Unlocking India's Renewable Energy Future: Blended Finance as the Key

The climate crisis is a pressing global challenge, and India is at the forefront of the battle to mitigate its effects. With ambitious goals to achieve net-zero emissions by 2070, the country is poised to undergo a transformative energy transition. However, this transition requires substantial investments, estimated to be between $10-20 trillion, with the power sector and green hydrogen production accounting for the majority of these funds. Blended finance emerges as a promising solution to mobilize commercial capital and support India's renewable energy trajectory.

Powering India's Renewable Energy Ambitions

Integrating Renewable Energy into the Grid

India's renewable energy roadmap aims to increase the country's generation capacity to 500 GW and accelerate green hydrogen production to five million metric tonnes per annum by 2030. Achieving these targets will require addressing the challenges of integrating variable renewable energy into the grid and ensuring availability during peak demand hours. This necessitates the deployment of affordable energy storage solutions and the development of offshore wind projects. However, these emerging technologies have not yet reached commercial parity with conventional energy sources, resulting in higher risk perception and a higher cost of capital.

Bridging the Financing Gap

The government's efforts, such as viability gap funding covering 35-40% of capital expenditure, have helped, but more innovative financing solutions are needed to attract commercial capital. Blended finance, which leverages development finance, multilaterals, and sovereign funds to de-risk high-risk areas, can play a crucial role in mobilizing commercial investments in India's renewable energy transition.

Blended Finance in Action

Blended finance deals worth approximately $145 billion have been executed globally during 2014-23, with a compounded annual growth rate of 11%. India has seen deals worth around $5 billion, led by the energy and financial services sectors, with a CAGR of 18%. This strong interest in the Indian market needs to be channeled towards funding emerging technologies, such as battery storage and offshore wind.

Unlocking the Potential of Battery Storage

Grid integration of the elevated share of renewable energy in India's energy mix (33% by 2030) requires an estimated 41GW/208 GWh of battery storage by 2030. While the government's viability gap funding scheme can reduce battery storage tariffs to ₹3-3.5/kWh, blended finance can further lower the tariffs to ₹2.0-2.2/kWh. This would help bridge the gap between battery storage and coal-based thermal power tariffs, which are currently around ₹5-6/kWh during peak demand.

Offshore Wind: Harnessing the Power of the Seas

Offshore wind energy can address the issue of renewable energy availability during non-solar hours, as it has better availability at higher tariffs (₹10-12/kWh) compared to the more established onshore wind (₹3.6-3.7/kWh). The government's announced viability gap funding, coupled with localization efforts, is expected to reduce offshore wind tariffs to ₹6-7/kWh. However, a blended finance facility can further lower the tariffs to ₹4-4.5/kWh, enabling offshore wind to achieve commercial parity.

Boosting Green Hydrogen Production

The availability of affordable renewable electricity is crucial for the production of green hydrogen, which accounts for 70-75% of the total cost. By leveraging blended finance to reduce the cost of battery storage and offshore wind, the price of green hydrogen can be brought down from around ₹300/kg to ₹260/kg, moving closer to the price of grey hydrogen (₹200/kg) produced using natural gas. This, coupled with the government's hydrogen production-linked incentive schemes, can further enhance the competitiveness of green hydrogen.

Designing a Robust Blended Finance Facility

To effectively support India's energy transition, a well-designed blended finance facility is essential. This facility should have a three-tiered structure comprising concessional debt, concessional equity, and capital grants, resting on an overarching credit enhancement guarantee. Development finance institutions and multilaterals can contribute concessional debt, while sovereign wealth funds and pension funds can provide concessional equity. Multilaterals and the government can offer capital grants and credit enhancement guarantees to further de-risk emerging technologies, thereby attracting commercial capital from developers and lenders.

Unlocking the Power of Collaboration

The time is ripe to mobilize concessional capital and spur commercial investments in India's renewable energy transition. By leveraging blended finance, the country can unlock the potential of emerging technologies, such as battery storage and offshore wind, and accelerate the production of cost-effective green hydrogen. This collaborative approach, involving development finance institutions, multilaterals, sovereign funds, and commercial investors, can be the key to powering India's renewable energy future and contributing to the global fight against climate change.