind
2
Solar
0
2009 2010 2011
Source: Bloomberg NEF- UNEP Reports, (i) Global trends in sustainable energy
investment 2010. (ii) Global trends in RE investment 2011 and (iii) Global trends
in RE investment 2012
Table 2-1: Renewable energy investors (number of institutions)
TOTAL ACTIVE IN
TYPE OF INVESTOR CATEGORY REGISTERED RENEWABLE
IN INDIA SECTOR
Public sector banks 26 9
Commercial banks Private sector banks 30 6
Foreign banks 37 -
Private equity 51 16
Equity investors
Venture capital 180 21
Institutional investors Insurance funds 24 11
Development Banks Development financial institutions* 3 3
*DFIs include national level institutions IREDA, IFCI, SIDBI
A CPI Report 3November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
2.3 The cost of renewable energy in India In the case of solar, capital costs in India were 25%
lower than those in the U.S. However, most of this cost
In some important ways, India has a cost advantage in advantage was eliminated by the lower expected output
renewable energy. Labor and construction costs, for per MW, which was likely the result of lower insolation
instance, are significantly lower in India than in coun- and higher levels of dust in Rajasthan, where the Indian
tries like the U.S. or Germany. Furthermore, India is plant was built, or, possibly the use of less expensive,
blessed with renewable resources like wind and sun that but less reliable, equipment. With these two factors
are comparable to good locations in other countries. offsetting each other, the Indian solar PV facility was
Yet, despite these advantages, the cost of renewable nevertheless 26% more expensive due entirely to the
energy can be as high in India as in the U.S. or even sig- higher return requirements for investors in India, that
nificantly higher. The difference is often due to financing is, the more expensive cost of financing the project.
costs.
The two wind projects depict a similar story, although
In comparison to conventional power generation the wind project in India is still cheaper, despite the
sources such as coal or gas, renewable energy is char- higher financing costs. While these projects do not rep-
acterized by a relatively high initial investment, followed resent all U.S. or Indian renewable projects, and rapid
by low variable costs. Since a much greater share of the changes to cost and performance lead to constantly
cost of energy is determined by the initial investment, changing figures, the comparison itself is indicative of
higher financing costs have a disproportionate impact the substantial impact of financing costs on renewable
on renewable energy. This puts renewable energy at a energy in India.
relative disadvantage in India.
The key takeaway is that the renewable projects could
Figure 2-5 compares two typical large-scale installations be much less expensive if not for the higher financing
in the U.S. against similar projects in India to quantify costs. For more details, see Appendix 4.
the sources of differences in the levelized cost of elec-
tricity (LCOE), defined as the average cost of electricity
over the life of a project factoring in the return required
on investments.
Figure 2-5: Finance raises the overall cost of renewable energy in India
SOLAR PV ONSHORE WIND
India’s finance costs
increase the cost
of energy by 28%
India’s CAPEX India’s finance costs
lowers costs India’s CAPEX
+28% lowers costs increase the cost
of energy by 22%
-25% +23% -29%
-5% +22%
Lower
output per Higher
unit capacity output per
raises energy unit capacity
costs lowers
100 126 100 energy costs 88
US Levelized India Levelized US Levelized India Levelized
Cost of Electricity Cost of Electricity Cost of Electricity Cost of Electricity
($0.19 / KWh) ($0.09 / KWh)
Sources include discussions with developers.
A CPI Report 4November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
Low cost financing of renewable energy projects usually requires both debt and equity investors.
However, in India debt and equity investors face very different conditions. When compared to
the financing of renewable energy projects in the developed world, in India the relatively high cost
and low availability of debt may add 24-32% to the cost of renewable energy projects compared to
similar projects in the US, while equity returns have a comparatively minor impact on relative costs.
In this section, we analyze the relative impact of the cost and terms of debt and equity on
renewable energy project costs and identify a set of issues beyond debt and equity markets
that may concern policy makers. This section paves the way for more detailed discussions of
debt (section 4), equity (section 5) and other potential policymaker concerns (section 6).
3. Finding equity and raising In India, the differences between debt and equity are
particularly striking. In general, we find that equity
debt – Two very different appears to be readily available at a reasonable cost,
while renewable energy debt is both limited and expen-
issues sive. Figure 3-1 highlights the differences between
renewable energy debt and equity markets in India and
Conditions for renewable finance can be very different developed markets. Note how equity returns in India are
depending on the technology employed, the devel- similar to those in the U.S. and Europe, but interest rates
oper, geography, or the requirements of the investors on debt are significantly higher.
themselves. The most important distinction is between
investors in the debt markets (lenders) and those in the To compound the problem, access to potentially lower
equity markets (owners). cost international debt is limited due to regulatory
barriers, the cost and risks associated with long-term
Generally speaking, debt investors are more conserva- currency swaps, and perceived country risks (Section
tive, accepting lower returns in exchange for lower risk. 5.6). As a result, the cost of debt to a renewable energy
As such, their primary concern is that downsides are project in India will typically be in the 10-14% range,
limited; that is, that the project does not fail. Equity as compared to the 5-7% range typical in the United
investors are willing to take more risk in exchange for States. Despite the higher cost, debt in India also suffers
higher returns, and therefore focus equally on risk and from inferior terms, including shorter tenors and vari-
the prospects of a project performing even better than able rather than fixed interest rates.
expected. Under most circumstances, a project will be
least expensive when it is funded by a mix of debt and Figure 2-5 in Section 2 demonstrates that the financing
equity, either at the project level, or through debt and costs added 28% and 22% to the cost of solar PV and
equity secured at the corporate level. wind projects, respectively, in India. In Figure 3-2, we
take a closer look at the financing component. We begin
Renewable energy financing can become costly when by noting that there are many factors that influence the
either debt or equity investors demand too high a return total finance cost. Here we highlight five:
or when either is simply unavailable. Thus, for both debt
and equity we pose two sets of questions: • The cost of debt
• Cost and terms: Are the returns investors are • The tenor of debt — that is, the length of time
demanding and the conditions they are placing over which the debt is repaid
on their investment so onerous as to make the • Whether the debt is variable or fixed
project economically unattractive? or;
• Extra risk that will be taken on by equity in the
• Availability: Is debt or equity just not available? event that debt rates are variable
That is, are there enough investors willing to
invest or lend to renewable projects in India? • The cost of equity, or the required return on
equity (ROE)
Significantly, while policy can influence the returns
required by equity and debt investors and the availabil- Using the same typical projects described in Figure 2-5,
ity of either, different policies are likely to be important Figure 3-2 compares just the financing differences of
to different classes of investors.
A CPI Report 5November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
Figure 3-1: Range of returns on equity and debt costs for renewable energy projects – India versus U.S. and Europe
Solar PV onShore Wind Solar Thermal* Solar PV onShore Wind Solar Thermal*
20% 20%
DEBT
Equity Required Return or Debt rate (% per year)
Equity Required Return or Debt rate (% per year)
15% 15%
Europe
US
10% India 10%
5% 5%
EQUITY
0 0
* No data for solar thermal in Europe. Note: Equity is levered equity. Source: Projects in India and US CPI finance paper.
the U.S. and Indian projects. To summarize, we find the decreases. If the cost of debt was to decrease
following: and the spread between debt and equity
expand, we would expect the impact of shorter
• In the case of the solar PV projects, the higher
debt tenors to increase significantly.
interest rate on the debt alone added 19% to
the project cost, while it added 10% to the wind • Despite being more costly, the debt terms
project. in India are less attractive, particularly the
variable interest rate of most debt in India. In
• Indian debt tenors are typically much shorter
more developed markets, project developers
than in the U.S. or Europe. Overall, we have
nearly always seek fixed interest debt. When
found the shorter debt tenors add between
combined with feed-in tariffs, or long-term
3% and 10% to the cost of the project, by
power purchase agreements (PPAs) with a
forcing more rapid amortization of the loan,
fixed price, a fixed interest rate leads to a high
and therefore reducing the effective leverage
degree of certainty around future cash flows. An
over the life of the project. 5 Stated another way,
investment with well-defined cash flows is less
with shorter-term debt, the average amount
risky, and therefore attracts lower cost finance.
of debt over the project life goes down and
Developers will typically use interest rate swaps
project debt has a relatively smaller influence
to convert variable rate debt into fixed rate
on bringing finance costs down over the life of
debt. In India there is no liquid swap market.
the project. It is important to point out that debt
Therefore, to calculate the cost of the greater
tenors are relatively less important in India than
uncertainty, we have used the current interest
they would be elsewhere given that the spread
swap rates in the U.S. and applied them to the
between the cost of debt and equity is smaller.
debt. At 2%, 10 year swap rates are currently
Therefore, the value of maintaining a higher
low by historical standards. Nevertheless, this
level of debt throughout the life of the project
cost adds approximately 7% to the finance cost
of solar PV and 4% to the cost of wind on a
5 The solar project used for our analysis had an uncharacteristically long tenor.
Therefore, we have adjusted the debt tenor down to 13 years, which would
comparable basis. Why do Indian developers
be much more typical of Indian PV projects. The result is to increase the accept variable rate debt? See section 4.3 for
impact of shorter debt tenors from 3% to 6%. further discussion.
A CPI Report 6November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
• The corollary to the lower value of the variable • Finally, as shown in figure 3-1, the cost of equity
rate debt is that equity is actually taking on in India is only slightly higher than in the U.S. or
more risk. With a fixed price PPA, it is easy Europe, depending on the technology, despite
to see how an unexpected rise in the interest the higher underlying country risks. The slightly
rates could consume all of the cash flow from higher Returns on Equity add only 3% and 2%
a project and wipe out the equity investor. respectively to the total cost of financing the
While we have no accurate way of measuring solar and wind project.
the cost of the additional risk assumed by the
equity investor, we assume that the risk they When all of the adjustments are made to account for
take on is equal to the value of the swap used to the differences in terms and tenors, equity ends up
compare India debt to U.S. debt. The result is an being less expensive than in the U.S. or Europe, despite
exact offset between debt and equity, moving the higher country risks. Meanwhile, the total impact of
expected return from the equity column to the debt, including terms and costs, is 24-32% added to the
debt column. cost of the project.
Figure 3-2: The impact of debt and equity costs and terms in India on overall financing costs compared to a U.S. baseline
Debt cost and terms in India Overall, equity cost reduces
add 32% to cost of energy LCOE by 4% in India
SOLAR PV
+30%
-7%
+7% +3%
Percentage increase in India project costs
above US project costs (% LCOE)
Variable to Equity Equity
+20% fixed debt absorbs cost
Debt cost +6% variable
debt risk Financing in India
Shorter
debt +28% adds 28% to a
tenor project’s LCOE
+10%
+19%
US LCOE
Debt cost and terms in India Overall, equity cost reduces
add 24% to cost of energy
ONSHORE WIND
LCOE by 2% in India
-4%
Percentage increase in India project costs
+20% +4% +2%
above US project costs (% LCOE)
Variable to Equity Equity
fixed debt absorbs cost
+10% variable Financing in India
Debt cost debt risk
+10% +22% adds 22% to a
project’s LCOE
Shorter
debt
+10% tenor
US LCOE
A CPI Report 7November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
It is significant that, on an adjusted basis, project
Returns on Equity (ROEs) in India are below those in
the United States. This implies that equity investors are
buying into the market and accepting below rational
returns for strategic reasons — thus suggesting that
ROEs may rise once the market matures.
Beyond the cost and availability of debt lie other distinc-
tions with significant implications for policymakers:
• Are the cost and availability drivers for Indian
renewable energy a function of Indian financial
markets in general, or are they specific to
renewable energy?
• Do the drivers affect all investors, or only
foreign investors?
• Does the impact depend on the renewable
technology, for instance affecting only wind, but
not biomass or vice versa?
• Does the impact vary by state? That is, do
state-level policies and business environments
account for differences in cost or availability of
investment capital?
Sections 4 and 5 focus on important issues that impact
the financing of renewable energy in India now and in
the future. Eleven of these issues relate to the cost and
availability of debt (discussed further in section 4) and
six relate to the cost and availability of equity (Section
5). In Section 6 we return to the other issues outlined
here, including whether these issues are specific to
renewable energy or characteristic of Indian Financial
markets in general, whether foreign investors are spe-
cifically affected, and whether the impact is different
depending upon the technology employed or the state
in which a project is built.
A CPI Report 8November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
4. India’s Achilles heel – High The starting point for our analysis is the underlying
benchmark interest rates for India versus other coun-
cost of debt tries. The impact of the financial crisis is clear. Since
2007, benchmark interest rates have fallen significantly
4.1 The high general interest rate in the developed world to stimulate the economy, but
environment in India have stayed relatively flat in the rapidly developing
economies. India is the only country whose benchmark
India is a rapidly growing country. As is typical for interest rates are higher than they were in 2007. Indian
rapidly developing countries, growth in India comes interest rates are now higher than each of the coun-
with a need for investment in new infrastructure, creat- tries in Figure 4-1 save Brazil and the gap with Brazil
ing competition to raise debt; and general inflationary has fallen from 12% in 2005 to 0.5% today. The higher
pressures that need to be controlled through higher benchmark rates are, themselves, indicative of the fast
interest rates. As a result, benchmark interest rates in growth in India and the multiple competing demands
India are significantly higher than in developed coun- for borrowing to meet infrastructure needs and other
tries. Furthermore, uncertainty around the Government government borrowing.
of India’s future borrowing needs and the value of the
Rupee create a longer-term uncertainty that constrains The roughly 7-8% difference between benchmark inter-
the development of longer-term debt markets. est rates in India and the U.S. and Europe account for
Table 4-1: Summary of issues affecting debt cost and availability Negative impact of issue:
see
medium to sectioN
Now LoNg term
High general Indian interest rate environment raises renewable project debt cost VERY HIGH VERY HIGH 4.1
Longer tenor debt is generally unavailable MEDIUM HIGH 4.2
COST AND TERMS
Fixed interest rate debt is rare; market relies on variable rate debt LOW HIGH 4.3
Debt is not strictly non-recourse as it is usually offered on a relationship basis MEDIUM MEDIUM 4.4
Shortage of debt may raise its cost in the longer term LOW MEDIUM 4.5-4.10
Banks limit lending to any one sector for risk purposes LOW HIGH 4.6
Renewable energy debt is often classified within power or energy sectors, which
MEDIUM HIGH 4.6
are already nearing sector limits
Some banks are not lending to renewable projects due to unfamiliarity with
AVAILABILITY
MEDIUM HIGH 4.6
renewable energy policy and markets
Limits on foreign debt may restrict foreign lending LOW HIGH 4.7, 4.8
Technology risk is limiting debt to some technologies MEDIUM MEDIUM 4.9
State-level policy, the poor financial condition of the State Electricity Boards, and
MEDIUM HIGH 4.10, 7.2
unfavorable local business environments restrict lending to some states
A CPI Report 9November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
Figure 4-1: Benchmark interest rates (%), 2005-12 deposits have an average maturity of
below three years.7 For this reason,
banks in India are not comfortable
lending for tenors longer than 5-7
15% years, while the infrastructure sector
requires long-term debt of more than
10 years.
10% • Weak bond markets. In 2010, India’s
Brazil
total outstanding bonds amounted
India
to 53% as a percentage of GDP
China
compared to other countries, such as
5% Indonesia
Japan (247%), U.S. (176%), Malaysia
(76%), and China (60%).8 India is
Euro Area lagging far behind other countries
0% US in the corporate debt market, which
2005 2012* accounted for around only 4% of
the total debt market in 2011, a
*Until May 2012. Source: Trading Economics tiny amount when compared to
other countries. The growth of the
nearly all of the 5-7% difference in debt costs between corporate bond market in India has been limited
renewable energy projects, even when adjusted for the largely due to stringent regulations and under-
fixed rate premium (2%+) that the U.S. and European developed financial markets. Government
debt should be given. Note that, as we discuss in section regulations restrict investments from banks
4.6, borrowing in the U.S. and European markets to and insurance companies in corporate bonds
exploit the lower interest rates is not a perfect, or even and also impose a ceiling on foreign invest-
feasible option, as the cost of currency swaps over the ments in rupee-denominated government and
life of the loan needed to reduce the exposure to poten- corporate bonds. Under-developed financial
tial rupee devaluation consumes nearly all of the inter- markets in India do not offer adequate liquidity
est rate differential. That is to say, much of the interest for corporate bonds and risk mitigation instru-
rate difference could be considered as risk that the ments, such as credit default swaps. Indian
Indian rupee will lose value, or country risk in general. financial markets also appear to lack diversity of
investors, which could limit the trading activity
4.2 Longer tenor debt is generally and instruments available.
unavailable • Diminished role of Development Financial
We observed that the short debt tenors in India play a Institutions (DFI). Several key DFIs were
significant part in keeping the costs high compared to established in the 1950s, such as Industrial
developed nations such as the United States. Our analy- Development Bank of India and Industrial
sis indicates that an increase of debt tenor by seven Finance Corporation of India, which had access
years would lead to a decrease of 6% in the LCOE of a to cheap funds from the government and
generic solar power project. But long-term debt is not the central bank, and from multilateral and
easily available in India for several reasons: bilateral international agencies. They were
able to extend low-cost, long-term debt to
• Asset-liability mismatch. Banks dominate6 infrastructure development companies during
infrastructure financing in India as the corporate 1950-1990, and they were a major source of
bond market is under-developed, but face long-term funding. However, financial liberaliza-
severe constraints in lending long-term debt tion in 1991, aimed at deregulation of financial
due to the short-term nature of the funds they markets that resulted from the balance of
raise. According to the Reserve Bank of India payments crisis, reduced the role of DFIs as the
(RBI) estimates, nearly 79% of 2009-10 bank
7 RBI again warns banks on asset-liability mismatch, Business Standard, Jan
6 According to the Planning Commission banks are estimated to contribute 28, 2011
nearly 51% of the total debt finance requirement of the infrastructure sector 8 Asian Bond Markets Development and Regional Financial Corporation, The
in India during the 11th plan period (2007-12) 21st Century Public Policy Institute, February 2011
A CPI Report 10November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
government stopped supporting their fund- interest rates do not fall for some time. Thus, there
raising activities. After the liberalization, DFIs may be false expectations baked into the investment
have had to compete with commercial banks assumptions regarding renewable energy projects.
to raise funds at market-determined rates. The The fear would be that if these expectations change,
financial market deregulation made the DFI required ROEs would need to increase or equity might
business model unviable and many were forced become otherwise scarcer or more expensive.
to convert themselves into commercial banks.
Given that the corporate bond market has 4.4 Debt is not strictly non-recourse
remained shallow, the reduced role of DFIs has One area of controversy is the extent to which project
left a gap in infrastructure funding. finance exists for renewable energy in India. Project
• One exception to this is the Indian Renewable finance, or non-recourse finance, is where money is lent
Development Agency (IREDA). IREDA, the or bonds are sold solely on the basis of the project’s
investment arm of the Ministry of New and cash flows. Typically, the project is set up as a sepa-
Renewable Energy (MNRE) is a government rate company and the loan is made to that company.
agency that offers loans to renewable energy Since the lender only has recourse to that project, if the
projects at favorable rates compared to project company fails, the lender loses their investment.
commercial lending. IREDA was established in The project owner, meanwhile, loses only their invest-
1987 with objective of developing and financing ment in that specific project company. That is, there
renewable energy projects. IREDA has deployed is no recourse to the parent company of the project
over a billion U.S. dollars and has further com- developer. Developers often prefer this type of financ-
mitments from the Asian Development Bank ing because it is less risky to their company and they
(ADB), Kreditanstalt für Wiederaufbau (KfW), can leverage the balance sheet of the parent company
and development banks from Japan and France more aggressively. Developers typically pay a signifi-
for another billion dollars. However, the scale cant premium for project debt over recourse debt at
of IREDA is small compared to the challenge of the parent company level, because the lower risk to the
financing Indian renewable energy ambitions. parent enables them to take on additional projects.
4.3 Fixed interest rate debt is rare We had extensive discussions with stakeholders on
whether project finance exists in India. One extreme
In India, loans commonly have variable, rather than view is that pure project finance (i.e., non-recourse
fixed, interest rates, primarily due to the issues outlined based financing) has not become popular in India.9 On
in section 3.2: short-term lending by the banks due to the other hand, many equity as well as debt investors
asset-liability mismatch and the near-absence of bond claim that, though not common in the past, it is becom-
markets. Long-term hedging instruments — term-swaps ing more popular.10 IREDA’s lending practices support
and bonds — are typically unavailable due to imma- the view that non-recourse lending is becoming more
ture financial markets and risks related to a growing common. In 2007 only 6% of IREDA lending was non-
economy. Variable rate debt makes cash flows to equity recourse, by 2011 this had grown to 55%.
holders, which include project cash flows minus the
interest payments to debt holders, less certain as they Discussions with private-sector banks indicated that in
are subject to changing interest expenses. most cases some guarantees are required. 11 However,
these discussions also indicated that these guarantees
While outside India, equity investors would not invest are mostly given by promoters — in particular, for wind
in a project with variable rate debt or, at least, would projects — that may not have large balance-sheets.
expect a premium equity return, it is not clear that this It looks like projects get approved only when there is
is the case in India. Interviews with developers and a good promoter. Once loans are approved, they are
potential providers of fixed rate loans suggest that the evaluated on their own strength with some further
demand in India for fixed rate loans is not high. Part of discount for a better promoter. This is no different from
the reason may be a general expectation that interest how project finance happens in the West and it is safe
rates in India will fall — presumably because they are
so high already — however, unlike in Brazil, forward
markets suggest that interest rates are far from certain 9 Discussion with Global Environment Fund (GEF)
to fall in the future. Indeed, long-term borrowing by 10 Discussion with Infrastructure Development Finance Company (IDFC)
the Indian government might be enough to ensure that Project Finance as well as L&T Infra
11 Discussions with ADB, ICICI Bank, Deutsche Bank (DB), IDFC, and L&T Infra
A CPI Report 11November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
to assume that project finance exists to some degree — Electricity Boards (SEBs) who are the counter-
at least in practice — in India. parties to many of the contracts that pay the
renewable energy projects, will restrict lending
Since relationships play a stronger role in Indian banking in those states. (Section 4.10)
than in Western banking, exercising a “non-recourse”
option could have a very strong impact on a company’s 4.6 Many banks do not lend, or limit
ability to borrow money in the future and, maybe, even
survive. However, again, this situation is not dissimilar
lending, to renewable energy projects
to that in the U.S. or Europe. Therefore, although we Domestic banks restrict lending flows to renewable
believe that the Indian debt probably has more recourse power projects which limits the availability of debt for
and, therefore, is less valuable than in the U.S., we have renewable energy projects. Our analysis reveals that
not attempted to value this particular difference in less than one third of public sector banks lend to renew-
Indian debt markets. able energy projects. The situation is worse for private
sector banks where less than one fifth lend to renew-
4.5 Availability of debt able projects (Table 2-1). Banks cite non-familiarity with
We heard conflicting accounts regarding the availability the renewable energy sector as well as the perceived
of debt in India. In general, larger companies with good riskiness as the major reason for not lending to renew-
relationships with banks have access to debt. Superior able energy projects. Even among banks that lend to
projects also seem to have access. However, marginal these projects, the amount is restricted due the reasons
projects with smaller, unconnected developers might discussed below.
find it more difficult. Likewise, some foreign developers Commercial banks in India cap investments in infra-
without existing relationships might find it difficult to structure at 10-15% of their total domestic advances
raise debt in local markets. based on the Reserve Bank of India (RBI) prudential
However, our conversations indicate that access to lending norms. At present, the renewable energy sector
debt is becoming more difficult now and will very is coupled with the power sector, which is governed
likely become even more difficult in the longer term for by (implicit and self-enforced) sub-sector limits in
several reasons: the range of 4.5-5.0%. During the last few years, due
to large capacity additions — primarily of coal based
• Banks have sector limits to limit their exposure power projects — commercial banks in India almost
to any one market, sector, or technology. reached their lending limits for the power sector (Figure
As renewable deployment increases, more
banks are nearing their sector exposure limits.
Figure 4-2: Gross bank credit of scheduled commercial banks
(Section 4.6)
• Further, most banks in India include renewable 16%
energy in their power, utility, or energy sector
Lending as a % of total advances
limits. These sectors have heavy borrowing
12% Total
demand, to the point that many banks may have
infrastructure
been near their limits even before lending to
sector lending
renewable energy could begin. (Section 4.6) 8%
• While many banks have sector limits, others
will not lend to the renewable energy sector at
all due to the novelty of the sector, immature 4% Power sector
technology, and uncertain regulation. (Section lending
4.6)
0%
• Sourcing debt from foreign lenders is restricted 2005- 2006- 2007- 2008- 2009- 2010-
by regulations that set caps on the amount of 2006 2007 2008 2009 2010* 2011
money that can flow in as well as the pricing of
that debt, which in some cases may be too low *2009-10 data is not available. Source: Reserve Bank of India. Data are provi-
for international lenders. (Sections 4.7 and 4.8) sional and relate to select scheduled commercial banks which account for more
than 95 per cent of bank credit of all scheduled commercial banks. Power sector
• Finally, state-level issues, including the poor lending includes lending to generation, transmission, and distribution projects.
financial condition of many of the State
A CPI Report 12November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
4-2), potentially leaving limited funds for renewable Figure 4-3: Sample of large wind power investors in
power projects. India versus ECB ceiling, 2007-12
Conversations with banks and developers confirmed Estimated project size
that they are worried not only about banks not lending
800 at which ECB amount BWFPL
to renewable power due to power sector lending limits ceilings could bind
but also about the (resulting) increased cost of debt. In 600
February 2011, Andhra Bank noted that “many banks are 400
close to exhausting their internal limits set for infra-
structure firms.” In April 2012, SBI Capital added that 200
there is a need to categorize the solar power sector as 0
a priority sector to increase funds available for solar
CLP
Installed capacity (MW)
power development. Further, Solarsis noted that “short- 600
age of debt capital in the country is adding 50-100 basis
points to the variable component of the interest rate.” 400
200
4.7 Limits on foreign lending - Capital
0
controls on foreign debt
Companies operating in the infrastructure sector — MYTRAH
and hence the renewable energy sector — can obtain 600
long-term ECB loans of up to USD 500 million per year. 400
Infrastructure companies can raise an additional USD 200
250 million per year with government approval. Our
analysis shows that the limit on ECB may not be impact- 0
2007 2008 2009 2010 2011 2012
ing renewable energy projects at the moment, but they
may bind in the future, and the ECB ceiling may become Note: Installed capacity is all projects combined (that attained
a barrier for renewable investments. financial closure) undertaken by a company in a specific year.
BWFPL: Beta Wind Farms Pvt. Ltd. (a subsidiary of Orient Green
At the project level, assuming a typical debt-equity Power Company Ltd.). CLP: CLP Power India Ltd. (a subsidiary of
ratio of 70:30, Indian wind and solar renewable projects CLP Holdings). Mytrah: Mytrah Energy Ltd. Source: Bloomberg
have reached only 55% and 63%, respectively, of the New Energy Finance.
USD 500 million ECB limit.12 The largest wind project
in India so far (until March 2012) has been 300MW. At
an average cost of USD 1.3 million per MW, a 550MW 4.8 Limits on foreign lending - Interest rate
wind project would surpass the ECB limit. Similarly, the ceilings
largest solar PV power project in India so far has been
125MW. At an average cost of USD 3.6 million per MW, The flow of foreign funds may be constrained due to
a project size of approximately 200MW would exceed interest rate ceilings imposed by the government of
the ECB limit. India on foreign loans. The ECB interest rate (all-in-cost
ceiling) is capped at six-month LIBOR + 300 bps13 for
However, the situation is different at the holding three to five year loans and six-month LIBOR + 500bps
company level. In at least one case — Beta Wind Farms for loans longer than five years. Our analysis indicates
in 2010 — the financing requirement could have hit the the ceiling for typical renewable project loans to be
ECB limit if the company had tried to obtain cheaper approximately 11.8% (Figure 4-4). For many investors,
foreign debt (Figure 4-3). Similarly, in 2011, Mytrah these conditions may be so stringent as to make invest-
Energy got very close to the ECB limit. To the best of our ing in Indian renewable energy unattractive.
knowledge, neither of these companies has attempted
to obtain foreign loans yet. Against this effective 11.8% limit for the interest rate
that could be charged by foreign lenders, we compare
the cost of the foreign investor making that loan (in
the second column of figure 4-4). To the current Libor
13 LIBOR – the London Inter Bank Offer Rate – is used as a benchmark rate to
12 Bloomberg New Energy Finance which a cap of 300 bps or basis points (or 3%) is added
A CPI Report 13November 2012 Meeting India’s Renewable Energy Targets: The Financing Challenge
Figure 4-4: Estimated cost of debt for Indian renewable energy projects, 2012
15%
FOREIGN DEBT INDIAN DEBT
15%
Term swap
Term swap
10% Interest rate Project 10%
ceiling on premium
Project
foreign debt premium
Withholding
tax
5% India Risk 5%
Currency Free Rate
Swap
6 month
0% LIBOR 0%
Allowed rate Project debt cost Variable rate Comparable
fixed rate
interest rate, the lender would need to add 5.5% for hedging costs,14 as well as the interest rate ceiling. The
a currency swap from Dollars to Rupees over the life availability of foreign loans is further limited by interna-
of the project, and 2% for a term swap, to convert the tional lenders requiring a company (or project) rating
short-term Libor loan to a longer term (in this case, a equivalent to India’s sovereign rating (BBB), in addition
10-year) loan. A typical project premium for an India to requiring credit guarantees from the holding compa-
lender in India is 3.3%. Adding the impact of withhold- nies. Higher international funding transaction costs also
ing tax, the foreign lender would need 12.1% to make the make it difficult for small project developers to opt for
loan attractive. The Indian lender could make the same foreign loans.15, 16
loan at 11.6%, but offering a variable rather than fixed
rate, or approximately 13.6% if it could offer a fixed rate 4.9 Technology risks
loan. The availability of finance depends on the technol-
These numbers are central estimates, and there is ogy. Wind is typically easily funded, given its track
some range, particularly around project premium. Thus, record and increasing competitiveness — multiple large
some foreign debt has been able to enter below the cap. projects are getting financed, and project financing
However, we will note that given the Indian markets is becoming more prevalent after the introduction of
current low value placed on fixed debt, the foreign generation-based incentives.
lending cannot compete with the variable rate debt of On the other hand, solar is still new, so many banks are
local borrowing. cautious, and many banks are adopting an invest-a-little
The limits could increase the cost of renewable energy and then wait-and-see strategy. As a result, projects
projects if the ceilings restrict foreign loans even when financed solely by equity are more common in the solar
these loans are less expensive than available domestic PV space. The question that arises is whether solar PV
fixed rate loans. will mature fast enough such that banks will lend to
the projects before developers exhaust their patience,
According to project developers and banks, the impact strategic intent, and financial reserves.
is real: a typical foreign loan may cost approximately 2%
14 Doors wide open for external commercial borrowings, Business Standard,
less than an equivalent domestic loan, and loans pro- March 17, 2012
vided by banks, such as U.S. EXIM bank and Overseas 15 Discussion with Acciona, a wind power developer.
Private Investment Corporation (OPIC) could be even 16 Further, at present Indian companies are reluctant to go for fixed rate foreign
cheaper. However, not many renewable projects in loan due to expectations of a fall in domestic interest rates as the bench-
India are being financed by foreign loans due to high mark interest rate is currently at a high level last seen in 2000-01 (Source:
tradingeconomics.com).
A CPI Report 14You can also read
