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Mr. Gaetan Tiberghien, Principal Investment Officer, Infrastructure and Natural Resources, International Finance Corporation South Asia

14 May 2015

"India needs $100 billion investment to provide 24X7 electricity for all."

Gaetan Tiberghien is Principal Investment Officer, Infrastructure and Natural Resources, International Finance Corporation South Asia. He is responsible for IFC’s investments in the power sector in South Asia, he is also leading IFC’s engagement in sub-national sector in the region. Gaetan spoke to InfralinePlus on a range of issues including the challenges India face in providing 27 X 7 electricity for all. Excerpts...

Considering the fact that the whole world is aiming to tap clean energy resources, how prepared do you think is India to capture this opportunity?

Expanding renewable energy generation is critical to balancing India’s energy mix. 69% of India’s installed capacity is based on fossil fuels. Renewable energy currently contributes about 13% to India’s installed generation capacity and about 5% of its electricity needs. This is expected to increase dramatically in the near future.

India has committed to providing 24X7 electricity in the next five years to all its citizens. To achieve this ambitious goal, renewable energy capacity needs to scale up rapidly. It is encouraging to see the government going beyond the National Solar Mission’s target of 20 gigawatt Solar Power Capacity by FY 2022 to 100 gigawatts while currently it is a mere 3GW. Wind capacity is also expected to more than double to 60 GW over this period.

Is this not an ambitious target given the fact that Germany, which is the biggest proponent of solar energy - has capacity of about 38 GW. Can you highlight areas of concern that need more focus?

Meeting the target of 24x7 electricity for all, translates into an investment opportunity of $100 billion. Domestic resources from financial intermediaries will not be enough - India needs to mobilize investment from international sources. Private participation will be critical in scaling up.

To meaningfully open up the Renewable Energy sector,There is a need to attract a new set of investors to Renewable Energy – including institutional and global – pension and sovereign wealth funds should be channeled. Also, corporate bond markets and innovative structures such as securitization structures can be leveraged.

To find ways to strengthen payment security mechanisms to reduce the off-taker risk, especially for global investors - here regulatory intervention could go a long way. While the financial sustainability of many power off-takers (discoms) is in doubt, open access could be a good risk mitigant for lenders and should be enforced. Over the long term, it will be critical to improve the health of the discoms.

Large scale roll-out of renewable energy generation capacity will need a simultaneous focus on strengthening the transmission network and ensuring grid stability. Government’s encouraging plans to add transmission capacity will also require partnership with the private sector for effective planning.

Wooing Foreign banks: Foreign banks have plenty of room to grow in the renewable energy space but high hedging costs and inability to provide very long tenors comes in the way. These aspects need to be addressed. Foreign investors should be incentivized to support large-scale investment opportunities.

What is the budget that IFC has earmarked for India? Do you see IFC increasing this budget in short term?

In FY 14, IFC committed $1.2 billion in 34 projects in India. From FY10-14, IFC committed $6.1 billion in total financing in India (including own account and mobilized funds). The focus of the program has been on facilitating financial inclusion, promoting infrastructure development by developing public-private-partnerships, promoting cleaner production, energy and water efficiency, supporting agriculture through improvements in productivity and helping reform investment climate and we plan to expand all our programs in these sectors, going forward.

Kindly share details of the ongoing projects and the total capacity once the projects are commissioned?

IFC has been a pioneer in promoting the renewable energy generation agenda in India. IFC helps private developers leverage opportunities in solar, wind and other forms of renewable energy to implement efficient, sustainable, successful projects. Since FY09, IFC transformed its global power portfolio so that more than half of it is in renewable energy. IFC portfolio companies have set up over 2 GW of different forms of renewable power projects in India itself.

Some of our projects include:

In 2011, the government of Gujarat requested IFC’s assistance in structuring a first-of-its-kind pilot grid-connected solar rooftop power project as a public-private partnership. Although the concept exists in developed markets like the US, the pilot project in Gandhinagar, Gujarat’s capital, is the first in India. IFC worked on defining an innovative structure that would address the challenges of developing the solar rooftop market. With IFC’s support, a pilot project of 5 megawatt (two 2.5 megawatt systems) in Gandhinagar was successfully awarded through a competitive tender to two private developers. Building on the success of the pilot project, the state government requested IFC to help disseminate the concept across the state in five more cities (projects of 5 megawatt each).

IFC recently released a white paper on solar rooftops that shares lessons from selected global experiences in designing and implementing rooftop solar business models. It identifies success drivers and potential challenges in implementing these projects and provides an overview of the nascent market in India.

IFC has invested in Azure Clean Energy Private Limited todevelop a 40-MW photovoltaic power plant in Rajasthan. Azure Power is the developer of the country’s first utility-scale solar plant. The project is one of the two IFC is financing (other being ACME Solar) under the first batch of the second phase of Jawaharlal Nehru National Solar Mission, which granted a combined installed capacity of 750 MW. In the last five years, Azure has grown from 2 MW to 210 MW solar capacity. IFC has made multiple rounds of investments to support Azure in its growth plans.

Under the first batch of the second phase of Jawaharlal Nehru National Solar Mission,IFC has invested in independent power producer Acme Solar Energy Private Limited to build solar photovoltaic power plants with a combined capacity of 100 MW in Rajasthan. IFC also helped mobilize loans from Asian Development Bank and Yes Bank.

IFC has invested in two wholly-owned subsidiaries of Continuum Wind Energy (India) Private Limited to construct a 170 megawatt wind power plant in Madhya Pradesh. IFC also helped mobilize further financing for the project from YES Bank.

IFC has also invested in GREEN INFRA Limited to develop a 220 MW wind and a 25 MW solar project in India.

In the off-grid sector, Lighting Asia/India is a market-transforming program with the objective of promoting the value and presence of modern off-grid lighting among three million people in rural India. Modern off-grid lighting includes solar lighting appliances, home systems, and connections to renewable energy mini-grids. The program is designed as a series of interventions to alter market behavior, reach three million people, and reduce at least 90,698 tons of greenhouse gas emissions by the end of 2016.

Given the fact that Indian Banks have been exposed to energy sector and are affected by ‘bad loans’, how important is the company’s track record of repaying loans when you decide on the financing support.

A company’s track record is one of the key criteria that need to be met to be eligible for IFC financing.

How to Apply for Financing:

IFC offers a wide variety of financial products for private sector projects in developing countries.

To be eligible for IFC funding, a project must meet a number of criteria. The project must:

  • Be located in a developing country* that is a member of IFC
  • Be in the private sector
  • Be technically sound
  • Have good prospects of being profitable
  • Benefit the local economy and
  • Be environmentally and socially sound, satisfying IFC environmental and social standards as well as those of the host country.