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Interview
India’s 2022 Renewable Energy
goal would require in excess
of $75bn in investments
To get from the approximately 70 GW of renewable today to the 175GW target for 2022 would require
in excess of an additional $75bn, with most of it in the form of debt. In an interview with Subash Deb,
Deputy Editor, Infraline Plus, Mr. Gagan Sidhu, a Delhi NCR-based Senior Independent Adviser, who
focuses on advising companies seeking to raise and deploy capital in the Renewable Energy space, says,
the Indian banking system by itself just does not have the headroom to absorb such a large amount in a
short period of 4 to 5 years, from a credit growth as well as a sector concentration risk perspective.
Q
How important is foreign in bridging the gap.
Q
capital for India to achieve How do the 2022 targets
its 2022 target of 175 GW tie in with India’s CoP21
of installed renewable energy commitments?
capacity? India made two commitments in Paris.
Very important. It’s estimated that the Lower PPA First was a 33 to 35% reduction in
Indian banking system already has tariff itself emissions intensity, and the second was
exposure in excess of Rs 6 lakh crore becomes a that renewables would account for 40%
($100bn) to the power sector. To get of installed capacity, both to be achieved
from the approximately 70 GW of
competitive by 2030. As of today, renewables is
renewable today to the 175 GW target advantage, already at 20% of installed capacity
for 2022 would require in excess of and such if one excludes large hydro from the
an additional $75bn, with most of it projects, up definition of renewables, and at 33%
in the form of debt. In my view, the if one includes it. What this means
domestic banking system by itself just
to a point, may is that if a net addition of 105 GW of
does not have the headroom to absorb merit a lower renewables is forthcoming by 2022,
such a large amount in a short period hurdle rate and no new thermal capacity comes
of 4 to 5 years, from a credit growth as compared on line in the meanwhile, India is on
as well as a sector concentration risk track to meet the second commitment
perspective. It would be ideal if the
to projects well before 2030 even if we exclude
domestic bond market could step in, with higher large hydro from our definition of
but that’s debateable. As such, foreign PPA tariffs renewables. And as electricity is the
capital is required to play a critical role single largest contributor to emissions
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Interview
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in the country at close to 40%, surpassing on the renewables ecosystem which operates
the second commitment will go a long way under a transparent reverse auction PPA
in helping meet the first emissions intensity tariff discovery regime, with quasi-sovereign
related commitment. entities often fronting the PPA’s, and where
off-take & off-take credit risk is everything.
Q
What is your view on the way the That is why I believe the few companies such
renewables landscape is evolving in as Adani Group that have sizeable thermal
India? and renewable businesses have chosen to
One of the things that strike me is the almost separate the two, because it’s not just the
clear separation between companies that are financial capital which evaluates renewables
anchored in the thermal focussed business differently, but it also takes a different kind
models of the past and those that have of human capital to evaluate and execute the
made a mark for themselves in renewables. Bypassing projects themselves.
There are many reasons for this but in my
banks and
Q
view topmost on the list is excessive return You mentioned the bond market
expectations rooted in misevaluation of accessing earlier. Do green bonds represent
risk. Most thermal focussed companies debt capital a real opportunity for Indian
have not fully appreciated the significantly directly from companies?
lower overall risk profile of renewables Bypassing banks and accessing debt capital
and continue to expect thermal inspired,
the source directly from the source via the bond market
or other arbitrary return levels. This is the via the bond is a great way to reduce cost of funding,
main reason why they have been relegated market is a particularly for refinance of execution risk
to the side-lines while a new generation of great way to mitigated projects. However, before we get
companies captures the renewables space. into the subject of green bonds, it’s useful
There are other reasons as well. With
reduce cost to compare the domestic and overseas bond
thermal, there has always been a great deal of of funding, markets in general.
management focus dedicated to complicated particularly First of all, India is rather unique in that
power plants prone anyways to cost overruns, for refinance our equity capital markets are much larger
a scramble to secure feedstock, and an than our debt capital markets. It’s usually the
attempt to tie-up highest possible tariff
of execution other way around in many large economies.
PPA’s with state Discoms under bi-lateral risk mitigated Secondly, government securities of various
arrangements. These are very different skill projects kinds comprise almost three fourths of the
sets compared to what it takes to succeed in bond market in value terms. Finally, the fact
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Q
What is your view on recently or other is just one of several ways in which risk &
discovered PPA tariffs? Do they return evaluation criteria diverges between
represent a risk? arbitrary that used for the thermal businesses of the
It’s important to distinguish between lower return levels past, and what will be applicable to the
margins and risk – they are not one and the renewables ecosystem of the future.
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