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

The report identifies off-taker risk, primarily driven by the poor financial state of public sector electricity distribution companies (DISCOMs), as a major barrier to foreign investment in India's renewable energy sector. It suggests that existing payment security mechanisms are inadequate and lack transparency. Using a new framework based on credit and financial guarantees, the author estimates that a mechanism for a 750MW solar project should be INR 4160 million, which is nearly three times the size of the existing mechanism for JNNSM Phase 2, Batch 1. The document recommends a more transparent framework to demonstrate risk coverage and long-term structural reforms for DISCOMs.

• Foreign investment in India's renewable energy sector is hindered by off-taker risk, which is the risk that a buyer will not fulfill contractual obligations. This risk is primarily linked to the financial instability of public sector electricity distribution companies (DISCOMs), which have debt of INR 3.04 trillion and accumulated losses of INR 2.52 trillion.
• Existing payment security mechanisms, such as those for the Jawaharlal Nehru National Solar Mission (JNNSM), have failed to attract significant foreign interest due to a lack of transparency in their frameworks and a perception that they do not adequately cover the risk of delayed payments.
• Applying a new risk-coverage framework to a 750MW central solar power aggregator under JNNSM Phase 2, Batch 1, the estimated required size for a payment security mechanism is INR 4160 million (or INR 5.55 million/MW). This figure is almost three times the size of the actual existing mechanism, suggesting the current system is insufficient.
• While transparent frameworks are a necessary short-term solution to attract investors, long-term reduction of off-taker risk requires operational and financial management improvements for DISCOMs, including structural fixes like the UDAY scheme.

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} }