Driving Foreign Investment to Renewable Energy in India: A Payment Security Mechanism to Address Off-Taker Risk

This executive summary by the Climate Policy Initiative examines the role of payment security mechanisms in mitigating off-taker risk to attract foreign investment for India's renewable energy targets. It argues that current mechanisms are inadequate and lack transparency, and proposes a framework for the Indian government to better demonstrate risk coverage to investors.

• India has set ambitious renewable energy targets of 175GW by 2022 to meet energy demands that are expected to double by 2030. The government has indicated that foreign investors will need to provide a significant portion of the necessary finance.
• Off-taker risk, specifically the risk that public sector electricity distribution companies (DISCOMs) will fail to fulfill contractual obligations or make payments on time, is a major barrier for foreign investors. State-level DISCOMs are described as being on the brink of financial collapse, with accumulated losses of INR 2.52 trillion and debt of INR 3.04 trillion.
• Existing payment security mechanisms, such as those for the Jawaharlal Nehru National Solar Mission (JNNSM) managed by the Solar Energy Corporation of India and NTPC Vidyut Vyapar Nigam, have failed to attract significant foreign interest. This is attributed to a lack of public frameworks for these mechanisms and a perception that they do not adequately cover the risk of delayed payments.
• Applying a new framework based on probability of default, exposure at default, and recovery after default to a central solar power aggregator (750MW capacity) under JNNSM Phase 2, Batch 1, CPI estimated the required payment security mechanism size at INR 4160 million (INR 5.55 million/MW). This estimate is nearly three times the size of the actual existing mechanism, suggesting the current system is inadequate.
• While transparent frameworks for payment security mechanisms are a necessary short-term solution to attract investors, long-term reduction of off-taker risk requires structural fixes for DISCOMs, such as the UDAY scheme for financial restructuring.

APA

Climate Policy Initiative (2016). Driving Foreign Investment to Renewable Energy in India: A Payment Security Mechanism to Address Off-Taker Risk. https://www.climatepolicyinitiative.org/wp-content/uploads/2016/04/Driving-Foreign-Investment-to-Renewable-Energy-in-India_Executive-Summary.pdf

Chicago

Climate Policy Initiative. Driving Foreign Investment to Renewable Energy in India: A Payment Security Mechanism to Address Off-Taker Risk. 2016. https://www.climatepolicyinitiative.org/wp-content/uploads/2016/04/Driving-Foreign-Investment-to-Renewable-Energy-in-India_Executive-Summary.pdf.

Wikipedia

{{cite report |author=Climate Policy Initiative |title=Driving Foreign Investment to Renewable Energy in India: A Payment Security Mechanism to Address Off-Taker Risk |date=April 2016 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2016/04/Driving-Foreign-Investment-to-Renewable-Energy-in-India_Executive-Summary.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatepolicyinitiative2016driving, author = {{Climate Policy Initiative}}, title = {{Driving Foreign Investment to Renewable Energy in India: A Payment Security Mechanism to Address Off-Taker Risk}}, institution = {Climate Policy Initiative}, year = {2016}, month = apr, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2016/04/Driving-Foreign-Investment-to-Renewable-Energy-in-India_Executive-Summary.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }