Private Financing and Governance Issues in Renewable Energy Financing - PowerPoint PPT Presentation

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Private Financing and Governance Issues in Renewable Energy Financing

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Exploration of a new business model that possibly moves the governance framework ... Develop and freeze frameworks for PSP involvement ... – PowerPoint PPT presentation

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Title: Private Financing and Governance Issues in Renewable Energy Financing


1
Private Financing and GovernanceIssues in
Renewable Energy Financing
  • 21st April 2004
  • Head EMSD/DINT
  • IDFC

2
IDFC Background
  • Set up in 1997 as a nodal FI to lead private
    capital to commercially viable infrastructure
  • 40 GoI, 40 international agencies
  • Capital base of over US300 mn (equity sub-debt)
    and balance sheet size of US 650 mn
  • Works on project finance, policy advisory work
  • Sectors
  • Energy
  • Generation, Transmission and Distribution
  • Integrated Transport Logistics
  • Roads and Bridges
  • Ports and harbors
  • Telecommunication IT
  • Water, Sanitation and Solid waste
  • Food Agriculture
  • New social sectors Health, Education Tourism
  • Strong focus on development and sustainability

3
Financing Sustainable Energy
  • Sustainability
  • Social Sustainability (Provision to the last mile
    and poor)
  • Local Environment sustainability (avoidance of
    thermal power)
  • Global sustainability (GHG mitigation)
  • Covers
  • RET
  • Energy efficiency
  • CDM GHG focus
  • Presentation to cover only
  • RET development in India and its success
  • Rural and remote rural electrification and PSP

4
A Critique of Indias RET Policies
  • India has an impressive record on renewables
  • Government has played a critical role in
    developing the same with incentives and subsidies
  • Government has failed to create a market
  • Device/Technology based push
  • Focus on asset creation rather than energy
    service
  • The impressive record is only in terms of
    installed capacity
  • Conflicting roles of the government
  • Subsidy provider
  • Implementer
  • Evaluator
  • Regulator
  • No accountability

5
New Electricity Act
  • Local Bodies can distribute and generate power
  • Provision of license free generation in rural
    areas
  • Subsidy provision in the budget to facilitate
    rural electrification
  • Utility has to buy power from the small
    generators
  • Some ambiguities but this is a huge potential
    boost for the sector

6
Present Opportunity
  • There is an opportunity for Remote Rural
    electrification using renewables
  • National targets
  • Electrification of all villages by 2007
  • Electrification of all households by 2012
  • Estimated that 80000 (1991 census) villages in
    India yet to be electrified
  • Estimated that 18000 of these are remote rural
    villages
  • Off-grid /mini grid options to be explored here
  • by MNES/state nodal agency
  • Exploration of a new business model that possibly
    moves the governance framework

7
Remote rural electrification (RRE) PSP
  • Challenges
  • Limited paying capacity
  • Small village size/Dispersed population
  • Low energy loads
  • Mostly in hilly difficult terrain areas(16
    states)
  • Based on the above projects will not be
    stand-alone viable
  • MNES to provide subsidy based on economic
    condition target customers
  • Present indicative amounts of 90 capital subsidy
  • Can PSP be used to leverage this amount
  • Pay for service delivery rather than asset
    subsidy
  • Private sector includes local entreprises, NGOs
    and local bodies

8
Issues and considerations
  • Look at energy service provision instead of
    asset/device creation
  • Definition of the Universal Service standard for
    power
  • Present MNES definition of 60 households/village
    needs to be further specified
  • The off-grid vs. grid extension approaches
  • Move from push to pull (Demand based)
  • Technology neutrality Primary objective to be
    clear
  • Renewables vs off-grid last mile electricity
    access

9
Avenues for PSP involvement
  • Private sector can be involved in various degrees
    of involvement
  • Outright Equipment/device sale
  • Maintenance and local training
  • Annuity based energy service contract

Risk/stake in project increases for private
sector
10
Private sector requirements
  • Requirements
  • Clear policy and assurance of tenor
  • Reasonable returns (for risks taken) (profits
    have to be provided for)
  • Benefits
  • Self regulating if framework and project is
    properly designed
  • Caveats
  • Monitoring has to be clearly defined as part of
    framework to ensure Private sector delivers

11
An Annuity model for RRE
Energy Customers
LOCAL ECONOMY
Local support
  • Subsidy
  • To ensure viability
  • To reduce risk

PPP
Equipment Supplier
Commercial/ local Finance
MNES
12
A suggested strategy for PSP in RRE
  • Government to better characterize the
    requirements
  • Obtain detailed field data for target areas
    including potential demand and ability to pay
  • Finalize Universal service requirements (..for
    target areas)
  • Clarify interface with other agencies and
    frameworks for off-grid power
  • Invite private sector equipment suppliers to
    consultations to jointly develop possible models
    for their involvement
  • Risk-return expectations
  • Monitoring and accountability
  • Extent of involvement (coverage financing)
  • Develop and freeze frameworks for PSP involvement
  • Initiate PSP for places where private sector is
    interested
  • Balance can be done through conventional MNES
    approach

13
The Conventional Financier issues
  • High risk aversion
  • Technology
  • Cost
  • Quality of project promoters
  • Lack of creative business models and willingness
    to explore
  • Donor commercial finance divide
  • Inadequate knowledge of the market
  • Transaction costs
  • Need for intermediation and lack of
    intermediaries
  • Poor frameworks for risk sharing

14
Solar lantern financing
Credit enhancement
SDC
Grant support for soft costs
Loan for assets To IRNET
IRNET
IRNET buys the devices And provides to NGOs and
SHGs
NGOs
NGOs provide to SHGs t
SHGs
SHGs
NGOs provide sell or sell on a financing basis
Households
Households
15
Project Risk Allocation
  • Capital Financing
  • End user (10-20) (indicator of demand)
  • Equipment supplier (10-20) lock in for service
    provision
  • IDFC (60-80)
  • Operating expenses
  • IRNET opex borne by SDC
  • Rest of the opex borne from operating margins
  • PPP
  • SDC provides first loss cover on portfolio
  • The surplus made from revolving IDFCs loan makes
    IRNET independent
  • A proxy for the national RRE program
  • To try out and simultaneously work with the policy

16
Key Perspectives
  • There is a synergy between last mile power and
    renewables
  • Private sector involvement can improve delivery
  • Focus on service provision and not assets
  • Critical to have accountability and a sound risk
    return framework
  • Government to focus on frameworks and regulation

17
Thank You
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