FX Hedging Facility

The FX Hedging Facility is a customizable currency hedging product designed by the India Innovation Lab for Green Finance to reduce the costs of currency risk for foreign investors in India's renewable energy sector. By targeting 'tail risk' (extreme currency depreciation) rather than overall currency risk, the facility aims to mobilize foreign investment more efficiently than traditional subsidies or commercial cross-currency swaps.

• The Government of India requires approximately USD 189 billion in investment between 2016 and 2022 to reach its target of 175 GW of installed renewable energy capacity, a goal that is difficult to achieve through domestic investment alone.
• The FX Hedging Facility targets 'tail risk'—unexpected, extreme currency devaluations—to lower hedging costs and provide a more efficient use of public grants compared to direct subsidies for market swaps, which are non-recoverable even if currency does not depreciate as expected.
• In a sample transaction where the user covers depreciation up to 4.5% per year, the FX Hedging Facility can reduce currency hedging costs by approximately 30% and mobilize at least $9 of foreign investment for every dollar of donor grant, with a greater than 50% probability that the grant will be fully recovered.
• The facility is currently in an advanced conceptual phase. Interest has been expressed by a commercial bank to act as the guarantor for the FX tail risk component, and potential users including foreign debt transactions and foreign private equity investors—specifically Hudson Clean Energy Partners, who are interested in investing USD 500 million in utility-scale renewable energy projects—have shown interest in pilots.

APA

Climate Policy Initiative (n.d.). FX Hedging Facility. https://www.climatepolicyinitiative.org/wp-content/uploads/2016/12/FX-Hedging-Facility_overview.pdf

Chicago

Climate Policy Initiative. FX Hedging Facility. n.d. https://www.climatepolicyinitiative.org/wp-content/uploads/2016/12/FX-Hedging-Facility_overview.pdf.

Wikipedia

{{cite report |author=Climate Policy Initiative |title=FX Hedging Facility |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2016/12/FX-Hedging-Facility_overview.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatepolicyinitiativendhedging, author = {{Climate Policy Initiative}}, title = {{FX Hedging Facility}}, institution = {Climate Policy Initiative}, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2016/12/FX-Hedging-Facility_overview.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }