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cleantechAustralAsia

Pursuing Clean Energy

Business in India

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Pursuing Clean Energy

Business in India

This project was endorsed by the Asia-Pacic Partnership on Clean Developmentand Climate (APP) Renewable Energy and Distributed Generation Task Force (REDGTF)

and received unding contribution rom the Australian Government.

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Contacts or this Project:Peter CastellasManaging DirectorCleantech AustralAsiaTelephone: +614 1234 [email protected]

Erin Iping KuoDirector - IndiaCleantech AustralAsiaTelephone: +91 22 6707 [email protected]

Cleantechnology AustralAsia 2008

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Acknowledgements

The lead authors o this report would like to thank the

Australian Commonwealth Government Department o theEnvironment , Water, Heritage, and the Arts or undingcontributions, guidance, and support or this project. Inparticular we would like to thank John Jende, Tania Marasand Gerry Morvell. We are appreciative o the support andcommitment given rom other members o the Asia PacicPartnership on Clean Development and Climate under theRenewable Energy and Distributed Generation Task Force,and are indebted to Mr V. Subramanian rom the Indian

Ministry o New and Renewable Energy (MNRE) or hisgenerous time, advice and guidance. Our partner in thisproject The Energy and Resources Institute (TERI) werealso signicant contributors and we would like to thank DrAmit Kumar, Mahesh Vipradas, and Shirish Garud, or theirresearch, time, and dedication. We would also like toacknowledge the invaluable contribution rom ourcolleagues at Cleantech AustralAsia, Je Castellasand Adrian Asar.

Additionally, this report would not have been completewithout the generous research and data contributions rom:Paul Curnow and Lily Mathews at Baker & McKenzie, ChrisGreenwood and Krishnan Shakkottai rom New EnergyFinance, Dr GM Pillai at World Institute or SustainableEnergy, Alex Birrell and Jocelyn Dussuyer romPricewaterhouseCoopers and Somak Ghosh, KingshukChakraborty and Kartik Ramachandran romYes Bank Limited.

We would also like to thank the numerous organisationsand leading individuals rom the renewable energy industryand who participated in consultations and case studies.We also extend thanks to all those who participated inour on-line survey or their time, views and insights.A complete list o organizations who participated in the

survey and consultations may be ound in Appendix Ao this report.

Finally we wish to acknowledge that this report represents

the views o a cross section o the private and publicsector. The contributions were given with a generous spiritas many o the leaders in the renewable energy industryrecognise that we have an urgent need to accelerateinvestment and deployment o Renewable Energy toaddress climate change and that improved knowledgesharing, new partnerships, and collaborations are vital. Wehope the strategic actions recommended in this report canhelp to better connect the key stakeholders and achieve

the aims o the APP.

Peter Castellas,

Managing Director,Cleantech AustralAsia

Erin Iping Kuo,

Director,

Cleantech AustralAsia

This project received unding rom the AustralianGovernment as a part o the Asia-Pacic Partnershipon Clean Development and Climate.

Disclaimer:

This report is not intended to be used as a tool or basing nal investment decisions upon butis intended to provide an introduction to some o the potential barriers or the development o

renewable energy sector in India. The authors, along with contributors and agents, are releasedrom and indemnied against all actions, claims and demands which may be instituted againstthe authors arising out o this report. The views expressed in this publication are those o theauthors at the time o writing are not attributable to any other party. Every eort has been made tocorrectly attribute sources o inormation. No responsibility is taken or incorrect attributions whichmay have inadvertently occurred. The views expressed herein are not necessarily the views o theCommonwealth, and the Commonwealth does not accept responsibility or any inormation oradvice contained herein.

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Table o Contents

1 Executive Summary 1

2 Scope, Methodology and Objectives o this Project 9

2.1 Support or the Project 9

2.2 Project Aims 9

2.3 Scope and Methodology 9

2.4 Strategic Action Plan and Recommendations 9

3 Renewable Energy in India 10

4 Drivers or Growth o Renewable Energy in India 12

5 Indian RE Policy and Regulatory Environment 14

6 Solar PV 15

7 Solar Thermal 16

8 Wind 17

9 Small Hydroelectric Power 18

10 Biomass Power and Cogeneration 19

11 Waste to Energy 20

12 Other Tidal and Geothermal 21

13 Financing RE in India 22

13.1 Global Investment Trends 22

13.2 Indian RE Investment Asset Classes 22

13.3 R&D nancing 23

13.4 Micro VC 25

13.5 Venture Capital (VC) 26

13.6 Private Equity (PE) 27

13.7 Project Finance 28

13.8 Corporate Finance 29

14 Findings 30

14.1 Results barriers 30

14.2 Results - Actions 3315 Conclusions 35

15.1 Policy 35

15.2 Technical 35

15.3 Financial 36

15.4 RE Market Inormation 37

15.5 Opportunities or Collaboration: Australia/India 38

16 Strategic Action Plan 41

16.1 Accelerator: Create a avourable policy environment or increased investment and deployment o RE technologies 41

16.2 Accelerator: Improve scale o technology uptake and deployment 42

16.3 Accelerator : Increase innovation in the nance and investment sector 42

16.4 Accelerator : Improve RE market knowledge across all RE stakeholder groups 43

16.5 Accelerator : Expand Australia/India commercial collaboration on RE 43

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1. Executive Summary

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1. Executive Summary

Accelerating the investment in and deployment o

renewable energy (RE) technologies in India will signicantlyhelp to address the challenge o global climate change,promote economic development and reduce poverty.

But or clean energy technologies to have a tangible andenduring impact, there are policy, technical and nancialbarriers that must be overcome. Governments and theprivate sector must work together, and act decisively, torecognise these barriers and implement actions and

solutions to overcome the barriers that lead to accelerateduptake o RE and DG.

This project was endorsed by the Asia-Pacic Partnershipon Clean Development and Climate (APP) RenewableEnergy and Distributed Generation Task Force (REDGTF)and received unding contribution rom the AustralianGovernment. The aims o the project were to identiy thebarriers and opportunities to accelerated investment in the

development and deployment o RE technologies in Indiaand to determine areas o enhanced collaboration betweenAPP partner nations; in particularAustralia and India.

FindingsThe ndings presented here are a summary o resultsrom a survey and consultations with over 200 RE

proessionals and oer a contemporary snapshot oappropriate near term actions that could be implementedto accelerate the uptake o RE in India.

The main ndings o the survey and consultationsidentied the ollowing barriers:

1. There is a need or clear consistent long-termgovernment RE policies to guarantee investment

certainty and RE project viability.95% Agree

2. Subsidies or conventional uel sources (such as coal)

cause price distortions and disadvantages or REtechnologies.85% Agree

3. The legal/regulatory environment is weak or unclearcreating uncertainty or RE investors and developers.69 % Agree

4. RE technology-specic barriers (such as intermittentsupply, low conversion eciencies and storageproblems) aect the economic easibility o RE projects.

74% Agree

5. There is a lack o early stage debt and equity nancingor innovative RE companies seeking to commercialisetheir technology.73% Agree

6. Small and medium RE project developers nd itdicult to obtain capital rom nancial institutionsat aordable rates.

62% Agree7. A lack o nanciers experienced in dealing with the risk

prole o RE projects aects the successul nancing onew projects.73% Agree

8. There is a lack o RE industry inormation (such assuccessul case studies and investment grade data)avail able to investors, nanciers, developers and

policy makers.73% Agree

9. There is a general lack o awareness and skills todevelop RE technologies and projects amongstnanciers, investors, policy makers, developers andconsumers.68% Agree

10.There is a general lack o understanding o Indianbusi ness culture and how to build partnerships

and trust.70% Agree

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6. Run RE investor workshops/meetings to connect REinvestors and project developers/entrepreneurs.85% Agree

7. Establish a RE incubator program and moreinternational R&D collaborative models to ast trackcommercialisation o RE technologies.82% Agree

8. Undertake targeted RE business missions betweenAPP partner nations.66% Agree

9. Standardise protocols and procedures in India or RE

monitoring, measurement, verication and technicalcertication.81% Agree

10.Develop a best practice guide and template or projectdevelopers/sponsors applying or ormal nancing.71% Agree

The major ndings when seeking solutions to overcomingthe barriers were identied as:

1. Develop a best practice renewable energy policy guide,including a catalogue o successul case studies orAPP partner countries.

80% Agree

2. Develop more innovative nancial products andnancing mechanisms (such as low interest loansor start-up companies and small-scale RE projects,RE project risk insurance, RE project bonds, REmezzanine nancing etc).90% Agree

3. Establish an early stage RE und to ll the unding

gap between innovation and commercialisation.88% Agree

4. Undertake increased RE resource assessmentsand technology mapping o RE deployment inpartner countries to identiy gaps and areas ortechnology transer.71% Agree

5. Develop tailored capacity building programs or projectdevelopers, venture capitalists/investors, projectnanciers, RE technicians and policy makers.83% Agree

1. Policy

2. Price Distortions

3. Legal / Regulatory

4. Techno - economic

5. Early Stage Finance

6. Obtaining Capital7. Risk Profle

8. Industry Ino

9. Capacity / Skills

10. Culture Barriers

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percent Response

Barriers

Strongly Agree or Agree Neither Agree nor Disagree N/A Disagree or Strongly Disagree

1. Policy Guide

2. Innovative Finance

3. Early Stage RE Fund

4. Techno Mapping

5. Capacity Building

6. Forums, Workshops7. Incubator

8. Business Matching

9. Standardize

10. Finance Guide

0% 20% 40% 60% 80% 100%

Percent Response

Potential Solutions to Overcoming Barriers

Strongly Agree or Agree Neither Agree nor Disagree N/A Disagree or Strongly Disagree

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Biomass Gasifcation and Cogeneration

R&D High pressure boilers

High power gas turbines Combined cycle, process systems and equipment Advanced biomass gasication and combustion

technologies High pressure cogeneration systems, co-ring and

blending technologies, and cost-eective handling Storage and drying o biomass There is a need or small biomass (1-3 MW) in rural

areas and larger capacities in cogeneration insugar mills (bagasse) and pulp and paper actories.

Waste to Energy

High rate biomethanization systems Incineration and sanitary landlls Waste collection and segregation Financing build own transer and build own operate

systems

Othertidal/ocean, geothermal

As ocean power and geothermal projects are not yetoccurring in India, opportunities might well exist but untilurther resource mapping is undertaken, we dont knowwhat or how extensive they might be.

The technology sections o this report, sections 6-12,provide a general overview o each major RE technology.Based on limited technology mapping, the ollowingopportunities or Australian companies to collaborate inIndia may exist:

Solar PV Thin lm technologies Improvements in conversion eciencies Grid interactive projects Joint Ventures with global PV manuacturers Energy storage Improvements in module technology, including

higher density and lighter weight modules

Solar Thermal Increased R&D Hybrid power systems Non-grid solar thermal applications Solar building technology applications Solar cooling and solar steam generation

systems or industrial process steamapplications are emerging opportunities whereAustralian technologies can play an important role.

High temperature solar thermal applications

Wind

Importing the latest technologies with highercapacities (over 1-2 MW systems)

Wind machines or low wind regimes Better designed rotor blades, gear boxes, and

control systems

Small wind machines or decentralised powergeneration, wind PV hybrid systems, and windmills or water-pumping applications are alsolargely untapped markets.

Small Hydro Power

Low head power generation systems High eciency systems Portable micro-hydro systems.

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RE projects are generally nanced on-balance sheet asnanciers are not willing to take the unamiliar project risksassociated with RE projects. Many RE project developersare small, and it is oten dicult to secure nance rompotential lenders and investors due to transaction costsand project risks associated with small developments.

Although it is oten said, that there is plenty o moneyavailable to invest, there is actually a lack o capitalavailable or the early stages o technologycommercialisation and the early stages o RE projectdevelopment. RE projects can be highly capital intensiveincreasing the risks to investors in generating a return ontheir investment. To bring more RE projects on stream andto accelerate the commercialisation and scale o new RE

technologies there is a case or government to help sharethe risks in nancing early stage demonstration projectsand to work with the private sector to develop innovativeearly stage nancing mechanisms.

Increasing interaction amongst key industry stakeholdersis crucial as nanciers and investors oten do not have theopportunity to connect with RE companies. There is aneed or more dedicated initiatives that bring together thekey players or knowledge exchange and commercialinteraction.

The area o carbon nance will increasingly bring nanciers(and other capital market players) and RE technologydevelopers together in India. The Clean DevelopmentMechanism (CDM) in the Indian market is vibrant andgrowing day by day.

The relatively young market or RE has potential ordynamic long-term growth but still lacks access toaordable capital and innovative applicable nancialmechanisms. With the development o innovative nancialstructures and products it will allow greater project andtechnology specic commissioning, uptake andparticipation in this emerging market place.

There has not been adequate mapping o the technologygaps in India and understanding o the resource availabilityor renewable resources such as solar, biomass,geothermal and wave/tidal could be improved. Once gapsare identied an assessment o the international market canbe made and technology transer can be evaluated and

acilitated through targeted business matchingprogrammes and collaborative R&D initiatives.

One o the problems in implementing RE projects is thecost o documenting the projects relative to the overallcost o the project. Pro-orma project documents ordevelopers would drive down the initial cost o preparingthe appropriate project documentation and amiliarity withstandard documentation would also build condence in the

projects rom the investors and permitting agencies.

Many o the current energy shortages exist in ruralareas where there is a lack o grid connectivity and wheredistributed generation technologies may be the only way todeliver cost eective and timely access to energy. With thescale o the challenge to provide power to all and electriythe homes o 350 million Indians, there is an enormouspotential market or o grid, distributed energy systems.

(C) FinancialTo achieve accelerated deployment o RE technologies,signicant investment must be mobilised rom the globalcapital markets, tailored capacity building must beundertaken and innovation in nancing mechanisms orunding RE must occur. However, it is important thatgovernments understand and address nancial risk issues

aced by investors.

Although the nance and investment sector has becomeincreasingly interested in RE, it is a new area where thereis uncertainty with the levels o risk and return. Manynanciers and investors have not had experience withRE technologies and projects and some are nownding that they need to increase their understandingo the sector as it grows.

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Australia has some mature commercially-proven REtechnologies, products and services that could be adaptedand deployed in India. Yet more needs to be done toquickly and eciently transer these technologies to India.The business and investment opportunities are signicantor those Australian companies who get in on the ground

level as the Indian RE market grows.

While India holds tremendous intellectual capital and insome areas is at the oreront o innovation, not alltechnologies available in the Indian market are technicallyeasible or nancially viable to be able to meet marketdemands. There are technology gaps that need to belled beore the market opportunity can be optimised.

Until recently, Australians have tended not to travel insignicant numbers to India to develop businessopportunities in RE. This has been through anambivalence about the market, the perceived diculties indoing business, uncertainty about the political environment,a lack o understanding o Indian culture, concerns over IPand a lack o knowledge o the market opportunities.

Initiatives such as business missions and business andtechnology matching programmes need to be instigatedto encourage and incentivize Australian companies toinvestigate and develop the Indian market and exportproven technologies. Once connections are made thetechnologies must be adapted and indigenized to thelocal market, to eect large scale technology diusion.

Enhanced collaboration between countries, through

initiatives such as the APP will help to bridge knowledgegaps and import best practices between nations whichcould provide leaprogging opportunities in technologies,nancing, and project evaluation.

(D) RE Market Inormation and NetworksThere is a need to build capacity and share marketknowledge amongst all key stakeholders in the RE sectorin order to accelerate the investment and growth o the REsector. Capacity building programs need to be developedand tailored dierently or dierent stakeholders. Financiers

need a better understanding o the technologies, policiesand environmental principles that underpin the marketopportunity. The lack o previous experience o investingin this area, and unamiliarity with the technologies createsheightened perceptions o risk and increases unwillingnessto nance or participate in deals.

Technology entrepreneurs and project developers needto improve their ability to communicate their investment

proposition more eectively to nanciers and investors sothey can better analyse, appraise and subsequently investin or nance a RE project. Policy makers would benetrom a better understanding the needs o the privatesector. There needs to be more open eective two-waychannels established or the transer o market andregulatory inormation to inorm policy developmentand to acilitate better engagement o the private sector.

Gaining access to contemporary policy, investment andtechnical inormation on the RE sector is dicult or all REstakeholders. Centralising inormation and creatingnetworks where people can have dialogue and shareinormation on their initiatives is required.

It is clear that investors, developers and technologyentrepreneurs are lacking opportunities to connect.

Thus, there is a need or specic RE investor workshopsand orums where the key stakeholders can share marketknowledge and commercial transactions can take place.

(E) Opportunities or Australian companies in IndiaThere are opportunities to generate commercial activitybetween APP countries as the RE sector grows. Thisproject has used the opportunities between Australiaand India as an example.

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Action 5

Undertake Technologymapping and increased

resource mapping

Action 6

Produce aFinancing guide orproject developers

Possible Project

Governments canprovide nancial

support or nancinginstitutions to develop

a guidebook or projectdevelopers whichincludes RE policy

inormation

Possible Project


support to help launchRE specic incubation

programs. MNRErecently supported

Solar InnovationProgram at CIIE

Possible Project


support and helpaggregate inormationto map RE technologystrengths, gaps, andopportunities. someresource mapping

undertaken orunderway in

partner nations

Action 4

Increase nancialSupport or Incubators

Accelerator 2

Increase Technology Uptake and Deployment

Action 2

Develop aGuidebook o

Current Policies

Action 3

ImplementClear Policy

and RegulatoryFramework

Possible Project

Governments o thepartnership could workwith related agencies,ministries and regula-tors to build capacityand better align policyand implementation.

Possible Project

Governments o thepartnership couldestablish quarterlynewsletters with

input rom both publicand private sector

on REactivities

Possible Project

Compile currentpolicies relevant

to the RE industriesor each partner

country. IEAhas a GlobalRenewableEnergy and

Policies databaseand APP REDGTF isundertaking a policy

inventory reviewand analysis

Action 1

Improve InormationExchange betweenGovernment-Private

Sector

Accelerator 1 Create a Favourable Policy Environment

Ideas or Strategic Actions

Through our analysis and synthesis o inormationgathered through this project we have identied anumber o strategic actions to accelerate investment inand deployment o RE and DG technologies in India orthe Task Force to consider. We have grouped thesepotential actions under key strategies which we havetermed Accelerators. The Accelerators are the mainstrategic direction that i pursued by government andthe private sector would lead to scaling up o REtechnology in India.

The ideas or Strategic Actions proposed here are acombination o new initiatives and others that may havesome current activity under the REDGTF (such as Action 2and Action 5 below). The Actions linked to each o the ve

key Accelerators are solutions that the private sectorparticipants in this project, have suggested are the mostviable initiatives that can be implemented in the near term.

It should be acknowledged that many organizations haveinitiated eorts in many o these areas and various projectsare underway that all under the ollowing accelerators.However, in areas where some activity is taking place,such as resource mapping, more can be done to map

technology strengths and gaps to more clearly identiythe specic opportunities.

Appendix C lists a more in depth overview o Australian

RE technology capabilities. A sample o Australian

technologies with application to India includes:

Solar thermal power generation

Solar cooling technologies Solar PV system components

O-grid solar applications

Concentrated Solar Power (CSP)

Combined heat and power solar

Energy storage

Waste to energy processes Bagasse cogeneration

Wood waste processing

Wind energy orecasting

Small Hydroelectric Power

Thin lm solar technologies

Outcome:

Ongoing inormationfow leads to more

inormed policy

Outcome:

Sharing o bestpractice policy

approaches betweenpartner nations

Outcome:

Improved investorcertainty

Outcome:

Incubators helpast-track

commercialisation onew technologies

Outcome:

Enhanced business-to-business activity andtechnology exchange

Outcome:

Improve the abilityand success rate or

developers toattract capital

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Action 12

Conduct RegularCountry and Market

briengs

Action 13

Coordinate ormalcollaboration between

research institutes

Possible Project

Governments couldwork with Universities

and Research Institutesto catalyse and und

joint programs acrosspartner nations

Possible Project

Governments couldwork with Trade

Organizations andPrivate Sector toidentiy targeted

business matchesbetween partner

countries and leadmissions and reverse

missionse.g. Australia-India,

US-China

Possible Project

Governments couldoer nancial support

and inormation orregular briengs in

their respective homecountries on culture,policies, and marketactivities in partner

nations Austrade haslaunched some

initiatives

Action 11

Undertake Targetedbusiness matching

and missions betweencountries

Accelerator 5

Australia-India Collaboration

Outcome:

New partnerships andincreased commercial

interaction acrosspartner nations

Outcome:

Increased awarenesso cross country

opportunities

Outcome:

Knowledge transerto ast-track

commercialisation

Action 8

Establish an EarlyStage RE Fund

Possible Project

Governments coulduse existing investor

orums and workshopsto showcase partner

country technologies topotential investors

Possible Project

The REDGTF couldoer nancial supportor a easibility studyo an early stage RE

und or India, the APP,or the Asia Pacic,

including identicationstructure, potential

investors andinvestment ocus

Action 7

Organise Workshopsand Forums to

connect Investors toRE Companies

Outcome:

Increased investmentin RE by connectinginvestors to deal fow

Outcome:

Fill the nancing gap tobring new technologies

to market

Accelerator 3

Innovative Finance

Action 10

Develop and runMaster classes or

nanciers, entrepreneurs,and developers

Possible Project

Governments couldcontribute inormation

and promote one sitewith the most current

and accurateinormation under

country banners orunder APP

Eorts such as theEcoAsia site

Possible Project

Governments couldoer nancial support

or tailored capacitybuilding programmes

or key RE stakeholdergroups Similar totechnical capacitybuilding REDGTF

endorsed project inChina and India

Action 9

Establish a Central REInormation portal

Outcome:

Outcome:Access to inormationimproves investment

climate

Outcome:

Increasedunderstanding o

market and investmentopportunities

Accelerator 4

Market Knowledge

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2. Scope, Methodology and

Objectives o this Project

2 S M th d l d Obj ti thi P j t

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2. Scope, Methodology and Objectives o this Project

2.1 Support or the Project

This project was unded by the Australian Governmentand endorsed by the Renewable Energy and DistributedGeneration Task Force under the Asia-Pacic Partnershipon Clean Development and Climate1 (APP).

2.2 Project Aims

The aims o this project were to identiy the barriers andopportunities to accelerated investment in the developmentand deployment o renewable energy and distributed

generation technologies in India and identication oenhanced collaboration between APP partner nations; inparticular Australia and India.

2.3 Scope and Methodology

Initial research included Indian and Australia RenewableEnergy (RE) market data, a global literature review andconsultations with stakeholders to identiy the commonbarriers and potential solutions to accelerating investment

in the RE industry in India. These ndings ormed the basiso the global survey, which ocused primarily on Indian andAustralian stakeholders and global proessionals withexperience or expertise in India. In conjunction with thecirculation o the survey, extensive one-on-oneconsultations took place in India, Australia, andinternationally. These consultations provided additionalin depth perspectives that contribute to the case studies,research, and analysis o baseline ndings and the actions

or the way orward contained in this report. Subsequentto the synthesis o stakeholder views, additional researchand analysis was commissioned to detail some o the dataand inormation gaps, including consultation with otherAPP project leaders, industry market research rms, andresearch institutions.

2.4 Strategic Action Plan and Recommendations

The nal phase o this project was to analyse and evaluatethe ndings, draw conclusions and outline a set o strategicactions and recommendations that represent the views othe experts and RE industry leaders who contributed to thisproject. These actions and recommendations are apowerul and timely signal rom the private sector togovernments o the APP as to what can be done now toaccelerate the growth o the RE industry in India throughleveraging the knowledge, capital, and innovative

partnerships with Australia and other APP nations. Thestrategic actions recommended intend to acilitate greaterknowledge transer, policy innovation, investment andcommercial activity between partner countries to addressclimate change.

9

Inormation Gaps Potential solutionsBarriers

Survey, Consultations, Case Studies, Data Collection

Results

Over 200

participants

Market Accelerators and Recommendations to the APP REDGTF

Favorable Policy Environment, Scale Technology Uptake and

Deployment, Innovative Finance, Market Knowledge,

Australia-India Collaboration

Global Literature Review, Initial Stakeholder Engagement

(India, Australia, Multilateral Organizations), Primary Research

on RE statistics and Data, Stakeholder Identifcation

Additional Research,Technology Mapping,

Financial Trends, Results

Synthesis and Analysis

1 More inormation can be ound about the APP and REDGTF in Appendix G o this report.

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3. Renewable Energy in India

3 Renewable Energy in India

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3. Renewable Energy in India

With both domestic Indian and international concernsincreasing over energy security, climate change, and

sustainable development, the clean energy technologysector is growing at a rapid pace. I commitments toovercome the policy, technical and nancial barriers aremade by the key stakeholders, India can become apotential world leader in the development and deploymento RE technologies and play a signicant role in combatingglobal climate change.

The Indian economy has been experiencing a sustainedboom. With an 8-9% growth in GDP, the Reserve Bank oIndia is projecting a 9.2% growth in the economy in scalyear 2007. Because o the links between reliable electricitysupply, GDP growth, and living standards, India, like manyo the nations with emerging economies, is makingaccess to a reliable electricity supply a undamentalpriority o central government policy.

Recently energy demand has outstripped domesticproduction, and India has become a major buyer o energy.India with 17 per cent o the world population and just 0.8per cent o the worlds known oil and natural gas resourcesis going to ace serious energy challenges in the comingdecades.

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With Indias vibrant entrepreneurial culture, history otechnology innovation and massive domestic market, thecountry is excellently positioned to capitalise on the newdynamic RE market. RE technologies represent a nascentsub-sector o the global clean technology market;however, these technologies are undergoing rapid growth

and have potential or signicant nancial, socioeconomic,and environmental benets.

In India, increasingly signicant deal fow and attractivemarket opportunities have uelled investment interest, andaccelerated market penetration o renewables; the growthin wind power being a good example.

Furthermore, the growth in deployment o renewables is

likely to continue strongly and have a key part to play inmeeting government policy targets and development goals,and could become the cornerstone o a signicant newindustry based on clean energy.

Figure 3.

Solar Energy Potential in India. Source: TERI Solar EnergyHandbook or India.

Figure 2.A map o India with wind installation as on 31 March 2007.Source: http://www.windpowerindia.com/statstate.html

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4. Drivers or Growth o

Renewable Energy in India

4 Drivers or Growth o Renewable Energy in India

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4. Drivers or Growth o Renewable Energy in India

The ollowing drivers indicate that the growth o the REmarket in India is likely to be signicant and the market

undamentals or investors could be long and enduring.

Access to EnergyThe Government o Indias commitment to provideelectricity to predominantly rural India will drive the growtho o-grid RE technologies. By early 2007, 44% o Indianhouseholds still lacked access to electricity2 and less than30% o rural Indian households had access to residentialwater, primarily due to lack o energy or motive power3.There is a current electricity energy shortage o 8% and apeak demand shortage o 11.6%4, with increases in energyrequirements projected at 6% per annum and electricityconsumption at 7.6% per year and peak demand projectedto increase by 77% by 2012. To meet this demand, powergeneration capacity would need to increase by 2.5xscurrent levels5.

Energy SecurityThe central government has undertaken a strategy todiversiy its energy mix to address energy security and REis assuming an increasingly signicant role. India importsapproximately 75.5% o its oil6, and the InternationalEnergy Agency, projects that Indias dependence on oilimports will grow to 91.6% by the year 2020. Energydemand has outstripped domestic production, and Indiahas become a major buyer o energy. Despite doubling its

generation capacity over the past decade, India is unableto meet current energy demands. In 2004, India was the3rd largest importer o ethanol and the 5th largestconsumer o energy globally. India currently importsroughly 2.5 million tons o coal annually and is expectedto increase coal imports to 7 million tons annually over thenext ew years.

Environmental DegradationIn addition to the environmental impacts associatedwith resource extraction, the emissions o conventionaluel production have contributed to the global issue o

12

climate change. India, like many other developing nations,is acing challenges with severe air pollution, limited arable

land, and water quality issues. These types oenvironmental concerns lend additional motivationor cleaner sources o energy production.

Policy targetsThe Government o India (GOI) has set an aggressivetarget o electricity or all by 2012, with an objective to add10,000MW in RE capacity and source 10% o total powercapacity rom renewables7. In 2006, the Indian President,Dr. A.P.J. Abdul Kalam announced a target o energyindependence by 2030 and an increase in REcontribution rom current levels o 1-5% to 25%8.By 2006, Indias Integrated Rural Energy Programusing RE had served 300 districts and 2200 villages.

Resource availabilityIndia averages 300 clear and sunny days per year, has

an installed wind capacity o over 7,000 MW, 3.8 millionbiogas plants, and 15,000MW small hydroelectric capacity.India is the 4th largest producer o wind power, 5th largestproducer o energy rom commercial biomass and smallhydro and ranks globally in the top 5 countries withmaximum RE power capacity.

Human capitalIndia has the human resources to draw on to enable the

growth o a new industry based on RE technologies. Forexample India has a signicant amount o engineeringstudents with 464,743 graduating in 2004-059.

Leaprogging OpportunitiesI IP rights are enhanced, India can position itsel to adoptthe worlds best technology as it builds its uture energyinrastructure leading to

2 Government o India. Integrated Energy Policy. 2006.3The World Bank. Energy or DevelopmentThe Potential Role o RE in meeting the MDGs. 2005.4The World Bank. Energy or DevelopmentThe Potential Role o RE in meeting the MDGs. 2005.5 KPMG. India Energy Outlook. 2006.6The Energy Research Institute, Delhi.7 Ernst & Young. Renewable Energy in India: Charting Rapid Growth. 2007.8Assocham. 1st Annual South East Asian Renewable Energy Conerence. 2006.9All India Council or Technical Education

G t Pt iti RE t h l t d

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Government ProgramsIndia has a dedicated Ministry o New and RenewableEnergy (MNRE) and a number o ministries have taken onspecic renewable technologies to develop and support.Many resource assessment programs have beenimplemented or are slated as uture projects, including:

Wind Resource Assessment Program (WRAP), Nationallevel Biomass Resource Assessment Program (NBRAP),and Solar and Wind Energy Resource Assessment(SWERA). RE specic research institutions have emerged,including Centre or Wind Energy Technology (CWET) orwind, Solar Energy Centre (SEC) or solar, and NationalInstitute or Renewable Energy (NIRE) or bioenergy. MNREis also currently in process o creating small enterprises ormanuacturing and servicing o RE systems and devices.

In September 2007, the GOI launched the Solar InnovationProgram in conjunction with Indian Institute o Management(IIM) Ahmedabad.

10 Government o India. Integrated Energy Policy. 2006.11 REN 21. Energy or Development. The Potential Role o RE in meeting the MDGs. 2005.12The World Bank. Clean Energy and Development: Towards and Investment Framework. 2006.

opportunities or RE technology transer andleaprogging as new systems are commissioned,invested in and installed.

Health concernsHealth issues are increasingly becoming a driver or uptake

o RE technologies. In 86% o rural households, traditionalbiomass is the primary cooking uel10, and Indiaexperiences the largest number o indoor air pollutionrelated health problems in the world with 500,000 deathseach year, primarily women and children who have thegreatest risk and domestic exposure11.

The Sustainable Development imperativeAordable energy has been linked to indicators o human

development, and access to energy and electricity canincrease access to education, reduce indoor air pollution,provide energy or medical equipment and storage, providewater and sewer services, create jobs, stimulatemicro-enterprise, reduce poverty and increase lieexpectancy.

Growth o the Carbon marketIndia, as a non-annexure I country under the Kyoto

Protocol, is eligible or carbon revenue through the CleanDevelopment Mechanism (CDM). India is currently theworld leader in development o CDM projects with a largepotential or renewable energy generation rom agriculturewastes, hydro and wind.

Market OpportunitiesAt the end o the third quarter in 2006, India ranked 3rdin the Ernst & Young Country Attractive Indices, whichranks countries based on RE markets, inrastructuresand their technologies and 4th in the E&Y RenewablesInrastructure Index. The International Energy Agency (IEA)predicts $16 trillion o investment infows in the energysector until 2030, $8.1 trillion o which is predicted to fowto developing economies to meet energy needs12. Thoughthere are some mature RE technologies, such as wind,India remains in a position to undertake technology

collaborations, import mature RE technologies andprocesses to ll technology gaps, and scale up currentproduction through both domestic and internationalinvestment.

13

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5. Indian RE Policy and

Regulatory Environment

5. Indian RE Policy and Regulatory Environment

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14

5. Indian RE Policy and Regulatory Environment

The policy and regulatory environment is a critical actor tostimulate the acceleration o the RE industry in India. The

current RE policy and regulatory environment is governedby both central (union) and state level jurisdictions. Atthe central level, the major governing bodies include: theMinistries o New and Renewable Energy, Power, and Coal,and the Central Transmission Utility also known as PowerGrid Corporation. Other ministries such as the Ministry oFinance and Ministry o Environment and Forests also havetangential application to RE policy via aspects such asscal policies and climate change policies.

At the state level, the major governing bodies include StateNodal Agencies (SNAs) and State Transmission Utilities.Due to the multitude o governing bodies involved in settingand implementing RE policy, there tend to be challenges inthe development o a cohesive central policy andconsistent implementation at the state and local levels.

RE policy and the corresponding regulatory environmentprovide a ramework or the pricing signals and projectedviability and sustainability o projects and technologies. Acritical component to private sector participation is a stablelong-term clear and consistent policy and regulatoryenvironment. Without this environment most global privatesector companies and nanciers will not accept theaddition o political risk their investment. Governmentpolicies can set incentives to catalyse greater interest in

the RE industry leading to increased research,development, investment in, and deployment otechnologies.

There is currently no central RE policy in India, though adrat model law has been proposed. Currently, there areboth central and state policies with some application to REdevelopment in India. They include the ollowing:

Electricity Act o 2003 which includes RenewablePortolio Standards (RPS) targets and preerentialtaris or RE are to be set by appropriate commissions.

National Electricity Policy which promotes privateparticipation in RE, reductions in capital cost o RE

through competition and benets o cogeneration. Tax Act which allows or accelerated

depreciation rom 80-100%, a ten year tax holidayor inrastructure projects, and income taxexemptions or inrastructure related projects.

11th 5 year plan (2007-2012) has programmesuch as the Remote Village Renewable EnergyProgramme, the Village Energy SecurityProgramme, the Remote Village Solar LightingProgramme and Grid-connected VillageRenewable Energy Programmes or Solarthermal and Biogas

There are mandates or states to set RPS targets, and aso July 2007, 13 o Indias 28 states have published RPSstandards ranging rom 0.5%-10%13. States have alsospecied purchase taris or procurement o power rom

dierent renewable energy based projects. However as theresources, generation, and costs vary rom state to state,the purchase taris estimated by dierent state regulatorycommissions also vary rom state to state. Appendix E inthis report lists some o the RE taris by state.

RE policies can be divided into (a.) eed-in laws and pricingsystems and (b.) quota systems. Pricing systems tend tobe more eective than quota systems or catalysing growth

o the RE industry14. There are other incentives availableat the central level, including indirect tax benets throughexcise duty exemptions and customs duty reductions. Atthe state level, some capital subsidies are available as wellas tax exemptions, inrastructure support, and lowinterest loans. At both the Indian central government andstate levels the policy environment is likely to continuechanging, creating a more avourable environment orRE investing.

13 Baker and McKenzie and World Institute or Sustainable Energy. Drat APP Project Report on RenewableEnergy Law in India. 2007.

14 Baker and McKenzie and World Institute or Sustainable Energy. Drat APP Project Report on RenewableEnergy Law in India. 2007.

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Renewable Energy Technologies

6. Solar PV

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Policy measures

80% accelerated depreciation, exemptions rom excise

duties, low import taris on some raw materials andcomponents, sot loans rom IREDA, capital subsidiesand training programs.

Opportunities or Australian companies

Some o the challenges the Solar PV industry aces in Indiaare that Solar PV technologies are not yet commerciallycompelling with low conversion eciencies and high upront capital costs. There is still a great need or moredetailed orecasting o sunlight, a gap in sucient energystorage technologies, consumer nancing and service anddistribution channels. Specic collaborative opportunitiesinclude:

Many opportunities in thin lm technologies,including process technologies, low-cost substrates, large size cells/modules, and pilot

demonstration plants. Improvements in conversion eciencies

Grid interactive projects Joint Ventures with global PV manuacturers Energy storage

Improvements in module technology, includinghigher density and lighter weight modules.

Some acts:

India averages 300 clear and sunny days peryear equivalent to over 5,000 trillion kWh/yr. Theaverage potential is considering solar cell currenteciencies at 20 MW/ sq km.

India has been the 3rd largest producer andcurrently exports solar PV cells.

Solar PV cell conversion eciencies remain atapproximately 15%.

In the last two decades, the cost o PV hasdecreased by a actor o ten in relation toproduction o components; however, there arestill cost barriers throughout the supply chain.

15

Defnition

Solar PV is the direct conversion o sunlight into electricity.

Solar PV Systems are an integration o all o thecomponents necessary to deliver electricity or end use.

DescriptionThe main types o Solar PV technology applications orIndia are: community lighting systems, lanterns,streetlights, xed home lighting systems, and water pumps.

Installed Capacity86 MW as o 31 March 2007

Forecast GrowthAccording to the 11th plan (2007-2012), the MNREhas set a target o an additional 50 MW Solar PV tobring the 2012 installed solar PV capacity to 136 MW.

7. Solar Thermal

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DescriptionThe most common solar thermal

applications in India are o-grid and includesolar water heating, air heating and cooling,solar cookers, and passive architecture to heatand cool a building.

Installed Capacity

As o 2007, there were approximately 1.95 millionsquare meters.

Forecast Growth

There is an estimated 140 million square metre potentialor solar thermal applications.

Policy measures

There are capital subsidies, nancial support or detailedproject reports, tax rebates and subsidies or solar thermaltechnology adoption to increase the energy eciency o

buildings. IREDA and commercial banks also oer sotloans-loans with interest rates lower than market interestrates- or solar thermal projects. Some states, such asKarnataka, oer rebates on electricity rates or householdswith solar water heating systems.


There are opportunities or: Increased R&D

Hybrid power systems Non-grid solar thermal applications Solar building technology applications

Solar cooling and solar steam generation systemsor industrial process steam applications areemerging opportunities where Australiantechnologies can play an important role.

High temperature solar thermal applications

Some acts India averages 300 clear and sunny days per year

The average solar radiation is 46kWh/squaremeter/day

Defnition

Use o fuid systems that utilize heat rom sunlight to

transer and store heat energy or subsequent use.

High temperature Solar Thermal applications include:Concentrated Solar Power and Thermochemical EnergyStorage

Low temperature Solar Thermal applications Include:Water heating and Phase Change Storage

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8. Wind

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There are opportunities or long-term global investors

in power generation, pollution trading, operations andmaintenance, monitoring/inspection, and as developersand promoters. India, with a airly mature wind industry,is also exporting technologies, products and services,such as turbines, consultancy services, project planning,and wind resource assessments.

There is still room or: Importing the latest technologies with higher

capacities (over 1-2 MW systems) Wind machines or low wind regimes Better designed rotor blades, gear boxes, and

control systems

Small wind machines or decentralised powergeneration, wind PV hybrid systems, and windmills or water-pumping applications are also

largely untapped markets.

Some acts

India has 9 wind turbine manuacturers who alsodevelop wind arms and is the 4th largest producero wind power in the world

With every global doubling o wind capacity, windenergy cost has decreased by 12-18%.

This sub-sector has grown on average at 30% per

annum or the past 5 years. States with the greatest wind potential: Tamil

Nadu, Andhra Pradesh, Karnataka, Kerala, MadhyaPradesh, and Maharashtra

The Wind Resource Assessment Programme(WRAP) o the Ministry o New and RenewableEnergy (MNRE) covers approximately 1,000 windmonitoring and mapping stations in 25 states andunion territories, with 208 identied potential sitesto the time o writing this report.

Almost 80% o wind power generated to date hasbeen used or captive consumption, the remaindersold to the grid or a third party.

17

DefnitionWind drives turbines which generate power or

energy use.

DescriptionWind power can be used both on and o grid toproduce electricity, though the intermittent natureo wind can cause diculties in grid stability. Windpower is one o the most mature RE technologieswith over 74,000 MW installed globally.

Installed Capacity7,231 MW as o 30th June 2007

Forecast GrowthThe 11th plan (2007-2012) has targeted anadditional 10,500 MW. The investment required toobtain this target is estimated to be roughly USD 16billion. There is an estimated 45,000 MW potential

wind capacity in India.

Policy measures

The main policy incentives include a eed in tari,80% accelerated depreciation, exemptions romexcise duties, and tax exemptions or inrastructurerelated projects. Additionally the states that havecreated Renewable Portolio Standards have helpedaccelerate the wind sector.

9. Small Hydroelectric Power

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Some acts

Carbon emissions during project construction are

low, and emissions all close to zero once powergeneration begins, allowing or carbon creditsunder the Clean Development Mechanism (CDM).

Some challenges: geological risks, resulting inincreased cost, long delays obtainingclearances, project delays due to landacquisition, issues o resettlement, disputesbetween states over shared water resources,resource variability with time, fooding, ositemonitoring resulting in prolonged breakdownand long response time, environmental issuesin manipulating natural river fows and associatedecosystems, novice developers, and high up rontcapital cost that is oset by low lietime cost.

Currently over 187 small hydro projects areunder construction with an aggregate capacityo 521 MW.

MNRE has a database o 4,233 potential sites withan aggregate capacity o 10,324 MW or projectsup to 25 MW. A remaining 5,000 MW is underinvestigation.

MNRE has been implementing a UNDP/GEFtechnical assistance project on `OptimisingDevelopment o Small Hydro Resources inHimalayan and Sub-Himalayan Regions. Theproject is being implemented in the States o

Arunachal Pradesh, Assam, Bihar/ Jharkhand,Himachal Pradesh, Jammu & Kashmir, Manipur,Mizoram, Nagaland, Sikkim, Meghalaya, Tripura,Uttaranchal/ U.P. and West Bengal.

Defnition

The capture o energy rom water fows to produce

electricity at less than 25 MW.

DescriptionSmall hydroelectric projects are bridging electricity gapsin rural and hilly areas that have geographical obstructionsto grid connectivity.

Installed Capacity2,013 MW as o 30th June 2007

Forecast Growth

There is a 15,000 MW potential capacity, and the 11thplan (2007-2012) targets a 1,400 MW addition. Thisaddition is estimated to require roughly USD 2.1 billion.

Policy measures

The Government o India oers capital subsidies and

tax exemptions, and support or detailed project reports.Additionally, capital grants and special subsidies areavailable or the Northeast o India, where large potentialexists. MNRE oers nancial support or the upgradeand retrot o SHP inrastructure and IREDA providessot loans.


There are opportunities to import or collaborate in R&D,

renovation/modernization o old Small Hydro Powerprojects, and small hilly hydro projects in the Himalayas.Specically there are needs in:

Low head power generation systems High eciency systems Portable micro-hydro systems.

18

10. Biomass Power and Cogeneration

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Forecast GrowthThe 11th plan (2007-2012) targets a biomass power

addition o 500 MW and a cogeneration addition o1,200 MW. These additions are estimated to requireinvestments o USD 1.6 billion. The estimated potential o150 million tonnes o currently wasted biomass is 19,500MW o biomass power (DG) and 16,000 MW cogeneration.

Policy measures

At the state level, the State Electricity Boards oereed-in taris, wheeling, and banking o generatedelectricity. There are sales tax exemptions, interest ratesubsidies, capital subsidies, and nancial support underthe National Biomass Resource Assessment Program.


There are opportunities to import or collaborate in R&D,high pressure boilers, high power gas turbines, combinedcycle, process systems and equipment, advanced biomass

gasication and combustion technologies, high pressurecogeneration systems, co-ring and blending technologies,and cost-eective handling, storage, and drying obiomass. There is a need or small biomass (1-3 MW) inrural areas and larger capacities in cogeneration in sugarmills (bagasse) and pulp and paper actories.

Some acts

Currently, 86% o rural households use traditional

biomass, i.e., wood chips, dung cakes, and lumberresidues or cooking and lighting.

Traditional burning o biomass results in severeindoor air pollution and related health eects.

Converting rom traditional burning o biomass,currently with low conversion eciencies at roughly10%15, to more ecient biomass stoves can increase eciency to 15-30%.

500 million tons o crop and plantation residues are

produced every year, much utilized as waste orused ineciently.

15 MNRE. Drat Renewable Energy Policy 2006. 2007.

19

Defnitions

Gasication under a process o high temperature and

oxygen controls, a carbon based material, in this casebiomass, can convert the original input into a syntheticgas which can be used as a source o energy or uel.

Cogeneration also known as combined heat and powerwhereby both electricity and useul heat (which mighttypically be waste heat) are produced rom biomass.

Installed Capacity

As o 30th June 2007, 543 MW o biomass power and635 MW o cogeneration based grid connected plantshave been installed in India.

11. Waste to Energy

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Description

While there is a great need or improved waste

management in India, there are some concerns over wasteto energy projects including the quality o waste and thetoxins or pollutants that can emerge rom the process.

Installed Capacity43 MW as o 3oth June 2007

Forecast Growth

There is an estimated 1,700 MW potential rom urban andmunicipal waste and 1,000 MW potential rom industrialwaste with an 11th plan (2007-1012) target addition o 400MW which is projected to require roughly USD 306 millionin investments.

Policy measures

There are state provisions to supply land, garbage, acilitiesand purchase power. The Government o India has some

interest rate and capital subsidies available.


There are a host o opportunities or municipal andindustrial solid waste in major cities, such as Mumbai,in the areas o: high rate biomethanization systems,incineration and sanitary landlls, nancing build owntranser and build own operate systems.

Some acts It is estimated that India produces roughly 40

million tonnes o solid urban and municipal wasteper year and 5000 cubic meters o liquid waste inaddition to the industrial waste that is produced.

A majority o Indias waste tends to be organicwith signicant moisture content.

Defnition

When waste is treated through applications such as

incineration, gasication, pyrolysis, or biomethanation,energy is created in the orm o electricity and/or heat.

20

12. Other Tidal and Geothermal

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Geothermal defnitionheat rom the earth is used to produce energy.

Installed CapacityThere are currently no known installed geothermal powerprojects in India

Forecast GrowthIt has been suggested that there is approximately 10,600MW o geothermal capacity though more extensiveresource mapping needs to be conducted.

Policy measuresIt does not appear that there are currently any policymeasures or incentives in place to catalyse or supportGeothermal.


As geothermal power projects are not yet occurring in

India, opportunities might well exist but until urtherresource mapping is undertaken, we dont know whator how extensive they might be.

Some acts

There do appear to be medium to high geothermalentropy springs mostly in: Himalaya, Cambay,West Coast, Sonata, and Godavari.

There has been some exploration and testing at

PUGA in Leh/Ladak and Manikaran.

21

Tidal Defnitionthe motion rom the rise and all o ocean tides can drive

a turbine used to create electricity.

Installed CapacityThere are currently no known installed tidal powerprojects in India

Forecast GrowthIt is estimated that 8,000-9,000 MW are available,primarily in the Gul o Cambay.

Policy measuresIt does not appear that there are currently any policymeasures or incentives in place to catalyse or supporttidal power.


As tidal power projects are not yet occurring in India,

opportunities might well exist but until urther resourcemapping is undertaken, we dont know what or howextensive they might be.

Some acts

There is a proposed 900 MW tidal power projectat the Gul o Kachchh which is estimated tocost INR 1,460 Crore; however, the projecteconomics are still under evaluation.

West Bengal has proposed 3.46 MW capacitytidal wave plant on demonstration basis.

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13. Financing RE in India

13. Financing RE in India

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22

In order to understand how the scaling up o the REindustry in India can be accomplished, it is necessary

to have some understanding o the dierent orms onancing mechanisms involved in accelerating thegrowth o the sector.

This section provides an overview o the private nancingmechanisms uelling the growth o the RE industry romR&D, to Venture Capital to Private Equity to Project andCorporate Finance. Financing through the public marketsand government grant based nancing is not covered in

this section.

13.1 Global Investment TrendsThe global trend in RE nancing is on an upward trajectoryand India is becoming an increasingly attractive asset classor global nanciers.

Concerns over climate change coupled with high oilprices and increasing government support are keydrivers uelling soaring rates o investment in the REindustry globally. A UNEP/New Energy Finance Report16says investment in sustainable energy is rapidly increasing,with $70.9 billion o new investment in 2006, which was43% more than in 2005, and a similar continued growthtrajectory so ar in 2007. Figure 4 outlines the spread oinvestments across dierent asset classes.

Global investment fows into clean energy are dominatedby investments in the United States, ollowed by the

European Union. Investments by region are inFigure 5 below.

16 UNEP Global Trends in Sustainable Energy Investments. 2007

13.2 Indian RE Investment Asset ClassesIndia is starting to attract an increasing share o the globalinvestment pool o RE nancing, with over USD 2 billionin 2006. The ollowing gure 6 provides a breakdown oinvestment into India RE asset classes. The majority o REnancing in India over the past three years has been inAsset Financing, with 2006 investments o over USD 2billion nearly doubling the 2004 gures o over USD 1billion. According to New Energy Finance, the 2006 guresor venture capital and private equity investments in RE inIndia were USD 197 million, up rom no recorded activity in2005, and USD 43 million in 2004. Public Market activityin RE in India has been slow with 2005 activity recorded at

USD 34 million and no activity in either 2004 or 2006. M&Ahas also been relatively slow, with USD 72 million in 2005,and USD 4 million in 2006.

$49.6bn

$70.9bn

Other Developing

Latin America

Arica

India

China

Other OECD

EU 27

United States

Figure 5.Global Clean Energy Investments by Region.Source: UNEP and New Energy Finance

$27.5bn

$49.6bn

$70.9bnSmall-scale projects

Asset Finance

Govt/Corp RD&D

Public Markets

VC/PE

Figure 4.Global Clean Energy Investments by Asset Class.Source: UNEP and New Energy Finance

$27.6bn

(B) Examples o R&D projects and deals17In May 2003, the MNRE commissioned the project

Renewable Energy Investment by Asset Class 2004 - 2006

(in USD millions)

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The ollowing sections provide more detail on the classeso investment, some o the key nance and investmentstakeholders and their role in nancing RE in India.

13.3 R&D fnancing

(A) Type o Financing

The initial phase o technology or process developmentincludes conceptual development, market and productresearch, and development o a product or processprototype.

As this phase o development does not produceimmediate revenue, the early stage nancing required tosupport raw material procurement, human resources, and

research can be somewhat limited. Our research o theIndian RE industry reveals that typically the amount ocapital required by individual entrepreneurs does notusually exceed USD 100,000, though this gure can varydepending upon technology/process. However or moresubstantial long term corporate R&D programmes manymillions o dollars may be required.

Development o Injection Solar Cells Utilizing DyeSensitized Nano-Crystalline TiO2 Films, a INR 40.3 lakh(USD 100,000) 3 year R&D program with the NationalPhysical Laboratory in New Delhi to develop a new typeso solar cells aiming to bring down costs.

17 Sources: MNRE, New Energy Finance, and Centre or Innovation, Incubation and Entrepreneurship

Also in 2003, a two year program, the Flash Pyrolysiso Agro, Industrial and Municipal Waste Program waslaunched with support o INR 38.7 lakh (USD 96,000)rom the MNRE and INR 15.5 lakh (USD 38,000) rom theKarunya Institute o Technology to support technologydemonstration and training or CO2 reductions.

In September 2007, the MNRE sponsored the SolarInnovation Program at the Centre or Innovation,Incubation and Entrepreneurship at the Indian Instituteo Management, Ahmedabad with a rst year contributiono INR 20 lakh (USD 500,000). This program engagesuniversity students and oers nancial support orinnovations in solar technologies and continuingincubation support to bring these technologies to market.

(C) Examples o fnanciers

Due to the risks o early stage research, the mostcommon orm o nancing at this stage is the researcheror entrepreneurs private capital, which may include riendsand amily. There are also unds available through researchand academic institutions, government initiatives, grantsand oundations, and within corporate R&D departments.

Some identied early stage nanciers that are activelysupporting RE RD&D in India are: ICICI TechnologyFinance Group, Techno-Entrepreneurship PromotionProgram (Government o India Department o Scienceand Technology), Indian Institutes o Technology (IITs)and academia, corporate R&D departments, Center orInnovation Incubation and Entrepreneurship, CII/WRI NewVentures, The Indian Angel Network, Science and Tech

Park, Pune.

2004

2005

2006

Figure 6.

Clean Energy Investments in India, 2004-2006.

Data Sourced rom: New Energy Finance.

VC/PE Public Markets Asset Financing Mergers &Acquisitions

0

197

43 34 00

1125

1875

2073

72 40

23

(D) Case study ICICIICICI Bank Technology Finance Group (TFG)

(E) Case study--CIIECentre or Innovation Incubation and

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24

In 1985, the government o India established ICICI bank asan intermediary to disburse World Bank and USAID loansand grants. By 2001, ICICI had a strong balance sheetand was privatized. The Technology Finance Group (TFG)sits under the Wholesale division under the subdivision o

project nancing and has a mandate to play a catalytic rolein developing and demonstrating the commercial model orinnovative technologies and processes to increase energyeciency.

The ICICI TFG has a blend o experience in projectimplementation, and adopts a pioneering approach towork with development banks and other nancial partners,with a fexible mandate to catalyse new processes andtechnologies that may help to ll early stage nancing gapsin the development and deployment o RE. ICICI TFGnances innovative, demonstrable, replicable, and energyecient technologies. This case study prole o ICICI TFGexamines three innovative nancing approaches:

1. Technology Institutions (TI) - Tech Institutes aresupported with concessional loans to undertake

capacity building, upgrade or expand acilities orcollaborate in R&D with commercial companies.

2. The Sponsored R&D Programme (SPREAD) -Commercial companies are encouraged tocollaborate with Technology Institutes to innovativenew products and processes with concessional loans.

3. The Energy Conservation and Commercialisation

Programme (ECO), ESCO models - The ECOProgramme provides concessional loans to companiesundertaking biomass cogeneration, waste heatrecovery, and work with Energy Service Companies(ESCOs). The models highlighted here ocus on energyeciency nancing, and is provided to illustrate thetypes o due diligence checklists in place or privatebanks, some innovative means o risk sharing andinnovative nancing mechanisms that can beconsidered or adapting to renewable energy projects.

Entrepreneurship (CIIE)

CIIE provides a combination o early stage nancialsupport, mentoring activities, and support to build a youngentrepreneurs ecosystem and lls a much needed gap inthe stage rom development to deployment. These

activities allow a company to validate their technologyand/or processes, build strong networks, and prepare toraise urther capital in moving toward commercialization.CIIE is a technology incubator started in 2001 at the IndianInstitute o Management, Ahmedabad (IIMA).CIIE provides mentoring, intellectual and physicalinrastructure support to its incubatees, as well as supportin raising capital. The Government o India Department oScience and Technology has set up a seedund o INR1 Crore (~USD 250,000) or support to IIMA incubatees.CIIE also helps its incubatees raise unds rom governmentagencies, banks, VCs and angels based on therequirements o the company. CIIE is currently in theprocess o raising capital to und its Cleantech VentureProgram, hoping to raise USD 2 million to be providedto start-ups in the Cleantech sector. Through thisexperience in nancing, CIIE has ound that to achieve a

sustainable enterprise model, companies incubated byCIIE need a support o anywhere between INR 10-50 lakh(~USD 25,000-125,000). In September 2007, the MNREsponsored a INR 20 lakh (USD 500,000) Solar InnovationProgram.

13.4 Micro VC

(A) Type o Financing

(D) Case study AavishkaarAavishkaar

A i hk t bli h d i t t t i M h 2002

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Micro Venture Capital (MVC) can be described as earlyand small stage investments behaving similarly totraditional venture capital. There are still relatively ewplayers in this innovative new nancial asset class. TypicallyMVCs have a strong social mandate and are pioneering anew space o early stage investment to catalyse solutionson the development ront. This new approach to nancingearly stage technologies and processes can help smallerand non-traditional entrepreneurs access the much neededcapital to create commercial models and can impact onimproving working and living conditions at the bottomo the pyramid18. The typical investment size o anMVC investor has tended to range between USD

25,000-100,000.

The criteria or investment in this stage look verysimilar to any common investors criteria in any industry,including an entrepreneurial and capable team, thecapacity to grow in scale and eciency, and a uniquemarket advantage. Additionally, this earlier stage onancing typically also has criteria relating to a tangiblesocial benet such as job creation, livelihood improvement,

health improvement, and other positive social,environmental or development impacts.

(B) Examples o deals

In 2003, Aavishkaar, an India-based or-prot MVCcompany acquired at 27.5% stake in Tide Technocrats,working in the areas o small hydroelectric power,bioenergy, and more recently carbon consulting.

(C) Examples o fnanciersMicronance institutions and development banks arepioneering this type o investing as are newly establishedund managers such as Aavishkaar (see case study below).Though many pioneering models are being created todemonstrate the protability o investing in companies atthis stage, there remain some gaps in this stage onancing. The nancing in MVC can come in the ormo equity investments or the provision o small loans andother early stage grants.

18 The term bottom o the pyramid reers to the poorest socio-economic majority o the global population,typically living on less than USD 2 per day, equating to roughly 4 billion people. This concept has beencredited to the research and publications o Stuart Hart and C.K. Prahalad.

Aavishkaar established a private trust in March 2002,registered with the Securities and Exchange Board oIndia, operating as a Micro Venture Capital Fund. Todate, they have deployed approximately USD 1.1 million(approximately INR 45.1 million) and are currently in a

capital raising stage, projecting to close a und at USD10-20 million (approximately INR 400-800 million) by early2008 rom international high net worth individual investorsand institutional investors. This und is projected to bedeployed in 35 investments on average size o USD200,000, ranging rom USD 50,000-USD 500,000 perinvestee. O this und, approximately 30% is targeted orRenewable Energy companies.

Investment Instruments include a suite o equityproducts, including common stock, quasi-equity,preerred convertibles, preerred redeemable, mezzanineloans, royalties, and other venture capital instruments.The long-term target annualized internal rate o return isprojected to be 10% over the lie o the und, with a hurdlerate o 6%. The commitment period is projected to be 10years.

Aavishkaar projects average investment sizes in REcompanies to be USD 220,000 per company withmedium returns providing an IRR in the range o 15-25%.

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13.5 Venture Capital (VC)

(A) Type o FinancingVenture Capital is a orm o investing where equity in the

(D) Case StudyNexus India CapitalCase Study Nexus India Capital

Nexus India Capital is a subsidiary o Nexus Capital

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Venture Capital is a orm o investing where equity in thecompany is exchanged in return or money to grow orexpand the business. Venture capital rms oten want ahigh rate o return (20%+) and will nance the businesswith USD 500,000 to many millions. The VC market in

India is relatively young having started around 1998.

VC investments in the RE industry in India tend to belooking to invest between USD 1-10 million per portoliocompany in the rst round o investments. VC undsmay also be accompanied by value added services andsupport to help grow the portolio company. Due to thehigher risk o investing at early stages, VCs tend to requirehigher return on investment than later stage investors.

Investors at this stage are primarily looking or a provenbut innovative technology or process with the ability toachieve exceptional growth potential through a scaleablemodel and the entrepreneurs ambition to achieve scale.The management team must be strong with a reasonabletrack record and a strong balance sheet with substantialpersonal equity.

(B) Examples o deals19

In June 2007, Indian Luminous Power Technologiesreceived INR 829m (USD 20.3m) rom CLSA ARIAInvestment partners and CLSA Clean Resources in seriesA rst round nancing.

In April 2006, Naturol Bioenergy Limited set up anintegrated state-o-the-art oleo bio-technology acility in

Andhra Pradesh. APIDC VC is the lead and early equityinvestor with Sidbi VC and UTI VF playing a supportiverole to raise INR 56 crore equity (USD 12.5m).

(C) Examples o nanciersAlthough Indian VC activity is increasing, there are only aew VCs in India who are actively looking to invest in REcompanies. VCs tend to have signicant track records inenterprise building and growing start-ups across sectors,

RE and clean technology tend to be new areas o interest.

19 Source: New Energy Finance.

Nexus India Capital is a subsidiary o Nexus CapitalAdvisors and manages unds in excess o USD 100million ocusing on lie sciences, gaming, semi-conductors,IT, and clean technologies, including renewable energy.Investment targets are USD 100,000-10 million per

portolio company and the und will invest in rst andsubsequent rounds o nancing. This und started in late2006, closed in July 2007, and has made 6 investmentsas o August 2007.

Sectors o Interest:While Nexus is still developing clean technology investmentstrategies, some o the early sub-sectors that are beingtargeted are:

Solarinnovative technologies with IP Water ltration and wastewater treatment Biouels Waste management Industrial processes Energy eciency Sub-sector enablers

Nexus participates in value added services to theirportolio companies beyond the capital resourcecontributions. They preer to take a board seat and maymentor on board protocol. Nexus oten will participate insenior level recruitment, business development, marketintelligence, building the supply chain, and uture roundso investment prior to exit. The due diligence processincludes an assessment o the potential portolio

companys entrepreneur, team, technology, growthprojections, operational risks, legal issues, marketadvantage, and nancial track record.

13.6 Private Equity (PE)

(A) Type o FinancingPrivate equity unds are dened by non public equity

(D) Case StudyGlobal Environment FundCase Study Global Environment Fund (GEF)

GEF is a pioneering environmental private equity group with

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Private equity unds are dened by non-public equityownership at later stages o development, typically at levelso scale. Raising capital or private equity unds typicallyis restricted to institutional investors and high net worthindividuals and the investments tend to be in excess o

USD 10 million per portolio company. This investmentgure will have a large range depending on the size o theund, the und mandate, and the und managers. The mostcritical criteria or larger investors is a clear and consistentlong-term policy ramework.

(B) Examples o deals20

In December o 2006, Indian electric car manuacturer,Reva Electric Car Company (RECC), received aninvestment o USD 20.0m rom Draper FisherJurveston (DFJ) and Global Environment Fund (GEF).

In 2005, Goldman Sachs invested $10 million in an Indianwaste to energy biotech company, and Citigroup investedin one o Indias largest sugar producers or ethanol.

As o 15 October o 2007, Vestas RRB India, the

India-based manuacturer o wind electric generators, hasreceived an investment o USD 55m rom Merrill Lynch.

(C) Examples o nanciersWhile there may not be much current activity in REinvesting by PE rms in India, there are PE rms investingin RE technologies internationally, including: GlobalEnvironment Fund, Environmental Capital Partners, andCeres Capital. PE activity in India looks to be picking up

momentum and consultations reveal rumors o new undsbeing raised by various PE rms or cleantech and REdirected unds in India rom 2008 onwards.

20 Source: New Energy Finance

GEF is a pioneering environmental private equity group witha substantial track record o investing in both the emergingmarkets and environmental technologies. Currently GEFmanages over USD 800 million and has made over 30private equity investments in early stage technology

companies. The emerging markets und looks to investbetween USD 25-50 million over the lietime o therelationship with the portolio company. Additionally, GEFtakes an active role in portolio companies as appropriate,adding value through: active management, boardrepresentation, strategic alliances, recruitment o seniormanagement, securing subsequent rounds o capital,improving environmental policies and practices, andpreparing or exits. GEFs criteria or investment refect thecriteria o other PE investors. A unique criterion that maynot be shared by other PE investors is that GEF looksor companies that provide an improved environmentalnet benet over conventional technologies. They lookor an established company with innovative, proventechnologies with applications to new commercialapplications in traditional industries.

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13.7 Project Finance

(A) Type o FinancingProject nancing is a method o nancing a project through

(C) Examples o nanciersThe primary debt providers in project nancing arecommercial banks One o the astest growing Indian

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Project nancing is a method o nancing a project throughdebt and equity that are repaid by the revenues and assetso a specic project rather than through the balance sheeto a company. Commonly, project nance is done on anon-recourse (meaning no legal or nancial recourse can

be taken against the partners outside o the project) orlimited recourse basis, and oten a special purpose vehicleis set up or the project to act as the company or vehicleor nancial fows. Traditionally project nance has beenutilized in large inrastructure projects. To date there havebeen ew banks to enter into pure project nancing orenewable energy projects, largely due to the size oprojects and some non-traditional risks.

(B) Examples o deals21In 2006, MSPL Limited nanced a USD 28.3 million MSPLKarnataka Wind Farm project and Seshasayee paper andBoards was in active planning or project nancing o aUSD 8.1 million Pallipalayam Biomass Plant.

In April 2007, Lakshmi Energy and Foods arranged projectnance or its 30MW biomass plant in Khamanu district in

the state o Punjab, India. Power Finance Corporation isacting as lead debt agent/arranger or this USD 112 millionproject.

In March 2007, Reliance Energy secured nance or theirUSD 202m 150 MW wind turbine capacity project in SangliDistrict in the State o Maharashtra.

commercial banks. One o the astest growing Indianbanks, YES Bank participates in RE project nancing andinternational banks such as ABN AMRO provide debt -nancing or RE projects. IREDA, was established as an REdevelopment bank by the government o India to catalyse

the RE industry in India and provide project nancing to REprojects.

21 Global Environment Fund and New Energy Finance. Renewable Energy Investment Opportunities. 2007.

(D) Case Study--IREDAIndian Renewable Energy Development

Agency (IREDA)

IREDA was established in 1987 by the Government o

India to catalyse the RE industry in India by providing debtnancing or RE projects to demonstrate commercialviability to other commercial banks. IREDA has theobjectives to operate a revolving RE und, support projectsin RE and energy eciency, reduce the cost o RE power,and assist in modelling nancing projects in RE and energyeciency.

IREDA oers standard loans torenewable energy projects

at rates slightly more avorable than commercial lendingrates. IREDA will contribute up to 70% o total project costwith a minimum 30% promoter contribution. The loansmust be repaid within a 10 year period. As o 31st March2007, IREDA had nanced 1,816 projects totalling 2,927MW o power generation capacity and replacing over 1million metric tons o coal equivalent. IREDAs loancommitments as o 31st March 2007 are over INR 8,000Crore (~USD 2 billion) and loan disbursements in excesso INR 4,000 Crore (~USD 1 billion).

13.8 Corporate Finance

(A) Type o FinancingWhile Corporate nancing reers generally to the nancing

(D) Case StudyGE EFSCase Study GE Energy Financial

Services (GE EFS)

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While Corporate nancing reers generally to the nancingby a company nancial division to create, grow, or scalea business, there are subsets o corporate nance,including project nance and inrastructure nance.Corporate nancing also involves Merger and Acquisition

activity. Project nance allows the strengths o the projectto be evaluated as opposed to ull recourse balance sheetnancing. Most large scale inrastructure projects will beestablished as a separate entity to both receive and dis-burse nancial payments with limited or no recourse to thedevelopers and partners. The debt: equity ratio is typicallyaround 70:30 or 80:20. Deal size in this space ranges romthe lower end o USD 10 million upwards to USD 1 billionor more depending on project size and capitalrequirements.

(B) Examples o deals22On 30 July 3007, Shree Renuka Sugars Ltd (SRSL)acquired a majority share in KBK Chem-Engineering orINR 370m (USD 9.1m).

On 5 July 2007, Indian hydro and wind project developer

Bhoruka Power acquired SLS Power Industries or INR800m (USD 20m).

As o 31 October 2006, the solar module manuacturer,Solar-Fabrik acquired 80% o OJAS Energy, a PV waermanuacturer or 3.0m EUR (3.8m USD).

(C) Examples o nanciersCorporate nanciers o RE and DG projects in India are

primarily currently the large wind companies, such asSuzlon and Vestas RRB. However, large multinationalcompanies such as GE and Siemens who are activelynancing RE and DG projects internationally haveestablished a presence in India.

Services (GE EFS)

General Electric Energy Financial Services sits under theGE Inrastructure division and has 6 commercial teams withover 300 energy and water experts. Overseeing the REportolio is a dedicated team o 25 individuals.

GE EFS manages over USD 14 billion in assets o whichUSD 2 billion is dedicated to a Renewable Energy (RE)portolio comprised largely o wind (74%), but also solar,hydro, biomass, geothermal, and VC. This RE portolio isequivalent to roughly 5.5GW o electricity globally. GE EFShas a goal to have invested USD 4 billion in their globalRE portolio by 2010. The typical deal size or GE EFS isUSD 25 million to USD 1 billion. The Indian GE EFS teamis hoping to have done USD 2 billion in deals by 2010,o which 20-30% is targeted or RE projects. Within theIndian investments, it is anticipated that 20-30% will be inthe orm o equity and the balance in debt.

GE EFS is interested in all energy related opportunities,which includes RE and energy eciency. As theircurrent RE portolio suggests, they are interested in most

sub-sectors, including, wind, hydro, geothermal, solar, andbiomass. Specic to India, GE EFS is looking at windprojects over 15-20 MW and run o the river hydroprojects between 50 and 250 MW.

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14. Findings

14. Findings

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This project sought the input o key stakeholders whowere invited to submit their views through a survey via

an on-line platorm23

. The survey was developedollowing initial research and consultations withinternational RE leaders, primarily in India andAustralia, which precipitated a list o common barriersand potential solutions to overcoming barriers toaccelerating the RE industries in India. In conjunctionwith the circulation o the survey, additional one-on-oneconsultations took place in India, Australia, andinternationally. A total o 124 respondents, including 60

Australian, 44 Indian, and 20 international leading REproessionals participated in the survey. The prole orespondents was split between policy makers, nanciers,academic institutions, and private sector RE companies.Through the survey and consultations over 200 peoplecontributed their in depth perspectives to this report.

The Survey consisted o three sections:

(a.) Barriers

(b.) Actions to remove barriers(c.) Qualitative responses or individuals

to provide expert commentary

In sections (a.) and (b.), respondents were asked toindicate whether they strongly agreed, agreed, neitheragreed nor disagreed, disagreed, strongly disagreed, orelt the statement was not applicable. A copy o thesurvey questions can be ound in Appendix D.

The ollowing ndings are highlighted in two sections,14.1 Barriers and 14.2 Solutions. Headline ndings arediscussed under each section supported by quantitativeresults rom the survey and qualitative results romconsultations.23A list o survey questions are listed in Appendix D.

14.1 Results barriersThe main ndings o the survey and consultation

Documents

RDG 06 10 Report