Financing Renewable Energy: Mechanisms, Challenges & Risks By Ujjwal Bhattacharjee, PhD Senior Fellow, TERI Regional Workshop on Innovative and Sustainable Energy Technologies for Developing Countries: Opportunities and Challenges 30 th May 2014, New Delhi

Outline Financing mechanisms to support RE as a commoditized product – Rooftop SPV Financing linked to resource availability – Biomass energy systems Performance based RE financing EE retrofit financing – Collateral issues

Commoditizing Rooftop SPV Availability –Range of standardized products Accessibility –Wider network of suppliers and service providers Affordability –Easy financing

Barriers to RE Commoditization High upfront cost Limited financing schemes by banks Lack of awareness among consumers Limited standardized rooftop SPV systems Inadequate supply chain for rooftop SPV system Less experience in grid connectivity at low voltage Higher cost of dual function inverter (which allows consumption of solar electricity during power outage) Market specific challenges Cost reduction for small capacity SPV system is a challenge Only few companies in the market Utility scale system integrators (EPC providers) are not willing to enter into the small SPV domain

Traditional Front Loaded Financing Scheme for Rooftop SPV

Back Loaded Financing Scheme Designed to Balance with Electricity Cost Offset

Assess RE Resource Value Chain- Biomass Energy Systems

RE Resource Value Chain Little biomass is left for energy generation Fronds (leaves) are used up for soil nutrition Shells are used in the coconut drying process

Performance Based Financing – Energy Access RE Projects Payment Fuel Supply Agreement Payment (Regulated Tariff) Power Purchase Agreement Payment Electricity Consumers (Domestic/Commercial) 10-20% electricity 80-90% electricity Surplus FiT DISCOM/ Open Access Large DDG Operator/RESCO/Franchisee Fuel Supplier (if any) Biomass/Fuel Move from 90% capital subsidy to performance based VGF funding

Financing EE Retrofit Projects TECHNOLOGY ENERGY EFICIENCY COMPONENTS Air Conditioning; Controls, Exhaust Fan Lighting, Maintenance, Pool Pumps, Solar Hot Water Heater, Solar PV, Window Films HOTEL INVESTMENT AND PROFITIBILITY INDICATORS US$BB$ Initial Investment 2,99,250 5,98,500 Annual Electricity Saved (kWh) 3,77,477 Year 1 Electricity Cost Saved 1,50,991 3,01,982 Project Simple Payback Period (years) 2.0 Internal Rate of Return (IRR)99% Loan Amount 2,39,400 4,78,800 Annual Debt Repayment (after moratorium period) 23,940 47,880 Total Interest Payment 46,085 92,169 Total Net Profit (after interest, depreciation and tax) at present value 6,53,070 13,06,139 Arranging Collateral is a Challenge

Concluding Remarks Financing schemes should be developed to support commoditization of RE (rooftop solar) RE resourced linked financing is critical for long- term sustainability of projects. RE access projects should move from high initial capital subsidy to performance based subsidy. Special funds created for EE retrofit projects should take into account the collateral issues.

Contact Info: Tel: Skype: Ujjwalbh