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The economic growth of India over the past decades has been impressive. So much so that it is now among the highest in the world. A new city the size of London is added every year to India's urban population, resulting in vast investments in new factories, buildings, and transportation systems. The coal and oil industries have been the backbone of the country's industrial development, providing modern energy services to an increasing number of its citizens.

During COP26, the Indian Prime Minister, Narendra Modi, announced the country's commitment to a net-zero carbon-emission target by 2070 and targets to meet 50% of its energy requirements from renewable energy by 2030. Ahead of the conference, the UK announced a $1 billion investment from British Investment International into Indian green projects over the next five years and guaranteed $1 billion in World Bank lending to India. It is also worth mentioning that the Green Growth Equity Fund (GGEF), a joint investment of £120 million from both the UK and India, is now the largest single-country emerging market climate fund globally.

Hindustan Powerprojects Pvt Ltd (HPPPL) is one of the biggest power producers in the country that is committed to working in tandem with our communities by providing a cleaner and more sustainable environment.

When it comes to solar power, HPPPL has developed solar farms nationally and internationally. The Clean Energy division of the organization has commissioned India's first solar power plant of 5 MW and Asia's first of 30 MW. Additionally, through its Special Purpose Vehicle (SPV), its thermal arm is currently supplying 85% of the power generated to the distribution utilities in various cities. HPPPL is also exploring the possibility of setting up hydropower plants in North, North-East, and Nepal as India's hydropower sector grows rapidly.

Ratul Puri, Chairman of Hindustan Powerprojects (HPPPL), believes India needs robust growth in its energy sector, therefore the organization aims to develop a state-of-the-art thermal project capable of generating high efficiencies sustained over time.

In addition, Mr. Ratul Puri said that the country should increase its energy generating capacity in order to meet its developmental agenda. Further, he stated, “While focusing on expanding capacity, the company is also dedicated towards the vision of the Government.”

The year 2014 was truly a threshold year for the Indian renewable sector. The country had upward-revised its renewable target significantly to 175 GW – 60 GW of wind power capacity and 100 GW of solar power capacity – by 2022, which is more than six times the current installed capacities of approximately 22GW and 3GW, respectively.

This massive quantum leap would do two things for India as it helps the country tide over the period of 2018-2023, a time when limited coal thermal assets would get commissioned. Just like in the Indian telecom industry, the nation would skip the development step of creating fossil-fuel-based plants and would directly leapfrog into the renewable era. This would eliminate the cost of stranded fossil-fuel-based power plants, which seem to be a critical issue, even in countries with significant renewable capacity such as Germany.

More importantly, the renewable energy will provide environment benefits and thrust to achieve its Intended Nationally Determined Contribution (INDC) targets to lower the emissions intensity of GDP by 33% to 35% by 2030 below 2005 levels, to increase the share of non-fossil-based power-generation capacity to 40% of installed electric power capacity by 2030 (equivalent to 26–30% of generation in 2030), and to create an additional (cumulative) carbon sink of 2.5–3 GtCO2e through additional forest and tree cover by 2030.

Too ambitious a goal?

From a macroeconomic perspective, all key indicators are pointing towards higher growth, lower inflation and lower interest rates – and, thus, a comparatively stronger rupee, which is why there is no doubt of the role clean energy will play in India’s growth.

Interestingly, after the initial euphoria of the announcement, the focus has turned to the matter of whether there is the financial wherewithal to achieve the target. Understandably, the Indian government’s limited budget, constrained by a large fiscal deficit and multiple development priorities, has made people wonder if the goal is too ambitious.

The solar and wind sectors will need around 3 trillion rupees in the next five years to double the capacity. Of this, around 2 trillion (70%) will be funded through debt. Considering the already stretched budget and the constraints due to asset-liability mismatch, there is little appetite for renewable projects. The inability of the banks to fund a longer tenure debt with attractive interest rates results in a higher cost of generation, which is dependent largely on the cost of financing. In India, renewable energy projects typically borrow for between 10 and 12 years, at interest rates of 12-13% a year; whereas in Europe 17-18-year financing is available at annual interest rates of 4-5%.

Large investors (i.e. insurance companies, pension funds and provident funds that are long term in nature) have significant corpuses but are constrained to invest only in high-rated debt. There is, therefore, a need to bridge the gap between low-risk appetite of institutional investors and the relatively high-credit-risk profile of renewable energy projects.

The situation

The banks/NBFIs lend to power projects for the entire duration of the loan period of the asset. Currently, because a large part of their portfolio is laden with NPAs and stressed assets, they are facing exhaustion of their power-sector exposure limits. This situation diminishes project-financing room for new projects. Considering that solar farms are typically a 25-year investment, the banks should transfer the debt to any of the above instruments after the initial two-to-three-year period of the asset.

The solution

Banks/NBFIs lend to construction assets as they are better positioned to do due diligence on these assets and take construction risks.

After construction and stabilization, take-out financing can be done through securitization of these assets through infrastructure trusts. This approach will not only re-establish the lending ability of banks, it will also lower the operation period borrowing interest rate.

Further, insurance and pension funds could be mandated to take a percentage of their investments in these securitized instruments, to establish and sustain the market for such instruments.

Note: RBI, in its recent notification for inclusion of the renewable sector in priority lending, has stated that investments in securitized assets (where the underlying asset qualifies for the renewable sector) are treated as meeting the priority lending requirement.

Instruments such as credit insurance/guarantees through NCEF, tax-free bonds for renewable IPPs and infrastructure trusts for securitization of assets will allow creation of space and appetite among investors in the renewable sector.

Cash flow for clean energy

Typically, renewable energy plants have limited power-plant operational risk and, thus, the cash flow is predictable. Due to this, in international markets, pension funds and insurance companies are large providers of capital at lower rates to renewable energy plants. In India, the financial condition of utilities is bad, and this is hindering the flow of long-term and cost-effective capital to renewable energy plants.

A credit guarantee scheme can be launched, allowing a government agency to provide guarantees for renewable energy projects in exchange for fees. The guarantee can be given to the renewable energy generators using NCEF funding. As an example, we may consider a situation wherein the developer carries the risk of delay in non-payment of the invoice for the first, say, three months, after which the money can be claimed from the guarantor.

In short, to help reduce the financing costs, there is a need to make new and cheaper sources of funding available to the renewable energy sector so that the renewable energy tariff can match or become even lower than that of thermal energy. Focus will be on the impetus that can be provided to address the following:

High and variable interest rates – a traditional solar or wind energy project is getting a loan with an interest rate around 12%-15%

Short tenor of debt from Indian commercial banks – traditional maturity in senior debt is about 10-12 years

Hedging currency for international financing – the cost is a component to carefully keep in mind before addressing any international institutions. An arbitrage between local and international financing solutions should have been completed up front.

Global investment in renewable power and fuels in 2014 was nearly 17% higher than in 2013. Investments in developing countries grew by 36% and almost reached the level of investments in developed countries. There is no reason why India – blessed with high solar radiation, which can generate 50-70% more energy than similar projects in Western Europe – cannot make the most of the sunshine.

Author: Ratul Puri, Chairman, Hindustan Power Projects (Hindustan Power), India.

The Decarbonisation move includes curtailing diesel intake, encouraging green grids, low-power digital designs, better efficiencies, better water treatment facilities, and so on.

The need for renewable and green energy is now mission critical.  Since 1970, CO2 emissions have increased by about 90 per cent, with emissions from fossil fuel combustion and industrial processes contributing about 78 per cent of the total greenhouse gas emissions increase from 1970 to 2011. 

According to the Energy Information Administration (EIA) projections, there is going to be a nearly 50 per cent increase in global energy use by 2050.

As economic activity picked up after lifting of Covid-19-induced lockdowns, there has been reports suggesting rise in energy costs and tight supplies from all parts of the globe.

Global summits talk about commitments from all nations on net-zero emissions and carbon neutrality. And yet, fossil fuels like coal, oil and natural gas supply 80 per cent of the world’s energy used. Large parts of the developing world rely on that. That is why global energy debates have the potential to threaten social cohesion. 

At the Paris summit on climate change in 2015, world leaders agreed to limit global warming to well below 2 degrees Celsius, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.

Renewable energy is going to be an important source for power generation in the near future, and the most logical way to open our paths to carbon neutrality.

India is meeting global commitments, including living up to its climate mitigation promises. We are well ahead of targets in achieving ambitious commitments such as making renewables 40 percent of the energy mix by 2030 and managing the sequestration of 2.5 billion tonnes of carbon.

To cap global warming at 1.5 degrees Celsius, policy should take the long view, expand access to digital connectivity and invest in green infrastructure.

The energy challenge is three-fold. First, we need reliable and clean energy to meet our consumption requirements.

Second, we need to transition to green energy sources to decrease the burden of global warming.

Third, we need to increase the reliability and resiliency of the grid network.

However, the move to clean energy is not all that simple. Unabated coal use fuelled the industrialisation of the now developed nations, and enabled their path to prosperity.

If the world needs to be net-zero by 2050, as per the Intergovernmental Panel on Climate Change (IPCC), all countries need to take on emission reduction targets. Carbon levies may kick in next.

Already, sustainability reporting norms from the Securities and Exchange Board of India (SEBI) mandate an environmental, social and governance overview. The energy transition is one of the most complex issues humanity is facing in contemporary times. 

India’s efforts

India set up the Ministry of Non-conventional Energy Sources in 1992 and renamed it Ministry of New and Renewable Energy (MNRE) in 2006, laying the foundation for renewable energy growth.

Prime Minister Narendra Modi resolves to see India emerge as a leader in the renewable energy space. He has set an ambitious target of achieving 450GW of renewable energy capacity by 2030.

In the past 10 years, renewables have seen rapid growth in our energy ecosystem. Estimates suggest India has over 1050GW of renewable potential in wind and solar power energy.

Green energy sources like solar and wind offer intermittent benefits, given their reliance on sunlight and high-speed winds. This makes energy storage vital to building green capacities. 

Europe generates 30 per cent of its power by renewables, out of which 13 per cent is by wind. In India, hydro contributes to 11 per cent of the total energy produced, followed by wind and solar.

In the past eight years, ₹5.2 lakh crore has been invested in renewable energy. Policy interventions like transparent bidding, waiving of inter-state transmission system charges, etc. have helped India play a leading role in the clean energy ecosystem.

In fact, India helped set up the International Solar Alliance in 2015, to promote solar energy in 121 tropical countries.

Additionally, waste-to-energy projects offer twin benefits of making India clean and green. We need to have more such projects. We should also encourage green mobility and production of hydrogen.

Technology can help bring down the price of renewable energy and become a gamechanger in the climate change battle. Digitalised energy systems with advanced situational intelligence can identify who needs energy and when and deliver it at the lowest cost. 

Despite the pandemic, steady growth helped us cross the 100GW target of installed capacity of renewable energy in 2021.

The decarbonisation move includes curtailing diesel intake, encouraging green grids, low-power digital designs, better efficiencies, better water treatment facilities, and so on. 

Our climate and energy strategies must be on a continual innovation and speed cycle.  Huge opportunity exists in reimagining the energy sector.

Ratul Puri is confident: HPPPL will be a game-changer in offering clean, renewable energy

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Interview with Ratul Puri, Chairman Of Hindustan Powerprojects