India Sees Cheaper Credit Helping to Expand Clean Energy

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India's Prime Minister Narendra Modi

India's Prime Minister Narendra Modi

India said cheaper credit along with foreign investment will help the world’s third-largest polluter fund an ambitious renewable energy program that would build green power plants faster than China.

Power Minister Piyush Goyal’s comments shed some light on how the government expects India to afford targets outlined at a conference in New Delhi on Sunday for 170 gigawatts of clean energy by 2022. That would be a fivefold rise and exceed the total power capacity of most nations. India relies on dirty, coal-fired plants and has some of the planet’s most toxic air.

“Interest rates will come down,” Goyal said on the sidelines of the conference, adding he sees a greater role for overseas funding sources in part as stability in the rupee cuts the cost of hedging currency risk. “A lot of international money is available for renewables. We need to tap that.”

Prime Minister Narendra Modi, in his conference speech, said the clean-energy drive is part of a push to curb blackouts and give every Indian household electricity. While world leaders such as U.S. President Barack Obama back the effort to harness power from the sun, wind and water, finding the $200 billion Goyal estimates is needed remains an obstacle.

“Who’s going to pay for all this?,” said Sunil Jain, the chief executive officer of Hero Future Energies. Indian banks “aren’t capitalized for this kind of lending,” he said.

Modi’s administration announced plans at the conference, called RE-Invest, for renewables to account for 15 percent of India’s energy mix within a decade.

$48 Billion

It said banks have committed to finance more than 3 trillion rupees ($48 billion) of projects and that manufacturers intend to set up 60 gigawatts of equipment production capacity. State Bank of India, the country’s largest lender by assets, said it can finance 750 billion rupees by 2020 depending on the viability of the proposals.

Lower hedging expenses could cut the total cost of overseas loans to 6 percent to 7 percent in the next two years, the power minister said. At home, the Reserve Bank of India left interest rates unchanged this month following an unscheduled cut in January to 7.75 percent after inflation eased.

“The trend of reducing interest rates has already started and interest rates will come down,” Goyal said.

Modi’s nine-month-old administration will try to support steps such as green bonds, he said, adding he’s confident that pension funds can be wooed into renewable investment.

“We are developing a framework which will make sure policies are stable and that the bankability of renewable power purchase agreements are ensured,” Goyal said.

Cleaner Coal

Modi has moved clean energy up the national agenda since he took office in May. At the same time, the United Nations is pushing rich and poor countries alike to adopt targets in time for a climate summit in Paris in December.

“If there is one nation that can show the world how to fight global warming, it’s India,” Modi told the conference.

In November, China and the U.S. reached a landmark agreement to cap emissions, a step that India has resisted. China is the world’s largest renewable energy market.

Adani Enterprises Ltd., Reliance Power Ltd. and SunEdison Inc. are among companies that have pledged to invest in India’s solar industry in recent weeks.

While investment plans are multiplying, the question remains whether and how rapidly they can be implemented.

Stressed assets at India’s banks, including soured debt and restructured loans, will rise to almost 13 percent of total advances by March 2016, the highest level since 2001, forecaster India Ratings & Research Pvt. estimates.

“For the foreseeable future, India will be reliant on coal,” Arvind Subramanian, the chief economic adviser in India’s Finance Ministry, said at the conference. The focus on renewables is taking funds away from efforts to find less-polluting ways to burn coal, he said.

Goyal said the government envisages a role as a “facilitator” in India’s renewable power expansion, rather than as part of the business model

“Banks will provide their funds privately to businesses,” he said.

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