Solving India’s Renewable Energy Financing Challenge

The report identifies that high cost, short tenors, and variable interest rates of debt increase the cost of renewable energy in India by 24-32% compared to the US. It evaluates five recommended instruments to address these barriers: government bonds, infrastructure debt funds (mutual fund model), partial credit guarantees, partial risk guarantees, and exchange rate liquidity facilities. The analysis finds that government bonds offer the highest potential for cost reduction (up to 4.5 percentage points) and tenor increase (up to 10 years), while other instruments like partial credit guarantees can mobilize private capital from pension and insurance funds by enhancing project credit ratings to AA. The report also examines the impact of currency hedging costs, which currently neutralize the advantages of lower-cost foreign debt, and proposes a liquidity facility to mitigate this risk.

• The primary barrier to renewable energy growth in India is the unfavorable terms of debt—specifically high costs, short tenors, and variable rates—which increase the cost of renewable energy by 24-32% relative to similar projects in the US.
• A direct government borrowing and lending program could reduce the cost of debt by up to 4.5 percentage points and increase the tenor by up to 10 years, potentially lowering the delivered cost of renewable energy by approximately 25%.
• Infrastructure Debt Funds (Mutual Fund model) could reduce the cost of debt by up to 3 percentage points and increase the tenor by up to 5 years, leading to an approximate 14.5% reduction in the delivered cost of renewable energy.
• Partial credit guarantees can reduce the cost of debt by up to 1.9 percentage points and increase the tenor by 5 years, reducing the delivered cost of renewable energy by about 10.5% by enhancing project credit ratings to AA to attract pension and insurance funds.
• Partial risk guarantees can attract foreign funds by mitigating political risks, potentially reducing the cost of debt by up to 1.8 percentage points and extending the tenor by up to 10 years, decreasing the delivered cost of renewable energy by approximately 12.7%.
• An exchange rate liquidity facility could reduce the cost of debt by up to 1.4 percentage points and increase the tenor by up to 8 years, decreasing the delivered cost of renewable energy by approximately 11.2% by providing a cheaper alternative to market currency hedging.
• High currency hedging costs in India, estimated at approximately 7 percentage points, effectively neutralize the cost advantages of foreign debt over domestic debt.
• The Infrastructure Debt Fund (Non-Banking Finance Company model) is currently unsuitable for renewable energy projects because its design limits lending to projects developed under the Public Private Partnership (PPP) model.

APA

Shrimali, G., Konda, C., & Srinivasan, S. (2014). Solving India’s Renewable Energy Financing Challenge. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2014/04/Instruments-to-Provide-Low-cost-Long-term-Debt.pdf

Chicago

Shrimali, Gireesh, Charith Konda, and Sandhya Srinivasan. Solving India’s Renewable Energy Financing Challenge. Climate Policy Initiative, 2014. https://www.climatepolicyinitiative.org/wp-content/uploads/2014/04/Instruments-to-Provide-Low-cost-Long-term-Debt.pdf.

Wikipedia

{{cite report |last1=Shrimali |first1=Gireesh |last2=Konda |first2=Charith |last3=Srinivasan |first3=Sandhya |title=Solving India’s Renewable Energy Financing Challenge |publisher=Climate Policy Initiative |date=March 2014 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2014/04/Instruments-to-Provide-Low-cost-Long-term-Debt.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{shrimali2014solving, author = {Shrimali, Gireesh and Konda, Charith and Srinivasan, Sandhya}, title = {{Solving India’s Renewable Energy Financing Challenge}}, institution = {Climate Policy Initiative}, year = {2014}, month = mar, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2014/04/Instruments-to-Provide-Low-cost-Long-term-Debt.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }