Co-authored with Poonam Sandhu, Financial Sector Specialist & India Head Consultant
Showcasing India’s commitment to fighting climate change while increasing clean energy access for its residents, Prime Minister Modi recently upped India’s renewable energy goal to 450 GW, more than five times its current installed capacity of about 82 GW. This is by no means an easy task. A whopping additional $330 billion of investment is required by 2030 to reach the 450 GW capacity, according to the Indian government This equates to an annual investment of $30 billion—three times the current rate of about $10 billion per year.
To achieve India’s renewable energy potential, the financial sector must radically step up investment. India’s, and perhaps the world’s, oldest dedicated green financing institution, the Indian Renewable Energy Development Agency (IREDA), is stepping up to work toward catalyzing private investment and expanding the clean energy market.
Established in 1987, IREDA has played a significant role in mainstreaming renewable energy lending in India. However, despite the exemplary early growth over the last five years, the asking rate to meet the 450 GW target is much higher. To meet the challenge, IREDA plans to transform India’s clean energy markets by establishing a “green window” for developing catalytic risk mitigation and aggregation instruments.
The concept of green windows to attract private capital to under-served segments of the clean energy market in India has emerged over the last two years based on market research and extensive discussions with the Ministry of New and Renewable Energy (MNRE) and key stakeholders involved in financing clean energy. The green window builds on the globally successful green bank model. Green banks across the world have supported projects worth $50 billion in the last five years.
Since early 2019, IREDA’s top leadership has discussed the strategy for the green window with knowledge partners NRDC and CEEW. Last month IREDA, along with NRDC and CEEW held a working session for key IREDA staff to dive deeper into the green window mission and operational plan.
Key takeaways from the discussion are:
- There is a broad internal support for the green window: More than 30 key IREDA staff, including heads of departments and team leaders, participated in the working session. The discussion was instrumental in broadening support for the green window and catalytic finance within the organization. Cross-functional representation of IREDA staff revealed many insights that are being used for developing the operational plan for the green window.
- The green window offers multiple value propositions: The participants agreed upon several strong value propositions for the green window. These include: serving as a laboratory for testing viability of business models in newer technologies; business diversification by developing strengths in new market segments and de-risking from dependence on large scale solar and wind; diversifying investor base and enhancing access to capital for new and emerging technologies. Mr. Chintan Shah, Director Technical, IREDA who convened the working session outlined a compelling business case for a green window at IREDA.
- The green window needs to be a financially self-sustaining and pioneering institution: To provide finance at the right terms to under-served and emerging clean energy segments, the green window would need access to low-cost, ring-fenced pool of capital. While the initial capital can come from a variety of sources such as public funds, climate finance and development bank funds—there was a broad consensus that the green window should be modeled on financial sustainability. This is in line with the global experience of green banks. Additionally, the participants discussed how the word “pioneer” stands out in IREDA’s mission statement and noted that the green window can help reprise the pioneering role of IREDA in catalyzing commercial investment in the Indian clean energy market.
The working session participants also brainstormed on prioritizing target market segments for catalytic finance instruments. Storage, electric mobility, distributed renewables and energy efficiency emerged as the top markets that offer opportunities for expanding investment through risk mitigation and aggregation solutions.
As IREDA continues the journey to be a transformative clean energy institution, it is useful to revisit its organizational mission, written three decades ago and still very relevant: “to be a pioneering, participant friendly and competitive institution for financing and promoting self-sustaining investment in energy generation from renewable sources, energy efficiency and environmental technologies for sustainable development.” Establishing India’s first green window will help IREDA get closer to the vision of its founders and help usher a clean energy economy in the country.