Solving India’s Renewable Energy Financing Challenge

The report finds that debt-related federal policies, particularly a combination of reduced-cost and extended-tenor debt, are more cost-effective in the long term than existing subsidies like generation-based incentives and viability gap funding. While existing policies often provide better short-term budget efficiency and production incentives, debt-related instruments offer superior subsidy-recovery potential and overall reduction in total subsidy costs. The analysis highlights a trade-off between long-term cost-effectiveness and short-term capital outlay, suggesting that interest subsidies and accelerated depreciation are viable short-term alternatives to current federal support levels.

• In the long term, debt-related policies are more cost-effective than existing federal policies. The most cost-effective option is a combination of reduced-cost and extended-tenor debt; for wind energy, a 5.9% loan with a 10-year tenor extension could reduce total subsidies by 78% compared to the most cost-effective generation-based incentive (INR 2.03/kWh). For solar energy, a 1.2% loan with the same tenor extension could reduce total subsidies by 28% compared to viability gap funding at 56%.
• Debt-related policies offer significant subsidy-recovery potential, allowing the government to reuse funds. Extended-tenor debt has the highest potential, reaching 112% recovery due to interest-arbitrage, where the government lends at a commercial rate (12.3%) higher than its own borrowing cost (7.8%). Reduced-cost debt and accelerated depreciation show moderate recovery potentials of 64% for wind energy.
• There is a significant trade-off between long-term cost-effectiveness and short-term budget efficiency. Reduced-cost, extended-tenor debt requires high initial capital outlay, supporting 83% less wind deployment and 60% less solar deployment in one year compared to generation-based incentives and viability gap funding, respectively.
• Among existing federal policies, viability gap funding is the most cost-effective, followed by accelerated depreciation and the generation-based incentive. This is primarily because viability gap funding is the most 'front-loaded' policy, which reduces the total subsidy cost compared to policies distributed over a project's lifetime.
• The generation-based incentive is the only existing policy that directly incentivizes power production rather than just capacity installation, as it is linked to the amount of power supplied to the grid. However, interest subsidies also show high potential for incentivizing production because they are spread over the loan period and can be linked to performance contracts.
• For wind energy, an interest subsidy of 3.4% or accelerated depreciation of 38% are more attractive short-term alternatives than the current generation-based incentive of INR 0.5/kWh. An interest subsidy of 3.4% is 11% more cost-effective and supports 83% more deployment, while 38% accelerated depreciation is 17% more cost-effective and supports 87% more deployment.
• For solar energy, an interest subsidy of 10.2% is a more effective alternative to the current 30% viability gap funding, providing an 11% reduction in total subsidies and supporting 30% more deployment in one year.

APA

Shrimali, G., Goel, S., Srinivasan, S., & Nelson, D. (2014). Solving India’s Renewable Energy Financing Challenge. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2014/03/Which-Federal-Policies-can-be-Most-Effective-Full-Study.pdf

Chicago

Shrimali, Gireesh, Shobhit Goel, Sandhya Srinivasan, and David Nelson. Solving India’s Renewable Energy Financing Challenge. Climate Policy Initiative, 2014. https://www.climatepolicyinitiative.org/wp-content/uploads/2014/03/Which-Federal-Policies-can-be-Most-Effective-Full-Study.pdf.

Wikipedia

{{cite report |last1=Shrimali |first1=Gireesh |last2=Goel |first2=Shobhit |last3=Srinivasan |first3=Sandhya |last4=Nelson |first4=David |title=Solving India’s Renewable Energy Financing Challenge |publisher=Climate Policy Initiative |date=March 2014 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2014/03/Which-Federal-Policies-can-be-Most-Effective-Full-Study.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{shrimali2014solving, author = {Shrimali, Gireesh and Goel, Shobhit and Srinivasan, Sandhya and Nelson, David}, title = {{Solving India’s Renewable Energy Financing Challenge}}, institution = {Climate Policy Initiative}, year = {2014}, month = mar, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2014/03/Which-Federal-Policies-can-be-Most-Effective-Full-Study.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }