Financing Renewable Energy: Mechanisms, Challenges & Risks

By Ujjwal Bhattacharjee, PhD

Senior Fellow, TERI

Regional Workshop on Innovative and Sustainable Energy Technologies for Developing Countries:

Opportunities and Challenges

30th May 2014, New Delhi

Outline

• Financing mechanisms to support RE as a commoditized product – Rooftop SPV

• Financing linked to resource availability – Biomass energy systems

• Performance based RE financing

• EE retrofit financing – Collateral issues

Commoditizing Rooftop SPV

• Availability

– Range of standardized products

• Accessibility

– Wider network of suppliers and service providers

• Affordability

– Easy financing

Rooftop solar PV

Consumer awareness

Product attributes

Cost & procurement parameters

Policy & regulatory

After sales service

Barriers to RE Commoditization

• High upfront cost• Limited financing schemes by banks• Lack of awareness among consumers• Limited standardized rooftop SPV systems• Inadequate supply chain for rooftop SPV system • Less experience in grid connectivity at low voltage• Higher cost of dual function inverter (which allows consumption of solar

electricity during power outage)

Market specific challenges• Cost reduction for small capacity SPV system is a challenge• Only few companies in the market• Utility scale system integrators (EPC providers) are not willing to enter

into the small SPV domain

Traditional Front Loaded Financing Scheme for Rooftop SPV

Back Loaded Financing Scheme Designed to Balance with Electricity Cost Offset

Assess RE Resource Value Chain-Biomass Energy Systems

RE Resource Value Chain

Little biomass is left for energy generation• Fronds (leaves) are used up for soil nutrition • Shells are used in the coconut drying process

Performance Based Financing – Energy Access RE Projects

PaymentFuel Supply Agreement

Payment (Regulated Tariff)

Power Purchase Agreement

Payment

Electricity

Consumers (Domestic/Commercial)

10-20% electricity

80-90% electricity

Surplus Power @ FiT

DISCOM/Open Access

Large DDG Operator/RESCO/Franchisee

Fuel Supplier (if any)

Biomass/Fuel

Move from 90% capital subsidy to performance based VGF funding

Financing EE Retrofit Projects

TECHNOLOGY   ENERGY EFICIENCY COMPONENTS  Air Conditioning; Controls, Exhaust Fan

 

Lighting, Maintenance, Pool Pumps,  Solar Hot Water Heater,  Solar PV,  Window Films

   

HOTEL INVESTMENT AND PROFITIBILITY INDICATORSUS$ BB$

Initial Investment 2,99,250 5,98,500 Annual Electricity Saved (kWh) 3,77,477 Year 1 Electricity Cost Saved 1,50,991 3,01,982 Project Simple Payback Period (years) 2.0 Internal Rate of Return (IRR) 99%Loan Amount 2,39,400 4,78,800 Annual Debt Repayment (after moratorium period) 23,940 47,880 Total Interest Payment 46,085 92,169 Total Net Profit (after interest, depreciation and tax) at present value 6,53,070 13,06,139

Arranging Collateral is a Challenge

Concluding Remarks

• Financing schemes should be developed to support commoditization of RE (rooftop solar)

• RE resourced linked financing is critical for long-term sustainability of projects.

• RE access projects should move from high initial capital subsidy to performance based subsidy.

• Special funds created for EE retrofit projects should take into account the collateral issues.

Contact Info:

Email: Ujjwal.Bhattacharjee@teri.res.in

Tel: +91 9810165788

Skype: Ujjwalbh