Climate Action 2016-2017

INNOVATIVE
CLIMATE
FINANCE:
BUSINESS & FINANCE
A SPOTLIGHT ON INDIA
Barbara Buchner, Executive Director Climate Finance, Climate Policy Initiative
(CPI), uses the example of India to introduce how CPI supports economic and
environmental goals by providing policy analysis and innovative financing solutions.
With strong policy and innovative
finance, India is targeting a cleaner
and more resilient economy that will
improve livelihoods for millions of its citizens.
Even before submitting its pledge as part of the
Paris Agreement, India already had one of the
most ambitious renewable energy targets of
any country – to deploy 100 GW of solar power
by 2022. This is over half of the amount of solar
power deployed worldwide at the end of 2014,
and 15 times India’s current solar deployment.
India has also set a wind power target of 60GW
by 2022, up from 25GW currently.
Then in October 2015, India pledged in its
nationally determined contribution (NDC)
submitted as part of the international climate
negotiations that by 2030 non-fossil fuels
would account for 40 per cent of its total energy
generation capacity. According to officials
involved in drawing up the plan, this would
require almost 300 GW of total renewable
energy capacity.
Meeting these targets will require a huge
increase in investment. Forthcoming CPI analysis
shows the amount of investment required to
achieve India’s 2022 renewable energy targets is
US$189 billion.
PRIVATE SECTOR INVOLVEMENT
Domestic policies and national and international
public finance will all play key roles in delivering
India’s renewable energy targets but greatly
scaling up investment from the private sector
is the only way to mobilise the full amount of
capital needed. This will require addressing
major barriers to increasing investment. Two
of the most formidable are the unattractive
terms of financing for domestic investors, and
the currency risks faced by domestic and
international investors that are able to raise debt
on international markets.
The first barrier is due to the high costs, short
duration, and variable interest rates of debt
available in India, which adds 30 per cent to the
cost of renewable energy when compared to
similar projects in developed countries.
The second, currency risk, is one of the most
persistent barriers to international investment
in climate action in the developing world. In
countries with underdeveloped capital markets,
the only viable option is to finance projects
through debt in a foreign currency such as
dollars or euros. Indeed, many development
finance institutions only provide concessional
finance in these currencies.
However, as power tariffs are often in local
currency, this foreign debt creates a risk that
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