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India Innovation Lab for Green Finance: 2015-2016 Cycle Instrument Analysis

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Published: October, 2016

The India Innovation Lab for Green Finance, launched in November 2015, is a public-private initiative that identifies, develops, and accelerates innovative solutions to finance green infrastructure for renewable energy (including utility scale, distributed, and off-grid), energy efficiency, urbanization, and other channels for green growth.

It is a unique initiative that aims to provide concrete solutions to the unique financing challenges to investment in green infrastructure in India. By addressing investors’ needs, it can unlock new investment for clean growth in India. The India Innovation Lab for Green Finance builds on a sister initiative that operates at the global level, the Global Innovation Lab for Climate Finance.

On October 25, 2016 the the India Lab announced endorsement of three innovative investment vehicles that will help drive millions of dollars of needed investment to India’s clean energy and green growth targets. This announcement is in partnership with the India Lab’s public and private Lab Members, including the Indian Ministry of New and Renewable Energy, the Ministry of Finance, the Indian Renewable Energy Development Agency (IREDA), the Asian Development Bank, ReNew Power, the World Bank, and the development agencies of the French, UK, and US governments, among others.

The three endorsed instruments, which were selected from among a highly competitive pool, and refined and developed over the course of a year, will now move forward for piloting in India with the support of the India Lab’s members. They include a rooftop solar financing facility, a peer-to-peer lending platform for green investments, and a currency exchange hedging instrument.

The instruments endorsed by the India Lab for the 2015-2016 cycle are:

  • The Rooftop Solar Private Sector Financing Facility aims to drive capital at a lower cost of financing for developers of rooftop solar projects, by providing long term debt financing through securitization. It also aims to demonstrate the commercial viability of sustainability-focused, asset-backed securities for the Indian rooftop solar sector. Over 2017-2022, the Facility can mobilize USD $320 million of private capital for rooftop solar power. It has the potential to help raise further investment, beyond 2022, by supporting rooftop solar power developers to grow and by demonstrating the commercial viability of the sector.
  • Loans4SME is a peer-to-peer lending platform that would increase access to debt financing for small and medium enterprises (SMEs) for renewable energy and energy efficiency initiatives, by connecting them directly with lenders. Loans4SME has the potential to mobilize around USD $2.2 billion in debt financing for SMEs in renewable energy and energy efficiency by 2022, and thereby help in providing access to finance almost 800 MW of rooftop solar projects.
  • The FX Hedging Facility aims to facilitate large-scale foreign investment into renewable energy in India by providing a cheaper currency hedging solution. Currency risk – the risk of unexpected devaluation when investing in a foreign currency – is the greatest risk facing potential foreign investors in renewable energy. It requires currency hedging, but commercially available currency hedging products can be expensive. The FX Hedging Facility can reduce the cost of currency hedging by around 30% and has the potential to mobilize a minimum of $9 of foreign debt per dollar of donor grant.

Lab Members did not vote to endorse P50 Risk Solutions at this time, in light of the fact that there is currently no implementation partner to take the instrument forward.