Development & Financing of Renewable Energy in India - Way Forward Indian Approach and Policy Options to Promote Sustainable Infrastructure Development Rajendra Singh, Asstt. General Manager (TS) Indian Renewable Energy Development Agency Ltd. New Delhi, India

About IREDA Established in 1987 as a Dedicated RE FI under erstwhile Department of Non-Conventional Energy Resources(DNES), Ministry of Energy, Govt. of India. Notified as Public Financial Institution under section 4(A) of the Companies Act during FY 1995-96 The Cabinet Committee on Economic Affairs(CCEA) approved IREDA IPO on 7th June 2017, for issue of 13.90 crore fresh Equity shares of face Value Rs. 10 under IPO. After IPO, Government stake shall be 85% in equity 1987 Established as “Schedule C” Company and registered under Companies Act 2010 Upgraded from ‘Schedule C’ to ‘Schedule B’ CPSE 2015 Awarded “Mini-Ratna” (Category-I) Status by MNRE

About IREDA Dedicated NBFC for Financing Renewables Financing Renewable Energy projects since last 30 Years. Catalyzed RE Market Development in India. Financed more than 2400 RE projects - largest share in RE Project Financing in India. Profit earning and dividend paying since inception. Cumulative loan sanctions of more than Rs.50,000 Crores.

IREDA - Operational Areas

IREDA Financing Products / Schemes IREDA has always been the prime mover and showing the way to its peers in RE financing. IREDA has been continuously developing new /innovative schemes to meet the market requirement & for the development of RE sector. Direct Lending Other Services Project & Equipment Financing Responsible for fund handling for some of the MNRE schemes Loans for Manufacturing Take Over Loans from other Banks / FIs Co-financing/ Consortium Loan against Securitization

New Financing Schemes / Products Several financial schemes /products introduced to cater emerging markets, namely: Scheme for Solar Roof Top through Aggregator (RESCO) – Scheme is available for all Grid connected/interactive Solar PV projects located on Rooftops. Applications can be submitted under Aggregator Category and Direct Category. Scheme for Bridge Loan Against pending Energy Bills to address the issue of delay of payments by DISCOMs. Bill discounting facility for the Energy bills of IREDA borrowers which are pending for payment with Utilities for upto 6 months. Lines of credit to Non-Banking Financial Companies for on-lending to RE/EEC projects To cater to regional level financing, LoC to Non-Banking Financial Companies (NBFCs)/ State Govt. Financial institutions & corporations. for on- lending to RE. Short term loan assistance to RE developers / suppliers / contractors To provide financial assistance in the form of short term loan for meeting immediate fund requirements towards project development, implementation/operations of renewable energy projects.

Underwriting of debt / loan syndication Contd.. Bridge loan assistance to RE promoters / developers against capital subsidies / VGF To provide financial assistance in the form of Bridge Loan for meeting immediate fund requirements towards implementation/operations of renewable energy projects to bridge the gap till the time Capital subsidies/Viability Gap Funds (VGF) are available/released to the developers.   Underwriting of debt / loan syndication To facilitate the early financial closure, implementation and commissioning of the project. Guarantee assistance to RE suppliers / promoters. To facilitate Developers/Suppliers/Manufacturers/EPC Contractors for successful implementation of RE projects IREDA-NCEF RE-finance Scheme – for revival of stressed projects in biomass and small hydro sectors. To provide low-cost refinance (interest rate @ 2% p.a) up to 30% of the loans outstanding in the books of scheduled commercial banks / financial institutions. As on date IREDA has sanctioned refinance of Rs 252 Cr under the scheme.

Contd.. Credit Enhancement Scheme for raising Bonds towards Renewable Energy Projects (Solar / Wind). To enhance the capital flow to the sector, IREDA introduced the new scheme “Credit Enhancement Guarantee Scheme” for raising bonds towards RE projects. Issue of Letter of Comfort (LoC)/ Letter of Undertaking (LUT) for opening Letter of Credit (LC). Letter of Comfort (LoC)/Letter of Undertaking (LUT) against Buyers credit being issued where LC opening is a requirement under EPC/Equipment Supply contract to enable the borrower to open LC with its bankers. Policy for financing of Transmission Projects A Policy has been formulated for financing of Transmission Line projects across India.

Broad Lending Norms of IREDA Quantum of Assistance : Up to 75% of the Project cost. Rate of Interest : 9.75% - 11.50% per annum Moratorium on Principal repayment : Upto 1 year after CoD Repayment after construction period & moratorium : Upto 15 years In case of Consortium, IREDA can follow the terms and conditions of the Lead Lenders.

IREDA - Resource Base Paid up capital : Rs. 784.60 crs (As on 31.03.2017) Reserves and Surplus : Rs. 1725.41 crs (As on 31.03.2017) IREDA has availed international assistance equivalent to ~ Rs. 8000 Crs from various Bilateral / Multilateral agencies. IREDA has recently raised $300 mn of Masala Bonds at tightest ever pricing & its bonds are now issued at London and Singapore stock exchanges. Issue of 13.90 crore fresh Equity shares of face Value Rs. 10 under IPO on the anvil.

On-going International Lines of Credit C. Lines of Credit in Pipeline S.No. Source Year of Receipt Amount INR / Cr Equivalent 1. JICA - II 2014 JPY 30 Bn 1717.38 2. EIB € 200 Mn 1432.58 3. AfD - II € 100 Mn 723.19 4. ADB – II 2015 $ 200 Mn 1362.24 5. KFW-V 714.52 6. KFW VI 2016 € 20 Mn 142.90 Total 6092.81 C. Lines of Credit in Pipeline World Bank Line of Credit for Solar Parks (3rd LoC) – World Bank has approved a line of credit of US$ 100 million to IREDA for financing infrastructure in solar parks in India. Successfully mobilized NIB (Nordic Investment Bank), AfD-II and KFW-V & VI Lines of Credits without sovereign guarantee

Lines of Credit fully availed & utilized   Sources Year of Receipt Amount INR Equivalent (Rs. in Crs.) 1 Govt of Netherland 1991 NLG 18 Million 75.00 2 WB (1st LoC) 1993 $ 145 Million 394.39 3 DANIDA $ 15 Million 74.72 4 ADB-1 1997 $ 100 Million 464.75 5 KfW (1st LoC) 1999 € 61.36 Million 301.55 6 WB (2nd LoC) 2000 $ 109 Million 498.34 7 NIB (1st LoC) 2010 $ 50 Million 228.00 8 KfW (2nd LoC) 2008 € 50 Million 329.76 9 KfW (3rd LoC) 2009 € 19.97 Million 130.42 10 AFD (1st LoC) € 70 Million 446.76 11 JICA 2011 JPY 30000 Million 1888.69 12 KfW (4th Loc) € 200 Million 1476.55 Total 6308.93

Highlights of Performance – Last 5 Years CAGR : 29% (Sanctions) CAGR : 33% (Disbursements) Loan Outstanding in Rs. Crores CAGR : 19%

Highlights of Performance – Last 5 Years CAGR : 15 %

Highlights of Performance Contd..

Growth Projections CAGR (Projected) : 23% Estimated Loan Sanctions of Rs. 71,000 Crores in next 4 years, against cumulative sanctions of Rs 48,800 cr during last 30 years. Estimated disbursements of Rs. 39,980 Crores in next 4 years, against cumulative disbursements of Rs. 27,788 Crs during last 30 years. CAGR (Projected) : 17%

Status of NPAs Majority of NPAs are in the Biomass / Cogeneration and Small Hydro Power projects, these projects got affected due to factors that are beyond the control of the promoters As a corrective measure, IREDA Loan shall be limited upto 50% of the project cost in Cogen & Hydro projects.

IREDA’s Networking for promotion of RE IREDA has entered into MoUs with other banks and FIs to facilitate faster financial closure. MoUs with Yes Bank and Tata Cleantech Capital for working together in the field of financing RE projects. MoU with PFC and PFCCAS – Power Lenders Club comprising of 22 Banks and other FIs. MoU with SECI for setting up of Solar Projects. MoU with MNRE, NIWE, Consortium of Partners consisting of NTPC, POWERGRID, PFC, IREDA, PTC and GPCL to develop off-shore wind power projects MoU with IIFCL to strengthen co-operation in consortium/co-financing of RE projects. IREDA and IFC have partnered to boost financing for RE infrastructure in India

Recognitions to IREDA CMD, IREDA has been awarded the “SCOPE Award for Excellence and Outstanding Contribution to the Public Sector Management ‐ Individual Leadership Category III (Other Profit Making PSEs) 2014‐15” by Hon’ble President Sh Pranab Mukherjee. IREDA was awarded the “SCOPE Award for Excellence and Outstanding Contribution to the Public Sector Management – Institutional Category III (Other Profit Making PSEs)’ 2013-14 by SCOPE, the award was presented by Hon’ble President Sh Pranab Mukherjee. IREDA conferred with ‘Best Financial Performance (Mini Ratna Company) Award by Hindustan newspaper at the ‘Hindustan Ratna PSU Award-2017’  Outstanding Performance Award – 2016 for Financing of RE projects during February 2015 – March 2016 by MNRE. Golden Peacock Innovative Product/Service Award by Institute of Directors. Award for highest lending to Renewable Energy projects in the country during the FY 2014-15 amongst the financial institutions of the country by AREAS. Best in R&D Innovation Award by India Today Group. CBIP Award for Excellence in Renewable Energy Sector for outstanding contribution to the nation in the development of RE Sector. India Pride Award as “Excellence in Financial Sector, Government NBFCs” for the year 2013-14 by Dainik Bhaskar Group

Power Scenario in India Total Installed capacity of 331* GW, of which RE capacity is nearly 60 GW, over 18%. *As on 30.11.2017 May require more than one slide Renewable Energy Potential Achievements & Targets Sector Potential (GW) Installed (GW) (as on 31 Oct 2017) Wind 302* 32.71 Solar 750 15.57 Small Hydro 20 4.39 Bio Power 23 8.29 Total 1095 60.98 Target (2022): 175 GW Solar 100 GW Wind 60 GW Bio Energy 10 GW Small Hydro 5 GW * At 100 m hub height estimated by NIWE

India - Renewable Energy Growth Vs Total Conventional Power installed (In GW) 31-Mar-97 31-Mar-02 31-Mar-07 31-Mar-12 31-Mar-17 31-Oct-17 Capacities in GW Source Revised Targets till 2022 Solar Power 1,00 Wind power 60 Bio Power 10 Small Hydro 5 TOTAL 175

Policy and Regulatory Framework for RE development Electricity Act (EA), 2003 Promotion of RE by ensuring connectivity and sale of RE power Provision for Central Govt’s National Electricity Policy of power incl. RE SERC’s to provide: RPO regulations RE tariff National Tariff Policy (NTP), 2006 & Amendments 2016 Preferential tariff for RE Procurement of RE through competitive bidding by utilities, in longer run Amendments, 2016 Renewable Power Obligation (RPO): 8% Solar RPO by March 2022.  Renewable Generation Obligation (RGO): for New thermal plants No inter-State transmission charges for solar and wind power. National Electricity Policy (NEP), 2005 Promotion of private participation in RE. Targets capital cost reduction in RE through competition. SERCs should specify appropriate tariffs to promote RE and specify targets for RE. REC Mechanism, 2010 Enabling inter-State RE transactions National Action Plan for Climate Change, 2008 A dynamic minimum renewable purchase standard (DMRPS) NAPCC has set the target of 15% RE by 2020

Renewable Energy Investment –Global vis-à-vis India Total Global investments in RE was $287.5 Billion in 2016 (Fell 18% from 2015 levels) Reduction in technology costs, raw material costs, improved technology, conducive policy environment, better financing structuring of projects have resulted in low capital costs. Global Solar PV Capacity by end of 2016 was 303 GW, Wind Energy was 466 GW. Source: Bloomberg New Energy Finance

FDI: Foreign Direct Investment Key incentives – FDI: Foreign Direct Investment 100% FDI under the Automatic Route Does not require approval from the Government of India The Indian Company receiving FDI is required to just to report the Reserve Bank of India the receipt of FDI within 30 days JV: Joint Venture Automatic approval for up to 74% foreign equity participation in a JV 100% foreign investment as equity is permissible with the approval of Foreign Investment Promotion Board (FIPB) Other Incentives Capital Subsidy of upto 30% for Solar Rooftop Projects, Capital Subsidies for Bio Energy Projects & Small Hydro Projects. Generation Based Incentives (GBI), Income tax Holiday for 10 Years, Viability Gap Funding etc.

Solar Power in India - Cumulative Installed Capacity (GW)

(Ground Mounted Projects) Solar: 100 GW Plan by 2022 100 GW 40 GW Rooftop 60 GW (Ground Mounted Projects) 20 GW (2) Entrepreneurs 10 GW (3) PSUs 5 GW (4) Large private sector (5) SECI (6) Through states (7) Already planned Additional 20 GW capacity under Solar Parks scheme approved Unemployed Graduates Village Panchayat SSI Units Synergy with MSME, MoRD Green Energy Certificates Large Private sector corporations Green Energy Certificates Power producers under VGF scheme with DCR and prior commitments States to install projects under their own policies SECI : 2 GW NVVN : 3 GW States : 2 GW

Cost Discovery through Bidding Process Cumulative Installed Capacity (GW)

Factors leading to 50% reduction in solar tariffs in 16 months (Rs. 4 Factors leading to 50% reduction in solar tariffs in 16 months (Rs. 4.34 / unit (6 US cents) to Rs. 2.44/ unit (3 US cents)) Guarantee by Offtaker: 3 months payment Guarantee in case of Delays from Distribution Companies: 3 tier payment security Capital cost reduction Land / Evacuation and PPAs in place in Solar Parks Back down not more than 48 Hours No cap on DC/AC power/ PLF%

Solar - Manufacturing Base India’s total module manufacturing capacity is estimated at 8.5 GW however only 5.5 GW is operational. About 89% of all module requirement in India is met through imports, mainly through China India’s total Cell manufacturing capacity is around 3.2 GW – operational 1.7 GW. Solar - Proposed Action Plan More states to adopt Standard bid documents & Bidding Guidelines Development of Model PPA , RfP etc Solar Park: Expediting Clearances, Land, Connectivity etc Ensuring Must Run Status Payment for Deemed Generation - Grid Unavailability / Back Down Strong Payment Security: PSM Fund, State Guarantee Introduction of Credible Intermediary: Reducing Offtaker risks

Alternative Funding Mechanisms Green Bonds / Tax Free Bonds: Enabling low cost funding for clean energy Masala Bonds: Rupee-denominated bonds issued to offshore investors settled in dollars and, therefore, the currency risk resides with investors. Multilateral / Bilateral Agencies support to RE Projects World Bank inked agreements with SBI for $ 625 mn facility to support grid connected rooftop solar programme The Asian Development Bank (ADB) to provide $500 mn in financing for rooftop solar systems through PNB. The New Development Bank (NDB), sanctioned a $250 mn loan for RE projects in India. KfW, Germany is providing Euro 1000 mn for funding of Green Energy Corridors for interstate and intrastate transmission of RE World Bank is providing $100 Mn to IREDA to further lend the amount for development of Solar Parks

Open Access / Third party sale - Renewable Energy Scenario Third-party PPAs are emerging as an attractive option for RE developers, particularly In states with a strong industrial base High retail power tariffs for commercial and industrial consumers In some states where the FiT tariffs are low. Delayed payment issues with the current FiT model, Enabling Provisions Recently Government has waived inter state transmission charges and losses on transmission of electricity generated from Solar and Wind sources Majority of States allow banking of power for third-party sale. Efforts are also being made to reduce/rationalize Cross Subsidy Surcharge, Wheeling and Banking charges etc.

Conclusions Initially huge subsidies to make it acceptable to utilities, subsequently tariffs have come down through price discovery through bidding route Development of Solar Parks through PPP model where Land, Evacuation & PPA was provided to the developer & backed down risk & payment security was taken by the state has further helped in reducing the Solar Tariffs Waiving of Transmission charges and reduced Wheeling & Banking charges further made it more attractive

Way Forward India’s per capita energy consumption is 1200 units vs Global average of 3000 units & our demand is bound to increase Our requirement is predicted to go up to 18000 bn units by 2046 vis - a – vis 1200 bn units today. Likely convergence of Power & Transport sector through storage and E- Mobility With improvements in Storage technologies and reduction in costs, much higher penetration of renewables in the Grid would be possible Committed to cooperate with ISA countries to enable faster adoption of Solar Energy

THANK YOU Indian Renewable Energy Development Agency Limited Email: cmd@ireda.in | www.ireda.in