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The U.S. – India Catalytic Solar Finance Program (USICSF)
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The U.S. – India Catalytic Solar Finance Program (USICSF) was conceived when Indian Prime Minister Narendra Modi visited the U.S. in June 2016.
Broadly speaking, the aim of the program is to provide impetus to the distributed renewable energy sector in India through the development of financial interventions that can mobilize private capital at scale, thus assisting India in its policy targets of achieving 40 GW of installed capacity in the distributed renewable energy sector by 2022.
The USICSF program has a $40 million commitment made jointly by the US Foundations and the Government of India. Climate Policy Initiative (CPI) and cKinetics are assisting in implementation of financial solutions that could make best use of this capital to achieve the desired goals.
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Unlike the US-India Clean Energy Finance program, which provides project preparation support to distributed renewable energy generators to drive financing, or the India Innovation Lab for Green Finance, which focuses on finding and developing private-sector led solutions to scale up clean investments, the U.S. – India Catalytic Solar Finance Program focuses on public interventions to help the distributed renewable energy sector address prevalent risks to drive finance.
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Barriers to distributed renewable energy market expansion in India
Given the aggressive targets, the pace at which the distributed renewable energy sector is growing, and the capital requirements of USD 25 billion for this sector to reach India’s goals, most analysts predict that India will fall short of its distributed renewable energy policy targets.
One of the most important barriers to the growth of the distributed renewable energy sector is access to finance. Based on interviews with key stakeholders as well as extensive secondary research, CPI and cKinetics find that this is due to a number of reasons, including high collateral requirements for small/medium enterprises, doubts over the payback capacity of consumers, lack of access to and high cost of hedging foreign currency, lack of securitization vehicles, and lack of standardized business models within the industry, among others.
Financial interventions to scale up distributed renewable energy in India
Our findings on barriers suggest that there is an urgent need to improve the enabling environment for distributed renewable energy, both through better policy formulation and financial interventions that can crowd-in commercial capital. Given the goals of the USICSF program, CPI and cKinetic’s focus is on the latter.
Initial interventions undergoing design and feasibility assessments for the USICSF program include development of risk mitigation mechanisms and structured finance tools to mobilize private investment. These include:
1. Mechanisms to enable broader credit support for rooftop solar:
- Credit Guarantee Mechanism (CGM): A CGM is a facility that would get triggered any time a developer defaults on payment, and would help lenders recover a proportion of the defaulted amount. This would also help lenders post lower NPAs (Non-Performing Assets).
- Payment Security Mechanism (PSM): A PSM is a risk mitigating instrument designed to alleviate developer’s concerns regarding delay or default in payment from the off-taker.
- Rooftop Solar Financing Facility (RFF): The RFF is a financing facility that would provide long-term debt financing to developers of rooftop solar PV projects by bundling a large number of small projects together into one structured investment.
2. Foreign Currency Hedging Facility (FXHF): The FXHF is a tailored alternative hedging solution for small-scale Indian distributed renewable energy and solar rooftop project developers seeking dollar debt from foreign development finance institutions.
Contact:
Dhruba Purkayastha, USICEF Director, dhruba.purkayastha@cpidelhi.org
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