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Resource Guide for

Indian Business:

Low Carbon Investment

in India

March 2010

Resource Guide for Indian Business: Low Carbon Investment in India I

Contents

Foreword

About this guide

Executive summary

Glossary and monetary terms

1. Introduction

2. An enabling environment for low carbon development

3. Drivers for private sector engagement

4. Finance for low carbon development

5. Case studies

Annexes

Annex 1. Annotated list of information sources

Annex 2. Bibliography and suggested reading

Resource Guide for Indian Business: Low Carbon Investment in IndiaII

Resource Guide for Indian Business: Low Carbon Investment in India III

Foreword

I am delighted to present this Resource Guide for Indian Business: Low Carbon Investment in India.

The challenge of climate change and the need for a low carbon development model are wellunderstood by policy makers and business leaders across the globe. It is essential that policymakers reach the necessary agreements and ultimately a consensus on how the world shouldtackle global warming at an inter-governmental level. But the necessary commitment of policy makersis only half the story - I believe that it is only by leveraging private sector capital and unleashing thepower of the markets to boost investment in green technology and pollution reducing projects thatthe challenges of climate change can be met.

India is very well placed to be at the forefront of this drive to harness private sector expertise and buildthe world’s post-carbon economy. It has great potential for technological developments which willenable India’s citizens to leap-frog the wasteful development model of the West. There are a widerange of choices for the future and these choices could bring huge opportunities for businesses.

In order to exploit the potential role of the private sector in fuelling low carbon growth, policy makersmust establish a clear and consistent regulatory environment around all aspects of climate changemitigation. Before investors part with funds for clean technologies such as renewable energy, theymust be confident they are basing investment decisions within a secure regulatory framework. Thecost of capital is related to risk and politicians must make it a priority to minimise risk for investors bycreating policy stability. It is also necessary to examine how expertise in the financial markets can beused to develop innovative financing techniques. This is an area where I believe the City of Londoncan work closely in partnership with India by linking India’s drive and entrepreneurial flair with theCity’s expertise as a financial innovator and as a centre for carbon financing.

This Resource Guide has been produced following the recommendation of the City of LondonAdvisory Council for India that low carbon investment become one of the City of London’s priorityareas of focus in India. It is targeted at Indian businesses, with the aim of providing an overview oflow carbon development in the Indian context; the mechanisms available to harness investmentdomestically and from abroad in the low carbon area; and an overview of the role that the nationaland state governments are playing in enabling an investment-friendly environment. It providesinformation and succinct introductions and references to sources of assistance in financing projectsand services for Indian businesses.

I hope that you find this Resource Guide useful and informative.

Stuart FraserPolicy ChairmanCity of London

Resource Guide for Indian Business: Low Carbon Investment in IndiaIV

About this Guide

Responding to the challenges of climate change, such as managing greenhouse gas (GHG)emissions, water consumption and waste, are national priorities that present major investmentopportunities in the coming years. India’s path to further growth and prosperity and a low carboneconomy will require the active involvement of business and financial institutions.

This Resource Guide stems from a City of London roundtable discussion, ‘Financing a Low CarbonEconomy for India’, moderated by Naina Lal Kidwai, Group Chairperson, HSBC India on 30 September2009. The roundtable brought together Indian academic and business leaders with UK carbon marketexperts to discuss opportunities and existing roadblocks to low carbon investment in India (includingcarbon financing for industrial projects and carbon neutral infrastructure projects).

At the roundtable, participants discussed the issue that Indian companies are not seeking orreceiving investment to reduce their carbon emissions to the extent of their counterparts in Chinaor South East Asia. In 2008, clean tech investments into India decreased due to the shortinvestment horizons. The lack of low carbon investment from domestic Indian banks in the SMEsector was also noted. Participants agreed that getting to a stage where investors can invest inlarger projects would be a very valuable.

This resource guide is targeted at Indian corporates and aims to provide detail of the mechanismsavailable to harness investment domestically and from abroad in the low carbon area. It aims toprovide:

• An understanding of low carbon development in the Indian context, explaining strategic andregulatory developments such as the National Action Plan for Climate Change (NAPCC).

• Useful information and links for businesses in India who aspire to be part of this clean revolutionand require a quick reference to relevant issues.

• Succinct introductions and links to assistance in financing projects and services (particularlyrenewable energy and energy efficiency).

• An overview of the role that the national and state governments are playing in enabling aninvestment-friendly environment.

• Case-studies of national and international projects.

Resource Guide for Indian Business: Low Carbon Investment in India V

About the City of London

The City of London has long recognised the critical importance of India to the UK based financialservices industry, and is committed to making the best possible use of existing cultural, linguistic,political and trade relationships. In order to strengthen direct links with India, the City of Londonestablished the City Office in Mumbai in 2007. The City Office in Mumbai works to further strengthentrading and investment links in both directions between India and the UK through the provision ofworld class financial services and products.

Guidance to the City Office is provided by the City of London India Advisory Council. The Council ischaired by Mrs. Naina Lal Kidwai (Group Chairperson, HSBC India). Other members of the Councilare: Mr. Mukesh Ambani (Chairman of Reliance), Ms. Zia Mody (Senior Partner of AZB & Partners),Mr. Nasser Munjee (Chairman of Development Credit Bank), Mr. Deepak Parekh (Chairman of theHDFC Group), Dr. Ajay Shah (Senior Fellow, NIPFP), Mr. Jairaj Purandare (Executive Director, PWC),Mr. Jamshyd Godrej (Chairman of Godrej & Boyce Mfg. Co. Ltd), Mr. Neeraj Swaroop (CEO of StandardChartered Bank, India), Mr. Ajay Srinivasan (CEO-Financial Services, Aditya Birla Group) andMr. Shardul Shroff (Managing Partner of Amarchand & Mangaldas & Suresh A Shroff & Co.)

In 2009, climate change and low carbon development were adopted by the City of London AdvisoryCouncil for India as one of the priority areas for engagement by the City Office in Mumbai and the Cityof London. The City of London has been at the forefront of action on climate change for the last fifteenyears - championing the uptake of renewable energy, pioneering the development of carbon emissionsmarkets and becoming the first public body to develop a climate adaptation strategy. The City is theworld’s leading international financial and business centre and the leading international centre forcarbon finance, capable of providing the necessary finance for that investment and of managing thenew risks that go with it.

Contacts:

Eva George Anita NandiChina and India Business Development Manager City RepresentativeEconomic Development Office, City of London City Office in MumbaiPO Box 270, Guildhall, DBS House, Prescott Road,London, EC2P 2EJ Fort, Mumbai, 400 001UK IndiaTel +44 (0)20 7332 1565 Tel +91 22 664527244Email: [email protected] Email: [email protected]

Resource Guide for Indian Business: Low Carbon Investment in IndiaVI

Acknowledgements & Consultations

We thank the following persons for their contributions:

Dr. Anvita Arora (CEO, iTrans Pvt. Ltd, Indian Institute of Technology, New Delhi),Ms. Seema Arora (Principal Councillor & Head, CII-ITC Centre for Excellence in SustainableDevelopment), Dr. Bharat Bhargava (Director, Ministry of New and Renewable Technology - MNRE),Ms. Vandana Bhansali (Associate Vice President - Corporate Sustainability, HSBC India), Mr. UnmeshBrahme (Senior Vice President, HSBC India), Mr. Gavin English (Managing Director, WSPimc),Mr. Richard Folland (Managing Director, Climate Strategies), Mr. Vinod Kala (Founder Director,Emergent Ventures India), Mr. S Kanchan (Vice President - Finance & Accounting, Kalpan Hydro),Dr. V K Kaul (General Manager, Solar Photovoltaic team, Central Electronics Limited),Ms. Ritu Kumar (Senior Advisor – Environment, Social & Governance, Actis), Dr. Sameer Maithel(Director, Greentech), Mr. R Miglani (Regional Climate Change Specialist, International FinanceCorporation), Mr. Shishir Athale, (Director, Sudnya Industrial Services Pvt. Ltd.), Mr. M Parshad(Director, Agriculture Insurance of India Ltd.), Mr. K S Popli (Director-Technical, Indian RenewableEnergy Development Agency Ltd. - IREDA), Mr. Andrew Reicher (Programme Manager – PrivateInfrastructure Development Group), Mr. Nick Robins (Head of Climate Change Centre, HSBC),Dr. Shruti Shil (Business Resources Associate, Jain Irrigation Systems ltd.), Ms. Richa Shukla(Project Manager, Willis); Mr. Ajay Srinivasan (CEO-Financial Services, Aditya Birla Group) andMr. Chris Vermont (GuarantCo).

Disclaimer: This guide is for information purposes only and does not offer financial advice. Theinformation herein has been obtained from sources, which the authors and publishers believe to bereliable. But the authors and publishers do not guarantee its accuracy or completeness. Readers areadvised to verify the information from independent sources. The authors and publishers make norepresentation or warranty, express or implied, concerning the fairness, accuracy or completeness ofthe information and opinions contained herein. All opinions expressed herein are based on thejudgement at the time of this report and are subject to change without notice due to economic, political,industry and firm-specific factors. The authors, publishers and anyone associated with this report arenot liable for any unintended errors or omissions and any opinions expressed hereon. The authorsand publishers are not liable for the consequences of the use of information in this guide.

The guide has been researched and written by Ripin Kalra (lead author), Ashutosh Pandey,Jeremy Doyle, Aloke Barnwal and Gaurav Sarup.

WSP international management consulting ltd.

WSP House,70, Chancery Lane,London,WC2A [email protected]

Resource Guide for Indian Business: Low Carbon Investment in India VII

Executive Summary

Low carbon development and business opportunities

Climate change is a major global systemic risk, and the response to this issue has the potential to beone of the greatest business opportunities of this century. The scientific evidence on the causes andfuture impacts of climate change is strengthening all the time. Human activity is increasing the stocksof greenhouse gases in the atmosphere, which is warming the planet.

“Low carbon development” or “climate change mitigation”1 are terms used to describe the transitiontowards options that reduce human interference with the climate system. This means reducing therelease of greenhouse gases into the atmosphere from chemicals or fossil fuel use. It also involvesreducing emissions from changes in land use such as deforestation. In addition to low carbondevelopment, “adaptation” to climate change is also required; this means adjusting to the widespreadimplications of future climate change, including changes in seasonal weather patterns and the frequencyor intensity of natural disasters.

The Indian business environment is changing quickly

Primary energy demand in India is expected to more than double by 2030, and coal and oil currentlyaccount for over 90% of India’s energy consumption. At a national level, the Government of India isimplementing increasingly wide- reaching regulations and incentives to reduce emissions and ispreparing adaptation plans. Such measures, including the far-reaching National Action Plan on ClimateChange (NAPCC), are a part of India’s international commitments on climate change. They alsoreflect India’s need to secure the ability to create increased economic activity to deliver prosperity andgrowth. Regulations and incentives to promote renewable energy and energy efficiency are wellunderway in tandem with the Jawaharlal Nehru National Solar Mission (JNNSM) and National Missionfor Enhanced Energy Efficiency (NMEEE).

The resulting business opportunities are considerable. India aims to increase the share of gridconnected renewable energy to 10% by 2012. 20GW of solar power generation is planned by 2022 aspart of the JNNSM. There is also a substantial effort for off-grid energy solutions for India’s rural andremote areas. The NMEEE aims to improve energy efficiency in priority industries such as power,cement, fertiliser, aluminium, iron & steel, railways, pulp & paper and textiles. The ‘energy conservationbuilding code’ (ECBC) has been developed for commercial buildings. New measures in the IndiaUnion Budget 2010-11 include a new National Clean Energy Fund to support clean energy. This willbe funded by a coal levy, raising 2500 crores/annum (USD500m/annum). The government has plannedRenewable Energy Certificates (RECs) and Energy Saving Certificates (ESCerts) to sustain marketbased mechanisms.

Such measures can be expected to be maintained or strengthened in coming years and will presentgrowth potential for many sectors, particularly energy, transport, industry, agriculture and forestry.Companies that manage climate change risks and exploit new opportunities will generate a competitiveadvantage over rivals.

Indian industry has already developed ways to help bypass the resource intensive growth path ofdeveloped nations. There is now good evidence that Indian companies are reducing emissions andadapting to the impacts of climate change. More Indian companies are undertaking focused efforts tomanage their carbon footprints, with top management support. Such information is increasinglyimportant in influencing the decision-making of financial institutions.

Resource Guide for Indian Business: Low Carbon Investment in IndiaVIII

National and international financing is increasingly focussing on low carbon energy

Now that clean technology is an investment category in its own right, public financial institutions andbanks, private equity and venture capital funds are emerging as significant investors in Indian cleantechnology companies. The International Financial Institutions such as International FinanceCorporation (IFC) and the Asian Development Bank (ADB) are also shifting their investment policiestowards low carbon solutions, bringing added interest and resources to the sector. Carbon financealso provides a way to monetise the greenhouse gas benefits of clean projects and this has been asignificant catalyst in India. Clarity is needed around the rules for an international carbon marketbeyond the Kyoto commitment period (2012). This is under negotiation at UN level, with discussionsin Mexico in November 2010.

The private sector in India has implemented low carbon projects using a range of investment sources:self-financing, private equity investment, venture capital and where available, carbon finance. Thenew impetus from the public sector reflects the considerable success to date and sets a high level ofambition for further accelerating low carbon investment in India.

1 Terms used interchangeably for the purposes of this document.

Resource Guide for Indian Business: Low Carbon Investment in India IX

Glossary & Monetary Terms

BEE – Bureau of Energy Efficiency

CDM – Clean Development Mechanism

CEA – Central Electricity Authority

CER – Certified Emission Reduction

CERC – Central Electricity Regulatory Commission

ESCerts – Energy Saving Certificates

ESCo – Energy Services Company

GHG – Greenhouse Gases

IEX – Indian Energy Exchange

Rs – Indian National Rupee

IREDA – Indian Renewable Energy Development Agency

IRR – Internal Rate of Return

MNRE – Ministry of New & Renewable Energy

NAPCC – National Action Plan on Climate Change

NBFC – Non-banking Financial Companies

NMEEE – National Mission on Enhanced Energy Efficiency

JNNSM – Jawaharlal Nehru National Solar Mission

REC – Renewable Energy Certificates

SEB – State Electricity Board

SERC – State Electricity Regulatory Commission

USD – United States Dollar

tCO2e – Tons of carbon dioxide equivalents

Exchange Rates and Monetary terms

Rs = Indian National Rupee

USD = US Dollar

Commonly used monetary terms in India are:

Crore = 100,00,000

Lakh = 1,00,000

Million = 1,000,000

1 crore = 10 Million

1 lakh = 0.1 Million

The following exchange rate has been used for this guide

1USD = Rs 45Rs 1 crore = 0.2 Million USD

Rs 10 crores = 2 Million USD

Rs 100 crores = 20 Million USD

Resource Guide for Indian Business: Low Carbon Investment in India 1

1. Introduction

This part of the guide defines ‘Low Carbon Development’ in the Indian context. Business in manysectors such as finance, energy, transport, agriculture and retail all face important opportunities andrisks from climate change. The Indian government has ambitious objectives, linked to internationalclimate change commitments, but action also aims to secure domestic growth. Much of the Indiangovernment’s plans are laid out in the recently (2008) released National Action Plan for ClimateChange (NAPCC).

What is low carbon development?

“Low carbon development” and “climate change mitigation” are generic terms to indicate the transitiontowards development options that reduce human interference with the climate system. This meansreducing the release of greenhouse gases into the atmosphere from chemicals and fossil fuels. It alsoincludes emission reductions from changes in land use, such as deforestation and more energyintensive methods of agriculture. Important sectors and examples are provided below.

TABLE 1.1 Sectors and examples of low carbon development

Sector Sub-sector Examples

Renewable energy Solar, wind, biomass, hydro and geothermal.

Low carbon conventional Nuclear, coal plant improvements,

power bio-fuels, coal bed methane, landfillEnergy methane, natural gas.

Industrial energy efficiency, waste heatEnergy efficiency recovery, energy-efficient lighting, green

buildings, energy labelling

Chemicals Destruction of hydrofluorocarbon gases.

IndustryCement, steel, paper, fertiliser Reduction in fossil fuel use,

alternative fuels.

Resource Carbon capture Sequestration (industrial and

management natural sinks).

Waste management Reduction, reuse, recycling, waste to energy.

Sustainable agriculture Land use, research, innovation,Agriculture and new technology.

forestryAfforestation/reforestation Management, research, innovation,

new technology.

Vehicles Electric, hybrid and efficient vehicles,

Transport non-motorised vehicles.

Public transportation Congestion charging, urban planning,metro, bus, light rail, integrated transport.

“Adaptation” to climate change is defined as action that is taken to adjust to the widespread implicationsof future climate change, including changes in seasonal weather patterns, variability and the frequencyor intensity of natural disasters. Examples may include disaster preparedness, coastal defenses,flood protection and the development of drought-resistant seeds.

Resource Guide for Indian Business: Low Carbon Investment in India2

Climate change overview

The recent UN Framework Convention on Climate Change meeting at Copenhagen in December 2009resulted in the ‘Copenhagen Accord.’ This reemphasised that ‘climate change is one of the greatestchallenges of our time.’ It agreed that it is necessary to prevent dangerous interference with the climatesystem through deep reductions in global emissions of greenhouse gases (GHGs), with the aim ofkeeping the rise in global temperature to below 20C. It also called for urgent action to adapt to the climatechange which is already occurring. Importantly, developed countries committed jointly to mobiliseUSD 100 billion [Rs 450,000 crores] a year by 2020 to address the needs of developing countries.

In some cases there may be a fundamental link for businesses such as those in the energy, forestmanagement, food and agricultural sectors. Others may feel the impact indirectly, such as the financialservices and engineering sectors. It is important for institutions of all types to be aware of possibleimpacts on their operations.

Figure 1.1: Impacts of temperature rises

Source: Stern N (2007) ‘The economics of climate change: The Stern Review’.

India is one of the countries predicted to be most exposed to climate change impacts. Temperature risesof 20C and beyond will have major consequences for human health, food production, water availabilityand ecosystems. Human settlements and economic activity in coastal regions are at the highest risk.

Surface air temperatures in India have been increasing at the rate of 0.40C per hundred years,particularly during the post-monsoon and winter seasons. Due to climate change, winter temperaturesare forecasted to increase by as much as 3.20C by 2050, and 4.50C by 2080. Summer temperatureswill increase by 2.20C by 2050, and 3.20C by 2080. It is estimated that in India up to 3% of GDP isalready spent annually responding to the adverse impacts of a changing climate.

Delay in current cropping schedule

Increasing population under water stress

Increased water runoffDecreasing quality of xxxxxxand ground water resources

Tropical forest gradually replacedby tropical savannas and shrub lands

Blodiversity loss

Loss of small slands

Coral bleaching

50C40C30C20C10C

Agriculture

WaterResources

ForestryandEcosystem

Health

ExtremeWeatherEvents

Falling crop yields

Loss of agricultural landsdue to seal level rise

Increasing potential of cropyields in selected countries

Increased respiratory and cardiovasculardiseases due to thermal stress

Outbreak of ventro born diseases (malaria and dengue)

Increased frequency and intensity of extreme weather events(heat waves and drought, flooding and tropical cyclones)


As the consensus regarding a low carbon future is emerging globally, including the “green recovery”economic stimulus packages introduced to combat the global financial crisis, there has been a significantfocus on economic activity that reduces greenhouse gas emissions, manages water resources carefullyand eliminates waste. The maturing of clean technologies means that many projects are becomingfinancially attractive for investors. Across the globe businesses are utilising their creativity and expertiseto address the challenge ahead to become a part of the solution.

Low carbon development in the Indian context

India is the world’s fifth largest greenhouse gas emitter. However, per capita emissions are a quarterof the global average. Much of the carbon emissions in India come from energy consumption in thebuildings, transport, industry and agriculture sectors, as around 90% of Indian primary energy supplycomes from coal and oil. The above sectors are growing rapidly and demand could more than doubleby 2030. Renewable and or clean energy tend to be the focus areas of many investment funds operatingin India, but opportunities in water and waste management companies are also emerging. Carbonfinance (see box below) has also played its role in progressing low carbon development particularly inrenewable energy, waste management, fuel-switching and energy efficiency.

Carbon Finance: Kyoto Protocol And Mexico (Cop16, 2010)

Carbon finance refers to investments in projects that reduce emissions of greenhousegases and creation (or origination) of financial instruments that can be traded in carbonmarkets globally.

The Clean Development Mechanism (CDM), the most active carbon financemechanism for India, was established under the Kyoto Protocol2 in 1997. Essentially,it allows developing nations to sell “Certified Emissions Reductions” (CER) creditsto developed countries. This is done through projects where cleaner technologies(for example electricity from a wind farm) replace higher emissions options (forexample electricity from a coal-fired power station). The price of credits is determinedthrough trading in the international market. India is the second most active of all theeligible countries with the market in India worth an estimated at 5 billion USD3 [Rs22,500 crores].

Market based mechanisms (such as CDM) that emerged from the Kyoto Protocol aredue to expire in 2012 unless further agreement is reached on their future. This isdependent on the outcome of ongoing talks that will culminate in 2010 at the 16th

Conference of Parties - COP16 (Mexico November 2010).

Renewable energy and energy efficiency are already emerging as mature sectors in India3 .Industry segments are shown in figure 1.2 below, including future markets beyond 2012. Thewider low carbon industry in India, inclusive of all core environmental services, supply chaincomponents and the reclassified conventional sectors is pegged4 at aroundUSD 294.2 billion [Rs 1,323,900 crores].

2 Kyoto Protocol: An agreement negotiated in 1997 that commits developed countries to binding greenhouse gas emissions targets butprovides flexible market based mechanisms such as Clean Development Mechanism (CDM) to minimise the cost to participants to meettheir targets. 39 countries within European Union, Economies in Transition and OECD (known as Annexe B countries) agreed to bindingcommitments on the emissions from 1990 to 2008-2012.

3 Renewable energy industry turnover in India was Rs 2,250 crore in 2009. UN (2009), ‘World economic and social survey’.4 Sharp J (2009), Low Carbon environmental goods and services: an industry analysis’, BERR, UK.


Figure 1.2: Anticipated investment in low carbon industry sectors in India.

Source: Robins N et al, (2008) ‘Wide spectrum of choices’, HSBC

In response to a recent survey, Indian businesses identified a wide range of opportunities and risksassociated with climate change when considering their financial health and future prospects. Theseresponses are presented by sector in table 1.2 below. The information presented provides importantinsights into the views of some of the largest companies in India. Further discussion of drivers for lowcarbon investment is given in Chapters 3 and 4 of this report.

Table 1.2 Indian businesses and their perceptionsof opportunities and risk from climate change

Sectors Opportunities Risks

Carbon finance; new markets in electric or Fuel efficiency compliance.hybrid vehicles, for example. Renewable energy targets.Capital gains. Stricter regulations (Euro iv).Technical and product upgrades to Physical impacts of

Automobile and compete internationally. climate changeComponents Explore alternative fuels. Shortages of raw material.

Brand reputation. Supply-demand imbalanceEnergy efficiency. Cost to consumer.Improved process and resourcemanagement.

Low Carbon Industry Segment Investment (USD Billion)40.00

35.00

30.00

25.00

20.00

15.00

10.00

5.00

0.00

2012-17 2008-12

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Increase in demand for monetary Increased operating expensesassistance for compliance. from Energy Conservation

Banks and Promote sustainable development and Building Code (ECBC).Diversified reduce financial risk. Credit risk of lending to highFinancials Carbon finance. energy consumers.

New products for example High vulnerability to physical risks.catastrophe bonds. Market and reputational risks

Cost-cutting and profit making opportunities Compliance with regulations.from new regulations. Physical damage losses.

Capital Goods5 New market opportunities. Shortage of raw materialand fuel?Rise in costs and disruptionin production.

Carbon finance. Physical risks from naturalNew products such as alternative fuels. hazards

Energy Efficiency savings. Uncertain regulatory futureCompliance withenvironmental policy.

Food, Beverage Resource efficiency. Supply chains at risk fromand Tobacco Positive reputation benefits. physical consequences of

Carbon finance. climate change.

Developing and patenting new technology Future binding regulation.

Materials6 for the international market. Physical threats ofCarbon finance. climate change.Demand for new and high-quality materials. Security of supply (water).Reconstruction opportunities fromphysical losses.Demand for electricity conductors.

Retailing Savings in energy use. Energy security.?Loss in business from physical risks.

Software and Operational cost reduction. Uncertain regulatory future.Services Sustainability products and services. Physical risk damage

to operations?Health risks to workforce.Higher overheads.

Technology and Solution for saving energy and Regulatory, physical andEquipment reducing emissions. market risks?

Industrial information technology. Carbon taxes.Energy saving products.

Source: Carbon Disclosure Project, 2009 7

Sectors Opportunities Risks

5 The ‘capital goods’ sector (for the purposes of this report) include cement, construction and engineering, industrial machinery, industrialproducts and services as well as renewables.

6 The ‘materials sector’ includes Aluminium, cement, chemicals and diversified chemicals, metals and mining and steel.7 The Carbon Disclosure Project is an independent not-for-profit organisation holding the largest database of primary corporate climate

change information in the world. www.cdproject.net


Overview of the National Action Plan on Climate Change

On 30 June 2008 the Indian Government announced the National Action Plan on Climate Change(NAPCC). The plan identifies eight core “national missions” running through to 2017. The plan“identifies measures that promote our development objectives while also yielding co-benefitsfor addressing climate change effectively.” It notes that these national measures will be moresuccessful with assistance from developed countries, and pledges that India’s per capitaemissions will at no point exceed that of developed countries even as India pursues itsdevelopment objectives.

Table 1.3 National Action Plan for Climate Change (NAPCC)

Mission Description and status

The NAPCC aims to promote the development and use of solarenergy for power generation and other uses with the ultimateobjective of making solar competitive with fossil-based energyoptions. The plan includes specific goals for:

– increasing use of solar thermal technologies in urban areas,industry, and commercial establishments;

1. National Solar Mission – increasing production of photovoltaics to 1000 MW/year; and

– deploying at least 1000 MW of solar thermal powergeneration.

India will also: establish a solar research centre, increaseinternational collaboration on technology development, strengthendomestic manufacturing capacity and increase government fundingand international support.

Current initiatives are expected to yield savings of 10,000 MW by2012. Building on the Energy Conservation Act 2001, the planrecommends:– Mandating specific energy consumption decreases in large

2. National Mission for energy-consuming industries, with a system for companies toEnhanced Energy Efficiency trade energy-savings certificates;

– Energy incentives, including reduced taxes on energy-efficientappliances;

– Financing for public-private partnerships to reduce energyconsumption through demand-side management programs inmunicipal buildings and the agricultural sector.

To promote energy efficiency as a core component of urban planning, the plan calls for:– Extending the existing Energy Conservation Building Code;– A greater emphasis on urban waste management and recycling,

3. National Mission on including power production from waste; Sustainable Habitat – Strengthening the enforcement of automotive fuel economy

standards and using pricing measures to encourage thepurchase of efficient vehicles; and

– Incentives for the use of public transportation.


4. National Water Mission With water scarcity projected to worsen as a result of climatechange, the plan sets a goal of a 20% improvement in water useefficiency through pricing and other measures.

5. National Mission for The plan aims to conserve biodiversity, forest cover, and otherSustaining the ecological values in the Himalayan region, where glaciers that areHimalayan Ecosystem a major source of India’s water supply are projected to recede as a

result of global warming.

6. National Mission for a Goals include the forestation of 6 million hectares of degradedGreen India forest lands and expanding forest cover from 23% to 33% of

India’s territory.

7. National Mission for The plan aims to support climate adaptation in agricultureSustainable Agriculture through the development of climate-resilient crops, expansion of

weather insurance mechanisms, and agricultural practices.

8. National Mission on To gain a better understanding of climate science, impacts andStrategic Knowledge for challenges, the plan envisions a new Climate Science ResearchClimate Change Fund, improved climate modelling, and increased international

collaboration. It also encourages private sector initiatives to developadaptation and mitigation technologies through venture capital funds.

Power Generation: The government is mandating the retirementof inefficient coal-fired power plants and supporting theresearch and development of coal sector technology such as‘Integrated Gassification Combined Cycle’ (IGCC) and‘supercritical technologies’.

Other Renewable Energy: Under the Electricity Act 2003 and the NationalTariff Policy 2006, the central and the state electricity regulatorycommissions must purchase a certain % of grid-based power fromrenewable sources.

Energy Efficiency: Under the Energy Conservation Act 2001, largeenergy-consuming industries are required to undertake energyaudits and an energy-labelling program for appliances has beenintroduced.

Sources: NAPCC (2008) and (IFC/ Kumar & Siddy, 2009)

Ministries with lead responsibility for each of the missions are directed to develop objectives,implementation strategies, timelines and monitoring and evaluation criteria, to be submitted to thePrime Minister’s Council on Climate Change. The Council will also be responsible for periodicallyreviewing and reporting on each mission’s progress.

Mission Description and status


2. An Enabling Environment For Low Carbon Development

This chapter of the guide outlines the priority areas within the NAPCC for which laws and regulatorymechanisms have been rolled out to ensure progress and enable an environment conducive toinvestment. Individual states are taking the lead from the NAPCC and formulating state-level actionplans. Government regulations require companies to undertake adaptation and mitigation measures,which levels the playing field by making action mandatory.

The Government of India has advised the state governments to produce individual state-level plansin response to the NAPCC issued in 2008. Many states are making progress towards this objective.Renewable energy and the power sector, energy efficiency and strategic knowledge for climatechange have emerged as priority missions and are well underway. Gujarat state for example, launcheda Solar Power Policy on January 6, with an operating period up to March 31 2014, for projectsbetween 5 and 500MW and exemptions from paying the electricity duty on solar power sent to thegrid or used on site. Delhi has been the first to publish a state-level response to each of the missionswithin the NAPCC.

Acceleration of the private sector’s role in low carbon development in India requires a favourable andstable policy environment. This should be perceived as low risk and attractive to investors, both domesticand international. The priority missions within the NAPCC show a number of characteristics thatmake them attractive to investors:

• They can meet an essential demand for India’s future prosperity (i.e. energy).

• They encourage tried and tested technologies, thus investments are relatively low risk.

• The government has provided a number of incentives to investors and businesses.8

• They have the potential to attract carbon finance and generate CERs (Certified EmissionsReductions) tradable in the international market, at least until 2012.

• They can have a high impact on improving resource management within strategic industries suchas power, cement, fertilisers, metals (aluminium, iron and steel), railways, pulp and paper andtextiles. This will result in cost savings and a better reputation for these industries.

The table below shows key regulations and programmes that are in force to deliver the priority missionsrelated to energy efficiency and renewable energy. The national government has shown consistentprogress towards providing a stable platform for business growth in this area.

Energy efficiency related policies and measures

Energy Conservation (EC) Act 2001. The act was passed by the Indian Parliament in 2001.The Act created the Bureau of Energy Efficiency (BEE) to implement the provisions of this Act.The provisions of this act are reflected in the programmes of the National Mission for EnhancedEnergy Efficiency (NMEEE) as described below.

Making the EC Act operational, by strengthening the institutional capacity of StateDesignated Agencies (SDAs). The scheme seeks to build the institutional capacity of the newlycreated SDAs to perform their regulatory, enforcement and facilitative functions in the respectivestates.

8 See Chapter 3 for details of Government incentives for Renewable Energy and Energy Efficiency Sectors.


Key programmes in the National Mission for Enhanced Energy Efficiency (NMEEE)implemented by the Bureau of Energy Efficiency (BEE)

1. Perform Achieve and Trade (PAT) The PAT scheme is a market-based mechanism to enhanceenergy efficiency in the ‘Designated Consumers’ (large energy-intensive industries andfacilities - power, cement, fertiliser, aluminium, iron and steel, railways, pulp and paper andtextiles). The resulting savings can be traded as Energy Savings Certificates (ESCerts),described later in this document.

For example: Enhancing the efficiency of power plants

The Electricity Regulatory Commissions9 have linked tariffs to efficiency enhancement suchas the use of more-efficient ‘super critical’ technology in coal-powered plants. This providesan incentive for renovation and modernisation.

2. Market Transformation for Energy Efficiency (MTEE)

Making energy-efficient products more affordable and mandatory in some designated sectors(mainly industrial). This target is to be achieved by Demand Side Management (DSM)10

measures, supported by carbon finance - CDM financing wherever possible. The initiativeincludes the following activities:

2.1 Programme-based (programmatic) CDM: BEE is exploring undertaking CDM Programmeof Activities within the following sectors: lighting (Bachat Lamp Yojana - replacing incandescentbulbs with energy efficient ‘Compact Fluorescent Lamps’ (CFLs), municipal DSM, agriculturalDSM, the small and medium enterprises (SME) sector, the commercial building sector and fordistribution transformers.

2.2 Standards and labelling: Step by step notification for mandatory labelling of equipment andappliance for domestic sectors, hotel equipment, office equipment, industrial products andtransport equipment.

2.3 The Energy Conservation Building Code (ECBC) 2007: Sets minimum energyperformance standards for new commercial buildings. Energy audits are mandated for largeindustrial consumers.

2.4 Public Procurement: Amendment of procurement rules to explicitly mandate procurement ofenergy efficient products for all public entities. For example, solar thermal equipment for waterheating in public buildings.

Renewable energy (RE) related policies and measures

The Government of India has set a target for at least 10% of grid-connected power to come fromrenewable sources by 2012.

Electricity Act (EA) 2003: Requirement for states to set RE targets

Section 86 of the EA 2003 promotes renewable energy by ensuring grid connectivity and sale forrenewable electricity. The section creates a demand for renewable energy by requiring StateElectricity Regulatory Commissions (SERCs) to specify a percentage of renewable energy to bepurchased within the area of a distribution licensee.

9 For more information on ‘Electricity Regulatory Commissions’ see www.cercind.gov.in10 DSM begins with an audit of the baseline energy use and delivers energy savings by applying technology, behavioural measures and

management practices.


National Electricity Policy (NEP) 2005: Private sector participation

Section 5.2.20 of India’s National Electricity Policy promotes private participation in renewableenergy. “Feasible potential of non-conventional energy resources, mainly small hydro, andwind and bio-mass would also need to be exploited fully to create additional power generationcapacity. With a view to increase the overall share of non-conventional energy sources in theelectricity mix, efforts will be made to encourage private sector participation through suitablepromotional measures.”

National Electricity Policy (NEP) 2005: Reducing the costs of renewable energy

Section 5.12.1 of the policy targets the reduction in capital costs of renewable energy technologiesthrough competition.

National Electricity Policy (NEP) 2005: Preferential tariffs

Section 5.12.2 of the policy states that SERCs should specify appropriate tariffs in order to promoterenewable energy (until non-conventional technologies can compete within the competitive biddingsystem), specifying percentages that progressively increase the share of electricity generatedfrom renewable sources.

Industrial policy for renewable energy

• Industrial clearances are not required to set up a company in the renewable energy industry.

• No clearance is required from the Central Electricity Authority (CEA) for power generationprojects up to Rs 100 crores.

• A ten-year tax holiday is allowed for RE generation projects.

• Soft loans are available through IREDA for RE equipment manufacturing.

• Private sector companies can set up enterprises to operate as licensee or powergenerating companies.

• A customs duty concession is available for RE spares and equipment, including those formachinery required for renovation and modernisation of power plants.

Foreign investment policy for renewable energy

• Foreign investors can enter into a joint venture with an Indian partner for financial and/or technicalcollaboration and for setting up RE-based power generation projects.

• 100% foreign investment as equity is permissible with the approval of the Foreign InvestmentPromotion Board (FIPB).

• The government allows 100% foreign direct investment (FDI) in the renewable energy sectorand has put in place conducive policies to attract foreign companies in the sector.

Solar Cities program in India

The government of India plans to develop 60 solar cities during the eleventh Five Year Plan(2007-12), to both meet the increasing electricity demand of its cities and promote the growinguse of renewable energies. Commercially viable technology, like solar thermal heating systems,will therefore play a key role in meeting this target. It will be especially useful in the “greenbuildings” that the government wants to promote on a large scale.


3. Drivers for Private Sector Engagement

This chapter of the guide describes in further detail the key drivers for the private sector to becomefurther involved in and raise finance for low carbon development.

3.1 Rapid economic growth and demand for power

Indian economic growth is contributing to an ever increasing demand-supply gap in electricity production(likely to increase to 17% by 2017, despite annual power capacity growth at 10%). The current andprojected gap will drive investments in the renewable energy sector. At present, more than 90% ofIndia’s energy needs are met through coal and crude oil. Consequently, India’s carbon emissions havegrown by 65% over the past five years (the second highest growth worldwide, only behind China).

According to estimates by the Integrated Energy Policy Committee of the Planning Commission,meeting the projected GDP growth of 8% per annum by 2031-2032 will require 1,836 Mtoe (milliontonnes of oil equivalent), a four-fold increase over the requirements in 2003-04. Commercial energyrequirements are expected to be around 1,651Mtoe, a five-fold increase from 2003-04 levels11 . Primaryenergy demand in India is expected to more than double by 2030, growing by an average of 3.6% ayear. India’s rapidly growing incomes have also fuelled a demand for transport making it the fastestgrowing sector in India. This rapid increase in overall demand for energy has led to an increasingfocus on scaling-up low carbon processes (renewable energy and energy efficiency).

The Rapidly Growing Transport Sector

With climate change and peak oil becoming two of the major challenges of development today,transport and its contribution to energy consumption and carbon dioxide emissions, are takingcentre stage. According to the Inter-governmental Panel on climate change (IPCC), transportrelated carbon dioxide emissions are expected to increase 57% worldwide in the period 2005 –2030, and transport in developing countries is going to contribute about 80 % of this increase,both from passenger and freight transport. Most of the current GHG emissions in the transportsector and virtually all the expected growth in emissions come from private cars and trucks.

In India, the National Urban Transport Policy (NUTP) of 2006 clearly outlines the priority thatneeds to be given to public transport and non-motorised modes of transport. The JawaharlalNehru Urban Renewal Mission (JNNURM) takes direction from the NUTP and makes sure thatfunds are released for urban development only if the project caters to and prioritises public andnon-motorised transport (NMT) such as cycle-rickshaws.

Several initiatives have been taken by the Ministry of Urban Development to promote sustainabletransport practices in the country. The Urban Transport Planning schemes allow up to 80% ofcentral assistance to sustainable transport plans at the city level. There are plans to introduce ‘BusRapid Transit Systems’ (BRTS)12 in all the 5 million-plus cities in India. Delhi and Ahmedabadalready have operational systems and the others are following this lead. These corridors are to beintegrated with dedicated paths for non-motorised transport. The sanctioning of 15,260 modern‘Intelligent Transportation System’ (ITS) enabled buses for 61 mission cities has brought organisedpublic transport in as many as 34 cities for the first time.

With the World Bank – Global Environment Facility (GEF)’s supports demonstration projectson NMT, BRTS, Compressed Natural gas (CNG) and bio-diesel are being implemented. At thesame time several initiatives have been taken to build the capacities of the cities with workshops,guidelines and toolkits. There is 100% financial support from the central government for capacity

11 Kaur J et al. (2008) ‘Cleantech venture capital and private equity investments in India’.12 BRTS is a system based on dedicated bus lanes where other traffic is not allowed.


building for cities such as training and workshops. The JNNURM policy document specificallyhighlights the importance of the involvement of the private sector in the the process of urbanrenewal.

Transport-related incentives and subsidies in the 2010-2011 Union Budget:

• A nominal duty of 4% on electric cars and vehicles in order to neutralise the duty paid on theirinputs and components. Some critical parts or sub-assemblies of such vehicles are exemptedfrom basic customs duty and special additional duty. These parts will also enjoy a concessionalCountervailing Duty (CVD) of 4%.

• A concessional excise duty of 4% provided to “soleckshaw”, a product developed by the Councilfor Scientific and Industrial Research (CSIR) to replace manually-operated rickshaws. Keyparts and components will be exempted from customs duty.

• Reduction in duty on bio-fuels usage in the country.

Additionally, the Ministry of New and Renewable Energy (MNRE) provides subsidies of up to33% of the cost of the vehicle for use by institutions and other public organisation. In statessuch as Delhi, electric vehicles attract VAT refunds and exemption from registration fees. Newprojects such as the ‘Delhi Metro’ have been developed with private sector involvement andmake use of technologies that reduce carbon emissions and are also eligible for carbon finance,generating CERs.

3.2 National Action Plan on Climate Change (NAPCC)

As detailed in Chapter 1, the Government of India has planned reductions in carbon intensity of itseconomy by launching the NAPCC. Under the NAPCC, several initiatives have been planned whichwill propel low carbon investments in India as well as better management of water, natural habitatsand human settlements. There are provisions within the NAPCC that oblige Indian businesses as wellas incentivise them to be more energy-efficient and purchase or invest in renewable energy.

The NAPCC will affect a range of Indian businesses; equally, a variety of businesses can contributetowards one or more missions within the NAPCC. The diagram below presents the relationship betweensectors with the potential for low carbon development, associated national programmes and relevantnodal agencies within the government. Indian businesses need to monitor the information emergingfrom these nodal agencies at the national and state level so that they can keep track of their obligationsas well as emerging business opportunities.

TABLE 3.1: Low carbon development sectors, national missions and nodal agencies

Status

MatureMarkets

Industry SectorRenewable Energy

Low CarbonConventionalPower

Examples

a. Nuclear

Relevant Agencies

Ministry of New &Renewable Energy(MNRE).Indian RenewableEnergy DevelopmentAgency (IREDA).

Department ofAtomic Energy.

Drivers of growth

1. Carbon finance – renewableenergy.

2. Jawaharlal Nehru NationalSolar Mission (JNNSM).

3. National Renewable energytrading.

1. Nuclear fuel & technologysupply agreements betweenIndia and other worldnations.


3.3 Government incentives and policies

The government is putting in place incentives, fiscal measures and preferential arrangements suchas feed-in-tariffs to attract investors and enable projects to be commercially viable. The box belowsummarises a range of incentives that are currently on offer to Indian businesses.

The government is also establishing research and innovation centres to meet the need for efficient,scalable and cost-effective technology. Three leading research institutions have been set-up recently:the Centre for Wind Energy Technology (CWET), the Solar Energy Centre (SEC) and the NationalInstitute for Renewable Energy (NIRE) for wind, solar and bio-fuels research respectively.

Status Industry Sector Examples Relevant Agencies Drivers of growth

GrowingMarkets

NascentMarkets

Energy Efficiency

Other CleanTechnologies

Waste management/ResourceEfficiency (Water)

SustainableAgriculture

Forestation/Reforestation

Climate changeinnovativetechnologies fund.

b. Coal PlantImprovements

a. Fuel Switch

a. PublicTransport/Railways

b. Electric/Hybrid/Cleanervehicles

Bureau of EnergyEfficiency (BEE).

Ministry of Power.

Bureau of EnergyEfficiency (BEE).

Ministry of UrbanDevelopment/Ministry ofRailways.

Ministry of New &Renewable Energy(MNRE)

State governments.

Ministry ofAgriculture.

State Governments.

Ministry ofEnvironment &Forests.

1. Energy Efficiency Trading.

1. New Gas Discoveries.

1. National Mission forEnhanced Energy Efficiency– NMEEE.

2. Energy Savings Certificatetrading.

3. Carbon finance – energyefficiency.

1. Jawaharlal Nehru NationalUrban Renewal Mission.

2. National Mission ofSustainable Habitat.

1. Program on BatteryOperated Vehicles, MNRE.

2. Rising fuel prices to driveconsumer towards more fuelefficient vehicles.

1. National Water Mission.2. National Mission for

Sustainable Habitat.

1. National Mission forSustainable Agriculture.

1. National Mission for aGreen India Ecosystem.

2. National Mission forSustaining the HimalayanEcosystem.

1. National Mission onStrategic Knowledge.

Interpreted from discussions and sources of information listed in Appendix 1.


Renewable Energy (RE): Wind, solar, bio-mass, small-hydro – government incentives13

Financial incentives for investing in renewable energy technologies

• Financial incentives from Ministry of New & Renewable Energy (MNRE), such as interest andcapital subsidy.

• Soft loans through:

1) IREDA.

2) Nationalised banks and other financial institutions for identified technologies/systems.

• Fiscal Incentives:

1) Direct taxes – 100% depreciation in the first year of the installation of the project.

a) Accelerated 80% depreciation on specified RE-based devices/projects.

b) Section 80IA – Industrial undertakings set up in any part of India for the generation orgeneration and distribution of power – 100% deduction is allowable from profits andgains for the first five years.

c) Section 115J – exemption from Minimum Alternative Tax (MAT) to industrialundertakings on profits derived from the business of generation and distribution ofelectricity.

d) Section 80JJA – 100% deduction in respect of profit and gains from business ofcollecting and processing bio-degradable wastes.

2) Exemption/reduction in excise duty.

3) Exemption from Central Sales Tax, and customs duty concessions on the import of material,components and equipment used in RE projects.

4) Generation-based incentives for solar and wind power projects.

5) Government policies covering wheeling, banking, buy-back, and third-party sale of power.

6) Other incentives for preparation of feasibility reports and detailed project reports (DPR).

7) Research and development (R&D) subsidy to the tune of 100% of project cost in governmentR&D institutions and 50% in the case of private institutions.

Other incentives

• 12 out of 29 states have implemented quotas for renewable electricity and have introducedpreferential tariffs for renewable electricity.

• Energy buy-back.

• Preferential grid connection.

• Electricity tax exemptions.

• In March 2007 the Indian Government announced a semiconductor policy under its SpecialIncentive Package Scheme (SIPS). According to this policy, the government or its agencies willprovide 20% of the capital expenditure during the first 10 years for semiconductor industries,including manufacturing activities related to solar PV technology located in Special EconomicZones (SEZ), and 25% for industries not located in an SEZ.

13 References:1) BEE http://www.bee-india.nic.in/down.php?f=actionplan.pdf2) Ministry of New & Renewable Energy www.mnes.nic.in/pdf/11th-plan-proposal.pdf3) Deutsche Research: Global Climate Change Policy Tracker: An Investor’s Assessment4) http://india-reports.in/earth-solutions/government-policies-for-renewable-energy-in-india/5) http://www.indiaenergyportal.org/viewPolicies.php?id=PO1&theme=


• A specific incentive scheme for solar power was launched in 2008 and is expected to cost thegovernment Rs 90 crores and bring in private investment to the tune of Rs 1000 crores:

1) Generation based incentive of up to Rs 12 per kilowatt from solar photovoltaic cells.

2) Generation based incentive of Rs 10 per kilowatt for power generated through solar thermalpower plants.

• Specific to Wind Energy

1) 10 year income tax exemption.

2) 80% accelerated depreciation.

3) Sales tax and excise duty exemption.

4) National generation-based scheme for grid-connected power projects under 49 MW,providing an incentive of 0.7 cents per kWh.

Feed-in tariffs

“Feed-in-tariffs are a fixed price for every unit of electricity produced by a renewable source that isusually above the tariff rates of conventional power.”14 The feed-in-tariff gives investors a guaranteedprice for the power produced by them using renewable energy sources. In India, the Ministry of Newand Renewable Energy declared feed-in-tariffs first for solar and wind power projects. These feed-in-tariffs were made available for projects supported by MNRE. This in turn served as a guideline forstates to come up with a preferential tariff for renewable energy projects. This preferential tariff includesa buy back agreement from state electricity boards for the renewable power produced. The preferentialtariffs vary, mainly depending upon the renewable energy source and cost of fuel in different states.

MNRE provides a feed-in-tariff of Rs 0.50 per unit of wind power produced for a period of 10years15 . Project developers are not eligible for accelerated depreciation benefit if they opt for feed-in-tariff. Independent power producers generally prefer for feed-in-tariff whereas corporates investingin wind projects generally prefer accelerated depreciation benefits.

Under the National Solar Mission, the preferential tariff for solar PV is Rs 18.34 for projectscommissioned on or before 31st March 2012 and Rs 15.6 per unit for solar thermal projectscommissioned on or before 31st March 2013.

The preferential tariffs for various renewable energy power sources and states are made availableby state electricity regulatory commissions. These tariffs are revised periodically based on petitionssubmitted by power generators and power distributing companies. The tariffs are made availablein the “tariff orders” section of state electricity regulatory commissions’ website.

Indian Union Budget 2010-11

The 2010/11 Budget proposed additional provisions for clean technology projects in the country.Key features of initiatives planned in the latest Budget are detailed below.

• Formation of National Clean Energy Fund to fund research and innovative clean energy projectsin India. Funding will come from Rs 50/Ton levy of Coal produced and imported in India (approx450-500 Million tons/annum; hence 2500 crores/annum).

• Provision of a concessional customs duty of 5% to machinery, instruments, equipment andappliances required for the initial setting up of photovoltaic and solar thermal power generatingunits and exemption from Central Excise duty. Ground source heat pumps used to tap geo-thermal energy to be exempted from basic customs duty and special additional duty.

• Central Excise duty on LED lights reduced from 8% to 4% at par with Compact Fluorescent Lamps.

14 Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration,and Combined Heat and Power in India compiled by United States Energy Association.

15 Baker and McKenzie (2008)


3.4 Carbon emissions: market-led and voluntary reductions

India is a party to the United Nations Framework Convention for Climate Change (UNFCCC) and soClean Development Mechanism (CDM) projects can be implemented in India and the resulting CertifiedEmissions Reductions (CERs) can be traded globally. The availability of these tradable CERs increasesthe attractiveness and viability of projects for investors.

In terms of numbers of projects, India’s CDM projects are second only to China, facilitating an investmentof Rs 151,397 crores.16 The type of projects in India tend to be smaller in scale, with a low intensity ofCERs generated, and have been in the sectors of energy efficiency, renewable energy, forestry, fuelswitching, industrial processes and municipal solid waste. The potential for CER generated inflow inIndia is estimated by National Clean Development Mechanism Authority (NCDMA) at 25,500 crores[5.73 billion USD] by 2012. However, while this could provide a significant funding stream, the futureof the CDM is not clear beyond 2012, though international efforts are being made to improve the CDMprocess, its impact and secure its future beyond 2012.

Indian companies are increasingly measuring, reporting and managing their GHG emissions. In asurvey carried out as part of the Carbon Disclosure Project17 (CDP), a significant percentage of theresponding companies acknowledged the various risks and opportunities climate change presents.They reported investment into research and innovation to reduce their risks and enable them tocomply with future regulations. Many companies believe that the new regulations such as NationalMission for Enhanced Energy Efficiency (NMEEE) will drive resource efficiency and positively impacton their profit margins. Businesses are also asking how much money can be saved and made fromGHG emissions reductions and other clean development sectors.18 Many companies do not perceiverisks from current climate change related regulations, but do expect tighter regulation in the futurefor polluters and inefficient business processes. There is also a shared understanding that carbonfinance is an attractive proposition and many firms would like the process to be simplified andmade more accessible.

Internal Carbon Abatement Curve (ICAC)

Private businesses which generate significant emissions will increasingly have to decide the bestamong the options to cut, invest or pay. Companies can draw up their internal ICAC which allowsthem to consider which carbon reduction options are cheaper than simply buying allowances in themarket to comply with legislation. This will increase as national and regional programmes such asRECs and ESCerts are rolled out (see Chapter 4).

3.5 Other stimuli

Businesses in multiple sectors have voluntarily chosen to adopt low carbon development strategies.Their motivation has been perceived risk from a changing climate as well as obtaining market advantageby responding early to the growing environmental awareness among consumers and trade partners.Many Indian businesses are part of global supply chains and there is high visibility of environmentalissues among the world’s markets, civil society and consumers. Trade between markets such as EUand India will increasingly be subject to environmental and climate change screening19 .

16 National Clean Development Mechanism Authority (NCDMA).17 The Carbon Disclosure Project is an independent not-for-profit organisation holding the largest database of primary corporate climate

change information in the world. www.cdproject.net18 Carbon disclosure project report (2009).19 Screening denotes an institutional process to evaluate or regulate social, economic, environmental and mitigation outcomes of trade,

projects or programmes. Climate change and energy related directives within the EU have a high impact on how goods and services aresupplied in the EU from within or abroad.


4. Finance for Low Carbon Development

This chapter provides further detail and links to the sources of finance for low carbon development.These are both international and within India. As good practice, Indian businesses should review theirbusiness practices regularly and explore opportunities to draw on investment opportunities, incentivesand the market advantages posed by reducing emissions of GHGs, energy savings and bettermanagement of waste and water. In summary, being green is good for business.

The funding requirements for mitigation, adaptation and environmental technology are enormous. Toillustrate the scale of investment required, the International Energy Agency estimates that nearly35 Trillion USD [Rs 157,500,000 crores] are required globally to finance low carbon or renewable energybetween 2010 and 2030. This investment will help maintain the global temperature rise to 2°C or less.

Current levels of global investment20 in this area are estimated to be 0.18 Trillion USD [Rs 810,000crores] per annum, just a fraction of the required annualised investment. While this is a huge gap,there is also a great deal of global political momentum to drive investment into these areas.

Indian businesses have an ever increasing choice of sources and mechanisms for investment intolow carbon development activity and projects. They can be broadly categorised as follows:

• Conventional finance mechanisms.

• Carbon finance – mainly Clean Development Mechanism (CDM) funding.

• Emerging low carbon mechanisms – Renewable Energy Certificates (RECs), Energy SavingCertificates (ESCerts), Energy Services Companies (ESCos).

• UN, multi-lateral and bi-lateral sources.

• Other relevant mechanisms – government policies and incentives21 , guarantees, insurance.

The following matrix provides an overview of the sources and mechanisms available to Indian businessfor low carbon development. The availability of funding is under constant development to meet thedemands of adaptation and mitigation. However individual project developers need to interact with eachagency closely to understand if the funding mechanism is appropriate for them and available to them.

Table 4.1 Matrix of sources and mechanisms for low carbon development

SOURCES

MARKET(INTERNATIONAL& NATIONAL)

MITIGATION

Actions that result indirect reduction of GreenHouse Gas Emissions.

Conventional finance (debt/equity), carbon finance –Clean DevelopmentMechanism (CDM),voluntary offsets,Renewable EnergyCertificates (RECs), EnergySaving Certificates(ESCerts), Energy ServicesCompanies (ESCos), tradeand customer base.

ADAPTATION

Actions that result in directreduction of risk and lossfrom climate change.

Conventional finance(debt/ equity), insurance,index based insurance.22

RESEARCH &TECHNOLOGY

Activity that is focussed onimproving and scaling-upmitigation and adaptation.

Conventional finance(debt/ equity), carbonfinance - CleanDevelopment Mechanism(CDM), trade andcustomer base.

20 (2009) ‘Financing Major Clean technologies’, TI-UP.21 See Chapters 2 and 3 for details.22 Businesses in nearly all sectors acknowledge physical risk from a changing climate. In the main it poses risk to life, supply-chains and

investment. Agencies such as the Agricultural Corporation of India ltd. - ACI provide index based insurance schemes for agriculture,livestock and a limited number of non-agricultural products. In the non-agricultural sector however, penetration is low and products arenot widely developed. Index based insurance provides payment against an indicator (such as below average rainfall) rather than the lossitself to crop, for instance. Such products are also referred as ‘weather derivatives’.


4.1 Conventional finance mechanisms

Conventional finance mechanisms include mainly debt and equity. Debt is available in India from avery wide range of banking and non-banking institutions, while equity can be negotiated with privateequity or venture capital funds. There are also a number of international commercial institutions providingdebt and equity investment in India. The debt to equity ratio for clean energy projects is normally70:30. However, it varies according to the requirement of each project [see case studies].

Low carbon development is becoming recognised as a distinct category23 by major financing institutionsin India thus opening up access to conventional finance. Currently in India, 24 domestic financeinstitutions (DFIs) are the primary providers of investment (debt or equity) for low carbon development.[See Table 4.2 illustrating some India based providers of commercial and concessional finance].

Indian businesses can potentially also raise investment outside India. This is an area where investmentcan be raised from private equity providers, venture capital funds and social investment funds. Likewise,there are already many international funds providing investment into Indian businesses and low carbondevelopment. However, the potential for such flows into India remains largely untapped.

SOURCES MITIGATION ADAPTATION RESEARCH &TECHNOLOGY

INTERNATIONALINSTITUTIONS (UnitedNations agencies, WorldBank, InternationalFinance Corporation(IFC), AsianDevelopment Bank(ADB), multi-lateral andbi-lateral partnerships).

Government of Indiaand state governmentand governmentinstitutions (nodalagencies for NationalAction Plan for ClimateChange – NAPCC,Indian RenewableEnergy DevelopmentAgency Ltd. -IREDA,Bureau of EnergyEfficiency - BEE, RuralElectrificationCorporation Ltd. - REC,Khadi & Village IndustryCommission - KVIC).

Conventional finance(debt/ equity/ concessionaldebt), Global EnvironmentFacility (GEF), CleanTechnology Fund (CTF),Energy EfficiencyInitiative (EEI),Renewable Energy &Energy EfficiencyPartnership (REEEP),bi-lateral grants andfunds, Clinton ClimateInitiative (CCI).

Regulations, grants,subsidies, debt, taxes,incentives, tariffs.

Conventional finance(debt/ equity/concessional debt),adaptation fund, GlobalEnvironment Facility(GEF), Pilot Programmefor Climate Change(PPCR). Other multi-lateral and bi-lateral funds

Regulations, grants,subsidies, debt, taxes,incentives. tariffs,insurance.

Global EnvironmentFacility (GEF), othermulti-lateral and bi-lateralfunds.

Government of India(GoI) Clean EnergyFund, GoI NationalResearch Institutes.

Table by WSP. Framework interpreted from (2010) ‘World Development Report’, World Bank.

23 Our interviews suggest that lack of technical understanding within lending institutions as well as poorly formulated project proposals canboth be barriers to market lending for low carbon development projects.

24 Based on interviews and case-studies, carried out as part of the research for this guide.


Investors providing equity have varying preferences and expectations. The table below provides aguide to these expectations. Please note such preferences and expectations on returns on investmentchange according to the market conditions. Some investors are risk-averse while others will be willingto invest in a ‘risky’ investment, but the expectation of return will be higher.

Table 4.2 Typical investment sources and their expectations

Venture Capital Funds Interested in early stage companies. High risk appetite. Investmenthorizon around 4-7 years. Return requirement is many multiples oforiginal investment (50-500% Internal Rate of Return - IRR25 ).

Private Equity Funds Interested in companies or technologies with proven technology,demonstrator companies, underperforming public sector units or thosepreparing to raise money through stock market. Medium risk appetite.Investment horizon around 3-5 years. Return requirement is circa 25%IRR [can be lower].

Infrastructure Funds Interested in essential infrastructure with low risk cash flow such aspower generation. Low risk appetite. Investment horizon around 7-10years. Return requirement is circa 15% IRR.

Pension Funds Interested in proven technology. Low risk appetite with steady cash flow.

Investment horizon around 10+ years. Return requirement is circa15% IRR.

Source: Justice S (2009) Private financing of renewable energy.

International agencies such as the International Finance Corporation (IFC) and the Asian DevelopmentBank (ADB) also provide concessional finance for low carbon projects in India. The IFC providesdebt/equity directly to private investors whereas the ADB routes its funding in the Indian marketthrough the Government of India, enabling agencies such as IREDA to open credit lines to businesses.Hybrid funding - implying a mix of funding from public institutions such as IFC/ ADB and private equityproviders - is also a popular model in India. In many projects concessional debt from a governmentagency like IREDA or an international institution, such as the IFC, can assist in leveraging fundingfrom private sector investors.

TABLE 4.3: Illustrative list of institutions providing conventional finance in India

Institution Nature Size Sectors Financed Types of Funding

Indian RenewableEnergyDevelopmentAgency (IREDA)http://www.ireda.in

Public LimitedGovernmentCompany.

2008-09 LoanssanctionedRs 1,341 crores.

Sectors FinancedRenewable energy,new and emergingtechnologies, energyefficiency andconservation,establishment ofenergy centres.26

Types of FundingProject financing forbio fuels,27 soft loansfor solar PV, solarthermal,28

infrastructureloans.29

25 Internal Rate of Return (IRR): The annual rate of return that would make the present value of future cash flows from an investment equalthe current market price of the investment.

26 http://www.ireda.in/homepage1.asp?parent_category=1&category=1127 http://www.ireda.in/homepage1.asp?parent_category=2&sub_category=40&category=15028 http://www.ireda.in/homepage1.asp?parent_category=2&sub_category=31&category=11629 http://www.ireda.in/homepage1.asp?parent_category=2&sub_category=24&category=36


30 http://www.ilfsindia.com/sectors.asp?sector_id=5&child_id=1431 http://www.pfcindia.com/financial_products_n.html

NB: Rs figures in the table are estimates

Further information on private equity and venture capital available in India can be obtained from the following sources:EMPEA Emerging market private equity association www.empea.netIVCA Indian venture capital association www.ivca.org

Institution Nature Size Sectors Financed Types of Funding

InfrastructureLeasing andFinancial ServicesLtd. http://www.ilfsindia.com

Power FinanceCorporation: http://www.pfcindia.com

IDFC Private Equity:http://www.idfcpe.com/pages/main1.html

ICICI Bank

Axis Private Equity

Yes Bank andGlobal EnvironmentFund (GEF)

State Bank of India

IDBI Bank

Non-BankingFinancial Company(NBFC).

FinancialInstitution.

Private Equity.

Largest privatesector bank.

Private equity armof Axis Bank.

Niche privatesector bank.

Bank.

Bank.

2009 Loanssanctioned:Rs 40,500crores.30

Largest cleantechinvestor in Indiawith a committedexposure of morethan Rs1,000crores (USD 215million) acrossthree funds. 2009Total fund strength:Rs 5,130 crores.

Rs 900 crores.

Rs 675 crores AxisInfrastructure Fund(AIF).

Rs 2,250 crores.

Renewable energy,waste management,SEZ, tourism,logistics, socialinfrastructure,transport, urbaninfrastructure, ruraldevelopment sector.

All power sectorprojects.

Renewable energy,services firms,consultancy firms.

CDM Projects.

Renewable energy.

Cleantech-focusedsmall and mediumenterprises in SouthEast Asia, with morethan half the moneybeing invested inIndia.

Renewable energyand all types ofcleantech projects.

Renewable energyand all types ofcleantech projects.

Debt , equity andvarious lines ofcredit.

Range of fund basedloans.31

Equity.

Japan Bank forInternationalCo-operation (JBIC)special credit line forcarbon finance,project finance.

Equity.

Project finance,credit lines, carbonfinance.

Project finance,credit lines, carbonfinance.


4.2 Carbon finance

In India carbon finance is interpreted to mean a financial mechanism that is derived from the carboncredit revenue stream generated from a clean project registered as a Clean Development Mechanism- CDM project under the Kyoto Protocol. The Kyoto Protocol has resulted in market-based mechanismswhereby a country with an emission reduction or emission-limitation commitment can implementemission reduction projects in developing countries including India. Such projects can earn suitableCertified Emission Reduction (CER) credits, each equivalent to one tonne of carbon dioxide whichcan be counted towards meeting Kyoto targets. The CDM’s primary goal of supporting developmentwhilst creating cost-effective greenhouse gas emissions reduction is achieved through the buyingand selling of CER credits.

Historically, raising finance through conventional finance mechanisms was found to be difficult for lowcarbon projects because of the lack of commercial viability, long gestation periods and uncertainrevenue streams of the projects32 . These issues limited the role of private investors, banks and financialinstitutions in implementing low carbon projects in India and so carbon finance has played a criticalrole in spurring the growth of the low carbon sector in the last five years. Carbon finance revenues canhelp in leveraging upfront capital for underlying investments by addressing the initial investment barrierand providing incentives to encourage projects with low carbon outcomes, improving awareness,reducing transaction costs and the financing of programmes of activities.33

Financial institutions monetise these future cash-flows and pay money upfront as part of projectfinance. They realise payments upon delivery of CER credits by the seller to the buyer. This upfrontpayment is treated as advance/soft loan/quasi equity. So if capital cost structure was 20 (equity) and80 (debt), post carbon finance it becomes 20 (equity + upfront payment) and 80 (debt).

• Advantage to the project promoter: The CER revenue stream helps in raising debt and equity forthe project and results in early financial closure with lesser equity commitment.

• Advantage to financial institutions: It provides additional funding to the project without disturbingthe capital cost structure as upfront payment is against securitization of additional revenue flow tothe project.

Key steps in carbon finance

1. Banks do due-diligence on company

2. Carbon credit seller and buyer (European, Japanese or US buyers) enter into a contract tosell CERs in a forward contract. This contract is called Emission Reduction PurchaseAgreement (ERPA).

3. Once an ERPA is entered and project is registered as a CDM project (money is sanctioned anytime during the project cycle though disbursement normally happens after CDM registration)upfront payment is concluded and an Escrow 34 is formed.

32 CII (2007) ‘Theme paper, 1st India Cleantech Forum’, New Delhi.33 (2009) The World Bank34 Assets held by a neutral third party until certain obligations or conditions under an agreement are met.


Fig 4.1: CDM Flow Diagram

Regulatory Provisions

The process outlined above has the approval of Reserve Bank of India (RBI). A wide range of sectorscan potentially benefit from carbon finance and generate CERs from projects related to renewableenergy, energy efficiency, fuel switching, solid waste management and industrial processes. Themethodologies for development and verification of CDM projects are clearly prescribed35 andbusinesses are advised to refer to them in the early stages of project development to confirm it is anappropriate mechanism for them.

Other issues

The validity of the CDM mechanism and resulting CERs is currently certain until 2012; its future afterthis time will be clarified at the COP16 in Mexico in November 2010. While the December 2009COP15 Copenhagen talks proved inconclusive, there is considerable support for sustaining thismechanism beyond 2012, with some modifications and simplifications to the process.

4.3 Emerging low carbon mechanisms

Although carbon credit revenues have played an important role, the post-2012 uncertainty in theglobal carbon market has highlighted the need for alternative mechanisms to spur growth in this area.Renewable Energy Certificates (RECs) and Energy Savings Certificates (ESCerts) are illustrative ofmechanisms that are dove-tailed into Indian regulation and thus provide continuity for market activityinto low carbon development. In addition to these market based instruments, innovative performancebased contracts such as Energy Services Companies (ESCo) combine financial, managerial andtechnical support [see case study 5.3]. Since it is one of the recognised funding mechanisms underthe NMEEE framework, it is likely to drive future investment in the energy efficiency area.

4.3.1 Renewable Energy Certificates (RECs)36

The Electricity Act 2003, requires state Electricity Regulatory Commissions to specify a percentageof electricity that the electricity distribution companies must procure from renewable sources. Thecurrent national targets are for 10% of primary energy from renewable sources by 2012. NAPCCspecifies 5% of electricity to be obtained from renewable sources in 2010. Thereafter the proportionof electricity from renewable sources will rise by 1% over the next 10 years.

CERs

Bankmonetizesfuture cash-flow andpays moneyupfront.Bank acts asEscrow.

Paymentmade tobank upondelivery ofCERs byseller toBuyer

Seller

Bank

Buyer

35 See www.cdmindia.nic.in36 Sources of Further Information, CERC http://www.cercind.gov.in , State Electricity Regulatory Commissions

Indian Energy Exchange http://www.iexindia.com


The National Solar Mission aims to achieve solar power capacity of 20,000 MW in the country by2022 and it has further influenced the development of market based incentive mechanism for rapiddevelopment of renewable energy in India. On 14 January 2010, the Central Electricity RegulatoryCommission (CERC) announced a regulatory mechanism for the development of non-conventionalenergy sources by issuance of transferable and saleable credit certificates termed as RenewableEnergy Certificates (RECs).37

Similar to CERs, the anticipated revenue from RECs can be utilised by financial institutions for theupfront finance of renewable energy projects. RECs will be available as an alternative to existing feed-in-tariffs38 for renewable power generators [see Chapter 3]. It is expected that the market will decidethe real value of renewable energy power and will provide better prices as compared to existingtariffs. This will facilitate the participation of private players in the sector as projects will becomefinancially more attractive to them. In addition, RECs will serve as a likely domestic market basedincentive scheme which will shield renewable energy projects from uncertainties arising regardingthe future of global carbon finance.

Regulatory Provisions

As required by the CERC regulations, each state has to come up with a renewable purchase obligationby April 2010 for its power distribution companies and large consumers. RECs will be provided torenewable energy generators who can sell them on to obligated companies and power users. EachMWh of renewable energy generated will be assigned a financial value which will be decided bymarket forces. However, there will be a cap price and floor price defined by CERC which will influencethe final price of each REC. To facilitate generation of solar power, there will be separate certificatesissued for every MWh of solar power generated.

REC Trading Platform

The trading of renewable energy certificates will be carried out on either of the two existing powerexchanges in India, the Power Exchange India Ltd or the Indian Energy Exchange (IEX).

The key stakeholders in the Renewable Energy Certificate framework are: 39

Central Agency - Central Electricity Regulatory Commission (CERC)

• Responsible for registration, issuance of RECs, maintaining accounts, settlements, repository,monitoring and other such functions incidental to the implementation of REC mechanisms.

Accreditation Body (AB)

• Checks RE generators against their eligibility criteria and the norms specified by MNRE. Thiswill be a State Nodal Agency (SNA).

Monitoring Body (MB)

• Verifies electricity generation from RE sources and notifies the Central Agency. Load DespatchCentres (LDCs) based within the states will fulfil this role.

Trading Platform

• Facilitates transactions [IEX/Power Exchange India Ltd].

Compliance Auditors

• Monitors effective compliance by RE producers (to be selected by CERC).

37 CERC regulations on REC. No. L-1/12/2010-CERC39 IEX


4.3.2 Energy Saving Certificates (ESCerts) 40

The NAPCC of India identifies energy efficiency as a major and effective channel for climate changemitigation. The NAPCC aims at creating a market based instrument to facilitate energy efficiencymeasures in the country. In this context, the Ministry of Power and Bureau of Energy Efficiency (BEE)approved (in December 2009) the National Mission of Enhanced Energy Efficiency (NMEEE) whichwill be implemented from 1 April 2010. The mission aims at creating a market for energy efficiency ofnearly Rs 1,500 croress by facilitating a trade in energy saving certificates (ESCerts).

One of the major goals of the NMEEE is the promotion of Energy Service Companies (ESCo) basedupgrades to energy efficiency in buildings, municipalities and agricultural pump sets. Through thisbusiness model, ESCOs invest in energy efficiency investments, and are paid over several years fromthe resulting energy savings.

The ESCert trading mechanism

Under the National Mission on Enhanced Energy Efficiency, the Perform, Achieve and Trade (PAT)mechanism will be introduced which will assign energy efficiency improvement targets to variousindustrial units in nine emission intensive sectors.41 The nine sectors are: thermal power plants, cement,fertilisers, aluminium, iron and steel, chlor-alkali, railways, pulp and paper and textiles. Under thisscheme, these units will be allowed to retain any energy-efficiency improvements in excess of theirtarget in the form of Energy Savings Certificates, called ESCerts. These certificates will be allowed tobe traded in the market to meet energy efficiency improvement targets.

Key Steps in Trading:

1. Each emission intensive sector (termed as ‘Designed Consumer’) will be mandated to reduce itsSpecific Energy Consumption (SEC) by a fixed percentage within a specified time period (three years).

2. Compliance to this target will be ensured in the following ways:

• Those “under achieving” buying ESCerts to take care of the balance.

• Paying a penalty.

• Selling excess ESCerts.

• Realising the market price of the ESCerts.

Special Funds

Under this mission two funds are proposed to be created to help channel investment into energyefficiency projects.

Partial Risk Guaranty Facility

This fund will provide back-to-back guarantees to banks for loans to energy-efficiency projects so asto reduce the perceived risks of these projects.

Venture Capital Fund

This will support investment in the manufacturing of energy efficient products and provision of energyefficiency services.

40 Source of InformationBureau of Energy Efficiency http://www.bee-india.nic.in

41 http://www.bee-india.nic.in/dc/ListofDC.pdf


Key Stakeholders

Bureau of Energy Efficiency- Nodal Agency

Energy Efficiency Services Limited. A joint venture between National Thermal Power CorporationLtd. (NTPC), Power Finance Corporation Ltd. (PFC), Rural Electrification Corporation Ltd. (REC)and Powergrid Corporation of India Ltd. (POWERGRID) which will function like an ESCo, provideconsultancy on CDM and energy efficiency and a resource centre for capacity building. The equityof EESL will be Rs 190 crores with equal contribution from the 4 promoters.42

Implications:

It is estimated that by 2015, about 23 million tons oil-equivalent of fuel savings - in coal, gas, andpetroleum products, will be achieved every year along with an expected avoided capacity addition ofover 19,000 MW. The consequential carbon dioxide emission reduction is estimated to be 98.55million tons annually. Therefore, similar to RECs this market based mechanism would also prove tobe an alternative to carbon finance for low carbon developments.

4.3.3 Energy Services Company (ESCo)43

An ESCo is a type of company that provides energy efficiency related and other value added servicesand for which performance based contracting is a core part of its business.44 . They can provide bothrenewable energy generation and energy efficiency services to both large energy users but also toutilities. An ESCo combines technical, managerial and investment capacity, often difficult for the clientto find in-house. An ESCo provides performance and savings guarantees, and its remuneration isdirectly tied to the energy savings achieved. The savings to be achieved can be unique to each client.Additionally as seen elsewhere in the world the ESCo may be the agent for trading the RECs andESCerts resulting from renewable energy or energy efficiency projects.

Key Steps in ESCO Financing45

1. Appraisal of the energy conservation potential in a client firm.

2. Preparation of a detailed project report (financial grade paper) and listing of the recommendationsto reduce energy consumption and costs.

3. Detailed project engineering of selected measures by ESCo.

4. Financial closure through ESCo.

a. Option-1: Bank borrowings by the client with performance bank guarantee, support from ESCo.

b. Option-2: Direct investment by the ESCo with payment security from client.

5. Implementation of selected measures by ESCo.

6. Joint monitoring and verification of impact and observation of reduction of energy costs over aspecified agreed time period or third party verification by an accredited organisation.

7. Payment of ESCo by client based on investment costs, interest, professional service fees, as wellas performance based success fee.

8. Handover of project to client after recovering of all costs, as well as other payments, or as per atermination settlement as per mutual agreement.

42 http://www.energymanagertraining.com/NAPCC/main.htm43 Bureau of Energy Efficiency http://www.bee-india.nic.in44 (2009) ‘Powering up’, World Resources Institute45 http://www.energymanagertraining.com/announcements/DefinitionofanESCO.pdf


The Advantage of Using ESCOs

Energy efficiency improvement is one of the primary businesses of ESCos, and therefore they are ina position to ensure large energy savings as compared to in-house teams of energy managers wheresuch activity is a secondary or even a tertiary responsibility.46

4.4 UN, Multi-Lateral and Bi-Lateral Sources

A number of global agencies (such as agencies of the United Nations) and multi-lateral and bi-lateralinstitutions are interested in the scaling-up of low carbon development and recognise that privatebusiness can play a pivotal role in this area. While global demand far outstrips the overall globaldemand for investment in this area,47 it can go a long way in making individual programmes andprojects viable. Concessional loans, equity, matched funds, grants and guarantees from internationalinstitutions can enable research, technology-transfer, scaling-up of technology and further leveragingof investment from other sources. The sources (some of which are listed below) provide support andinvestment for a wide range of adaptation and mitigation measures.

The list below provides further detail on some of the well known international mechanisms and sourcesof finance for low carbon development. It is for illustrative purposes only. These are relevant to Indianbusiness and should be considered when raising finance for a project [see case study 5.4 on reducingcarbon emissions from brick manufacturing].

Global Environment Facility (GEF)

The GEF is a global partnership between 178 countries, international institutions, NGOs andprivate sector to address global environmental issues. It provides grants to projects in six focalareas: bio-diversity, climate change, international waters, land degradation, ozone layer andpersistent organic pollutants. GEF is implemented through United Nations Industrial DevelopmentOrganisation - UNIDO, United Nations Development Programme - UNDP, United NationsEnvironment Programme - UNEP, African Development Bank - AfDB, Asian Development Bank -ADB, International Bank for Reconstruction and Development - IBRD, European Bank forReconstruction and Development - EBRD, Food and Agriculture Organisation - FAO, Inter-American Development Bank – IDB and the International Fund for Agricultural Development -IFAD. It allocates and disburses approximately USD 250 million per year [Rs 1,125 crores] inenergy efficiency, renewable energies and sustainable transportation.

www.gefweb.org

Clean Technology Fund (CTF) – World Bank

The CTF provides concessionary funding that can potentially open up institutional investmentinto India. CTF promotes scaled up financing for demonstration, deployment and transfer of lowcarbon technologies with significant potential for GHG reductions. The Indian government hasnot yet completed the formal process for this funding. CTF does not provide funding to privatebusinesses directly.

www.worldbank.org

REEEP (Renewable Energy and Energy Efficiency Partnership)

REEEP is a partnership that works to reduce the barriers within policy, regulatory and financialstructures that bar and limit the up-take of renewable energy and energy efficiency technologies

46 http://www.indianjournals.com/ijor.aspx?target=ijor:bee&volume=8&issue=1&article=00847 (2009) ‘Financing major clean technologies’, TI-UP, DFID.


and projects. REEEP works with governments, business, industry, financiers, and civil society acrossthe world in order to expand the global market for renewable energy and energy efficiencytechnologies.

www.reeep.org

ADB Cluster: EEI (Energy Efficiency initiative) & (CMI) Carbon Market Initiative

The ADB (Asian Development Bank) currently has a mandate for climate change mitigation in thefollowing sectors within India: energy efficiency (national programme); small hydro (Uttarakhand);waste composting (Rajasthan and Kerala); and wind energy (Maharashtra state). The financialtools seek to mobilise concessional finance, catalyse private capital and maximize marketmechanisms. EEI provides target funding of up to Rs 100 crores each year for activities in energyefficiency investments, technology costs and grant assistance for activities such as advocacy, projectpreparation and MVR mechanisms. CMI co-finances project preparation and implementation forGHG mitigation projects. The other programmes in the ADB cluster include Energy for All, theSustainable Transport Initiative (STI) the Cities Development Initiative for Asia (CDIA) and Disasterand Emergency Assistance Policy (DEAP).

Private businesses can access the ADB cluster of funding and support mainly via ADB supportedprogrammes in nodal agencies in the government, such as IRDEA. In some instances directnegotiation for investment may be possible via bi-lateral or multi-lateral initiatives such as APP(see later section). ADB organises support and network platforms that bring together investorsand businesses.

www.adb.org

Bi-lateral Clusters: Grants, development assistance, export finance, matching funding,technical advice.

Finance is available from a number of bi-lateral sources such as for feasibility studies on renewableenergy and energy efficiency projects. Local missions of United States AID (USAID), United KingdomDepartment for International Development (DFID), KFW Bankengruppe, German Federal Ministryfor Economic Co-operation and Development (BMZ), Japan Bank for International Co-operation(JBIC) and Danish International Development Agency (DANIDA) provide a range of financialassistance, grants and technical assistance, some of it directly to businesses.

USAID www.usaid.govDFID www.dfid.gov.ukKFW www.kfw.deBMZ www.bmz.deDANIDA www.danida.um.dk

International Finance Corporation (IFC)

The IFC is a financing agency of the World Bank. It provides debt, equity, mezzanine finance andadvisory services. Finances up to 25% of new projects and 50% for expansionary projects areprovided to private business. However, the investment may be limited to large projects only.

www.ifc.org


Capacity Building Networks: for example the Asia Pacific Partnership (APP)

The APP is a partnership that includes the predominant GHG emitters (US, India, Australia, Indiaand China) to facilitate projects and investment in reducing GHG emissions. The APP hassupported investment pipeline development for a number of large projects in India with the potentialto reduce GHG emissions.

www.asiapacificpartnership.org

Civil Society Initiatives: for example the Clinton Climate Initiative (CCI)

Civil society includes a large number of charities that have the mandate to assist with environmental,social and economic development. CCI is one such global initiative assisting partner cities to developand implement large scale projects resulting in substantial reductions in energy use and GHGemission reductions.

www.clintonfoundation.org

The World Bank cluster of schemes: Pilot Programme for Climate Change (PPCR), Scaling-up Renewable Energy Programme (SREP), Forest Investment Programme, CommunityDevelopment Carbon Fund

Pilot Programme for Climate Change (PPCR)

Provides incentives for scaling-up action and transformational change through pilot projects thatdemonstrate ways to integrate climate risk and resilience into core development planning whilecomplimenting other ongoing development activities.

Scaling-up Renewable Energy Programme (SREP)

SREP is one of the programmes designed to operate under the SCF. The SREP is expected tosupplement multi-lateral development banks (MDB) lending for generation, rural electrification, cleancooking and heating fuels and modern lighting with renewable energy sources. SREP is to offer amixture of grants and highly concessional loan financing, and when blended with IDA and otherconcessional financing available from other MDBs, will leverage other public and private sectorresources. It will fund the incremental capital cost of renewable energy investment within eachprogramme, therefore ensuring maximum financial leverage. A majority of SREP funds will be usedfor investment co-financing and will also fund technical assistance for planning and pre-investmentstudies, policy development, regulatory reform and business development and capacity buildingwhen they are an integral and complementary part of investment operations.

Forest Investment Programme

Aims to mobilise significantly increased investment to reduce deforestation and forest degradationand to promote improved sustainable forest management, leading to emission reductions and theprotection of carbon reservoirs.

Community Development Carbon Fund

Available to developing countries which would otherwise find it difficult to raise finance due tocountry and financial risk.

www.worldbank.org


4.5 Other Relevant Instruments and Mechanisms

This section provides an outline of instruments that are relevant to Indian business, particularly SMEsto secure investment and ensure business resilience against physical risk from climate change andother natural hazards.

As with any emerging sector, access to funds, information, and technical expertise continues to remainan area that needs further improvement. This becomes a greater issue for small to mid size developers/investors and can serve as a barrier to turn regulatory and procedural requirements into an opportunityfor clean development. The policy environment and incentives provided by the government are relevantto this discussion and have been discussed in previous chapters.

4.5.1 Investment Guarantees

Lenders seek guarantees and collateral before providing loans to small project developers and start-upcompanies. The size of guarantee and collateral value depends on various factors including the riskassociated with the projects and salvage-value of project assets. For larger corporate and industrieswilling to venture into clean energy projects, these guarantees are generally not essential. However,commercial lenders do seek some sort of corporate guarantee from large project developers as well.Obtaining debt from commercial institutions for energy efficiency and carbon finance has beenconsiderably more difficult than renewable energy due to the difficulties in securitization of future savingsand carbon credits. These issues are being increasingly recognised and guarantee mechanisms areemerging from both the government and international sources. For instance, the Partial Risk GuaranteeFacility (PRGF) has been put in place within NMEEE to remove such barriers. (See also the Multi-lateralinvestment Guarantee Agency (MIGA)48 and GuarantCo49 as examples of other such facilities)

Much more is required to be done in this area so that SMEs can be seen as credit-worthy and canraise finance for low carbon development.

Getting rewarded for low carbon development50

Businesses in any sector should keep themselves informed about the developments in the NAPCC,state-level plans and associated regulations.

The following provides a check-list of good practice.

Stay informed about new and emerging policy, regulations, incentives and fiscal benefits. Eachstate is developing its unique blueprint for low carbon development.

• Energy efficiency, renewable energy, better management of water, waste and fuel are all usefulto reduce business costs.

• Screen business operations for the potential of carbon finance - CDM, REC, feed-in-tariffs andESCerts opportunities.

• Keep informed about the investment programme of district or state finance institutions (bankingor non-banking).

• Make investors aware of similar precedents and pilot programmes to the proposed low carbonproject.

• Obtain a rating from CRISIL or other credit rating agencies to give better access to funding.

• Ensure the proposal is technically sound and the investment requirement and risk is clear.

• Look to government funding and concessional finance to reduce the perception of risk.

• Comply with good monitoring and verification practices.

51 Non Resident Indian (NRI).


5. CASE STUDIES

The following case studies demonstrate how a range of finance options have been implemented bothnationally and internationally. The reader will find that each of the investment sources and mechanismslisted in the previous chapter are practical and accessible options.

Project name Sector Finance type

Belgaum Wind Farm, Karnataka. Renewable energy – wind. Debt, equity, carbon finance,Power Purchase Agreement(PPA).

ITC Hotels, West Bengal. Energy efficiency – Equity, carbon finance,hospitality industry. energy efficiency savings.

ESCo based energy efficiency, Energy Services Company Concessional debt, equity,Haryana (ESCo)- Demand Side ESCo, carbon finance, energy

Management(DSM): Lighting. efficiency savings.

Brick industry improvements. Energy Efficiency – materials Concessional debt, grants,industry carbon finance.

China Renewable Energy Renewable energy - wind Concessional loans, grants,Scale-up programme – and bio-mass. carbon finance.CRESP, China.

Tecnologia e Sistemas Renewable energy Concessional loans, carbonAvancados Ltd – TECSIS. manufacturing -wind turbines. finance.

5.1 Renewable energy from wind farms (Gadag, Karnataka) ( 2007-09)

Finance: A combination of debt, international private equity, carbon finance and power purchaseagreement (PPA).

Investors Belgaum Wind Farms Pvt Ltd of Indian Energy, an NRI51 -promoted UK based IndependentPower Producer (IPP) and DONG Naturgas a/s (public entity) promoted this 24.8 MW wind farm inGadag Plains, Karnataka. The project comprises 31 wind turbine generators (WTGs). Renewablepower of approximately 56 Million Units per annum is being fed to the grid.

Enercon (India) Ltd. is responsible for supplying and erecting the WTGs, completing construction ofon-site infrastructure, and connecting the wind farm to the local electricity grid. Enercon (India) Ltd. isalso responsible for operation and maintenance of the wind farm under an Operation & Maintenance(O&M) contract for an initial term of 10 years.

The project has total investment of Rs 143.0 crores. The debt equity ratio is 63:37. State Bank of India(SBI) is the debt provider at an interest rate of 11.75%. The debt repayment period is 12.25 years.Indian Energy, the equity provider, is listed on the Alternative Investment Market (AIM) to raise fundsfor its wind power projects in India. SBI Capital Markets (SBICAP) is the lead arranger and financialadvisor for the project.

48 www.miga.org49 www.guarantco.com50 From interviews and discussions.


In terms of carbon finance, the project will generate 368,895 CERs per year, which helps in achievingthe benchmark project IRR (11.75%) and thereby makes the project financially viable for the projectdeveloper. The power produced by this activity is sold to Karnataka Power Transmission CorporationLimited (KPTCL) / Hubli Electricity Supply Company Limited (HESCOM) as per the Power PurchaseAgreement (PPA) between them. HESCOM is a licensed electricity distribution company owned andcontrolled by the State Government of Karnataka and is an integral part of the Southern RegionalGrid. The power purchase price is Rs 3.40 per unit which is fixed for 10 years. This is a preferentialtariff provided by the State of Karnataka for wind power plants in India.

5.2 Energy efficiency in the hospitality sector (Kolkata, West Bengal) (2004-07)

Finance: Equity, carbon finance and energy efficiency cost savings.

Energy efficiency measures have been implemented at the ITC Welcomgroup’s Hotel Sonar BanglaSheraton and Towers, Kolkata, West Bengal. The measures aim to reduce consumption of bothgeneration and demand side energy. The measures will reduce the GHG emissions directly or indirectlyattributed to the business activities being carried out within the hotel facility. As a result of all theseactivities there will be an energy saving of 3.419 GWh per year52 which will reduce 3025.16 tCO2 peryear. Therefore, in ten years (the carbon credit53 period) the project will generate about 30,000 CERs.The project also relieves the constrained electricity supply in this region, reduces pollution associatedwith extraction, transportation and utilisation of fossil fuels. Lastly it has set a trend for other hotels toadapt energy efficiency. The measures below have resulted in annual savings of Rs 0.83 crores anestimated 19% of the hotel’s total annual electricity bill54 .

The project value is Rs 0.60 crores. ITC Welcomgroup & ABN AMRO55 bank’s London branchcollaborated on the project with the latter being the buyer of all the carbon credit revenue (CERs)generated from the project. This helped ITC to implement all the measures using conventional modesof project financing, pure equity in this case.

The technical measures that have been implemented mainly relate to the recovery of waste heat andimproving process efficiency:

• Installation of magnetizer for better fuel atomization to improved combustion.

• Reuse of low energy waste heat of the flue gases exhausted from the boiler stack to pre-heat theboiler feed water and improve the generation efficiency of boiler.

• Utilization of the waste heat of the return steam condensation of the facility to generate hot waterand thus reduce generation of hot water using high speed diesel oil.

• Retrofit of existing HVAC system to reduce unwarranted moisture-laden air load in the pre-cooledair unit (PAU) by installing U shaped heat pipes that improve efficient heat transfer in the PAUpipes and thus reduce chiller load.

• Enhancement of the treatment efficiency of the sewage treatment unit that will lead to reductionin electricity consumption as compared to the baseline for treatment of equivalent organic load.

52 http://www.cdmindia.nic.in/cdmindia/projects/PCN%20247.pdf53 Carbon Credit period is the time-period over which CERs will be generated.54 http://www.itcportal.com/newsroom/press_releases_04may07.htm55 Part of the RBS group.


5.3 ESCo Based energy efficiency improvements in street lighting (Panchkula, Haryana)(2009 – ongoing)

Finance: The total project value is Rs 1.55 crores. Concessional Debt (75%) provided by IREDA withan eight year repayment period Equity (25%), ESCo Deferred Payment Model56 , carbon finance57

and savings from energy efficiency. Resulting CERs are shared between the project developer (77%)and municipal body HUDA/ HAREDA (23%).

As part of its mandate to implement municipal level DSM (Demand Side Management) BEE hasadvised municipal bodies across India to replace their existing inefficient street lighting with betterenergy efficient products. Municipal bodies, due to the paucity of funds and lack of techno-managerial expertise, cannot undertake these measures on their own. In order to meet theseobligations, municipal bodies such as Panchkula are forming partnerships with Energy SavingCompanies (ESCOs). The Panchkula district comprises 4 towns and 264 villages and hasapproximately 5,400 street light points. The largest share is occupied by the conventional 40 Wtube lights, followed by 150 W Sodium Vapor Lamps. The total power of these fixtures based onthe number of hours and days consumption is 2,516,821 KWhr in a year. The existing lamps willbe replaced with highly energy efficient LED lamps. The anticipated energy savings is 68% of thecurrent consumption.

Alien Group entered into an ESCo contract for 8 years with the Panchkula authorities (HUDA/HAREDA) and brought in an initial investment of Rs 1.55 crores for replacing the existing streetlight points. The ESCo will also undertake the maintenance and replacement of such points. Theperformance and energy saving assessment of new fixtures is conducted by the technical committeeand a maximum energy saving projection determined. The ESCo and the municipal body (HUDA/HAREDA) share the power savings and resulting CERs in a pre-determined ratio. An Escrow58

account is set up with the main banker of the municipal body to manage the monthly power sharingbetween the two parties for the tenor of the contract. The project is eligible for carbon credits andthat will further increase its’ profitability.

ESCo Contract Agreement Process

The municipal body issues a tender specifying the existing fixtures, total KWh energy consumptionof each fixture and present light output which to be maintained. ESCOs are invited to undertakereplacement of these fixtures with energy efficient fixtures by bringing in their own investment.The tender specifies the implementation time and energy saving arrangement:

• The ESCo applies for the tender and does a feasibility study to measure the existing total lightoutput on the ground in terms of Lux.59

• The ESCo then presents their product to the technical committee which measures and approvesthe following parameters: lux requirement; energy saving by defining the base line load and themaximum number of hours that the fixtures need to run.

56 Deferred Payment Model implies that ESCo will collect the payment from Panchkula authorities based on the energy saved in the entirecontract period of 8 years. Therefore, the authorities do not have to pay any amount upfront for implementing the efficient lighting system.The payment received by ESCo will be utilised for repayment of debt and earn profit over its equity component.

57The project is still in the CDM registration pipeline and is in the process of obtaining carbon credits

58Escrow: Assets held by a neutral third party until certain obligations or conditions under an agreement are met.

59 Lux is the universal unit of measuring the output of lighting equipment.


• The ESCo is then required to furnish a bank guarantee (BG) for the duration of the contract andundertakes to maintain the performance parameters that has been measured and approved bythe technical committee. The BG amount is fixed and independent of the project size in mostcases. After its appointment, the ESCo can subcontract the installation and maintenance work toan approved vendor.

• The ESCo will set up a small office in the area to manage the following: central system: loadmonitoring, switching on/ off for allowed dimming levels; maintaining sufficient inventory forreplacement; and completing the installation through the sub contracted vendor and acquire acompletion certificate from the technical committee.

• Upon submission of the completion certificate, an Escrow account is opened with the primarybanker of the municipal body. The pre-agreed power saving revenue sharing (as agreed) is creditedto the ESCo account.

5.4 Reducing carbon emissions from brick manufacturing60

Finance: Concessional debt, grants, equity, carbon finance and energy efficiency savings.

Fired clay bricks are the preferred walling material in India. India produces 150-200 billion bricks peryear. Brick firing is an energy-intensive process and the annual consumption of coal in brick kilns isestimated to be around 25 million tonnes. The majority of brick production takes place on an unorganised(small) scale. The total number of brick-making units across India is estimated to exceed 100,000 andthe annual turnover of the industry is estimated at USD 10 -15 billion [Rs 45,000-67,500 crores].There is a large potential to save energy and reduce environmental pollution by shifting to efficientand cleaner technology options.

A change to appropriate low-cost efficient firing technologies – zig-zag annular kiln and verticalshaft brick kiln (VSBK) can result in 20-60% coal savings over existing kilns. Both the technologieshave been proven in India and more than 500 zig-zag kilns and about 100 VSBKs are operational.Overall a 25% reduction in coal consumption in the brick industry can result in 8-10 milliontones reduction in carbon dioxide through the modification of 30,000 existing kilns into zig-zagannular kilns and construction of 20,000 new VSBKs. The total investment requirement isestimated to be around USD 1100 million (at USD 10,000 per zig-zag kiln and USD 40,000 perVSBK)61 . Such a programme of changeover to efficient kilns needs to be supported by a large-scale awareness and capacity building initiative to train manpower for the construction andoperation of the efficient kilns.

Some of the financing mechanisms which have been used for the change to efficient brick kilntechnology in India are:

1. The Khadi and Village Industry Commission’s (KVIC) ‘margin money scheme’ is operated throughbanks which provide finance for 90-95% of the project costs for village industry projects. Further,25% of the project cost is provided as a back-ended subsidy for projects with costs lower thanUSD 20,000 [approx. Rs 10 lakhs].

60 Source: Greentech (Dr. Sameer Maithel)61 Rs 4,950 crore (at Rs 4.5 Lakh per zig-zag kiln and Rs 18 Lakh per VSBK)


2. Carbon finance: The Community Development Carbon Fund (CDCF) of the World Bank hasassisted in the development of two brick industry projects in India for the purchase of emissionreductions. These projects used VSBK technology and FAL-G technology. On average, eachsingle FAL-G plant with a capacity of 2 million bricks/year was expected to earn carbon revenue(not including the upfront and recurring transaction costs) of approximately USD 3,500–4,000annually [Rs 1.5-1.8 Lakh].

3. The Ministry of Micro, Small and Medium Industries scheme for VSBK technology: The Ministryoffers subsidy on VSBK through two schemes:

• VSBK scheme: Under the VSBK scheme a subsidy at 30% of the project cost, up to a ceilingof Rs. 2 Lakh is provided as subsidy.

• Credit Linked Capital Subsidy Scheme (CLCSS): Under the CLCSS a subsidy at 15% of theproject cost, up to a ceiling of Rs. 15 Lakh is provided for technology up-gradation usingapproved technologies. VSBK is an approved technology under CLCSS.

However, most brick makers require additional support to access finance and technology for anychangeover to efficient kiln technologies. New financial products, simplified procedures, greaterawareness amongst brick makers as well as financial institutions, supported by a nation-widetechnical assistance programme is required to mainstream energy efficient technologies in theIndian brick industry.

5.5 China Renewable Energy Scale-up Programme (CRESP) for wind and bio-mass –Phase 1 (2005-2010)

Finance: USD 87 million IBRD concessional loan, USD 40 million GEF grant, carbon finance. CRESPhas been developed by the Government of China in cooperation with the World Bank and the GlobalEnvironment Facility (GEF).

The objective of CRESP is to enable commercial renewable electricity suppliers to provideenergy to the Chinese electricity market cost-effectively and on a large scale. It is estimatedthat this will result in reduced emissions of 10 million tonnes of carbon dioxide and indirectimpacts -through legal, regulatory, institutional change - estimated at 160 million tonnes ofcarbon dioxide over 20 years.

IFI concessional financing cannot support the huge scale of renewable energy developmentplanned in China. CRESP supports implementation of demonstration renewable energy projectsin the country, but it also enables much wider renewable energy investment through renewableenergy resource assessment, learning from developed country experience and formulatingrenewable energy policy.

The investment component included the establishment of:

• A 100 MW wind farm at Changjiang’ao, Pingtan Island (USD 104 m). The project is implementedby the China Long Yuan Electric Power Group Corporation and EDF Trading Ltd of the UK is aregistered CDM project participant. USD 67 million of financing is provided by the World Bank.The project uses European (Vestas) wind turbine technology. CDM registered emission reductionsfrom the project are estimated to be on average 233, 000 tCO2e per year over the first seven-yearcrediting period.


• A 30 MW straw-fuelled biomass power plant, Jiangsu Province (USD 36 m). The project is locatedin Rudong County, implemented by Jiangsu Guo Xin Investment Group Limited. Arreon CarbonUK Ltd and Credit Suisse International are CDM project participants. USD 20 million is financedby the World Bank. Rudong is one of the biggest agricultural bases in the southeast of JiangsuProvince. Within a 50-km radius of the project power plant, the total annual production of biomassresidues is around 1.2m tonnes. CDM registered emission reductions of 144, 000 tCO2e per yearare expected during the first seven-year crediting period.

Activities relating to the legal, regulatory and institutional environment conducive to large-scale,renewable electricity generation include a range of activities:

National level:

1. Mandated Market Policy (MMP) research;

2. Support to MMP implementation; and

3. Technology Improvement (Wind and Biomass).

Provincial level:

1. Support to MMP implementation;

2. Resource assessment;

3. Cost-shared support for scaling-up renewable energy; and

4. Capacity building for market participants.

Investor level:

1. Technology development by selected manufacturers;

2. Establishment of a wind testing centre and a national wind resource assessment centre;

3. Establishment of standards and certification capabilities;

4. Long term capacity building.

5.6 TECSIS Wind Turbine Manufacturing (Brazil) (2008)

Finance: Concessional project finance.

Tecnologia e Sistemas Avancados Ltda (TECSIS) manufactures blades and related products for windturbine manufacturers worldwide. TECSIS has expanded rapidly as a result of the global demand forwind energy technology over the last decade. In 2008 TECSIS approached the Inter-AmericanDevelopment Bank (IDB) for help in refinancing short and medium-term obligations of USD 75 million.That year, the bank extended a USD 120 million non-sovereign guarantee loan to TECSIS for therefinancing and to cover a portion of the company’s 2009 working capital requirements. TECSIS willalso invest in new production lines.


The IDB financing includes direct ‘A’ loans for a total of USD 60 million. It also includes syndicated‘B’ loans for another USD 60 million from financial institutions that subscribe participationagreements with the IDB. The IDB is the first example of a multilateral organisation financing themanufacture of wind power equipment components. It shows the increased priority that IDB givesto sustainable energy projects, very much in line with the trend of other development banks.

In preparation for the TECSIS project, the IDB conducted a market study on the global wind powersector, the trends of the industry and the competitiveness of the company relative to other playersin the wind power sector. This was made by the IDB Sustainable Energy and Climate ChangeInitiative (SECCI) TECSIS was founded in 1995 to develop wind blades and industrial fans for theindustry. It serves the main European, North American and Asian markets.

The refinancing frees up cash flow that TECSIS was using to service debt. The company will beable to meet investment needs and maintain its position as a competitive supplier in the globalindustry. Funding for capital investment needs allows TECSIS to increase production of tailor-madeblades, where TECSIS has been a leader in the wind power industry.

The IDB’s SECCI initiative supports the early stages of renewable energy projects, helping to diversifyenergy supplies, reduce fossil fuel dependency and reduce the environmental impact of powergeneration. Through SECCI, the IDB is also looking at opportunities to finance wind energy projectsboth with private and public companies and to support countries to establish the necessary conditionsto develop wind power initiatives. SECCI aims to mainstream sustainable energy in the IDB pipelineand develop new projects, utilising a range of financing mechanisms, including innovation loans forresearch and development.


Annexes

Annex 1: Sources of further information

Annex 2: Bibliography and suggested reading


ANNEX 1: ANNOTATED LIST OF INFORMATION SOURCES

Government agencies

• The Ministry of New & Renewable Energy for the Government of India’s programmes onrenewable energy and bio-fuel [http://www.mnes.nic.in].

• The State Renewable Energy Development Agencies for state-specific renewable and biofueldevelopment programs. [The list of state nodal agencies for development of new and renewableenergy is available on http://mnes.nic.in/list/sna_list.pdf].

• The Central Electricity Regulatory Commission for tariff related regulations.[http://cercind.gov.in].

• The State Electricity Regulatory Commissions for state specific regulations on renewableenergy power. [http://www.mercindia.org.in/OtherLinks_ERCs.asp].

• The State Electricity Board to set up renewable energy projects in an Indian state.[www.powermin.nic.in/ministry_of_power/chairman-state-electricity-boards.htm].

• The Bureau of Energy Efficiency for energy efficiency programs and assistance includingNMEEE. [www.bee-india.nic.in/].

• The Ministry of Environment & Forest for environmental clearances required for anyinfrastructure projects and for availing carbon credit benefits. [http://moef.nic.in/index.php].

• The Ministry of Urban Development for Jawaharlal Nehru Urban Renewal Mission (JNNURM)[http://jnnurm.nic.in/nurmudweb/toolkit/Overview.pdf].

• District Commissioners/ Municipal Commissioners for city-specific development programssuch as the Solar City program of the Ministry of New & Renewable Energy. [http://mnre.gov.in/pdf/city-list.pdf].

• The Technology Development Board which promotes the development and commercialisationof indigenous technology and adaptation of imported technology for wider application.[www.tdb.gov.in].

• The Center for Wind Energy & Technology, an autonomous research and development agencyunder the Ministry of New & Renewable Energy [http://www.cwet.tn.nic.in].

• IREDA: Indian Renewable Energy Development Agency Ltd. provides information and financialsupport for renewable energy projects in India.

• CDM India is the designated authority and information portal for Clean Development Mechanism(CDM) projects in India. [www.cdm.nic.in].


ANNEX 2: BIBLIOGRAPHY & SUGGESTED READING

Baker & McKenzie. (2008) ‘Identifying optimal legal frameworks for renewable energy in India’, WorldInstitute for Sustainable Energy.

(2009) ‘Carbon disclosure project report: India 200’, British High Commission, New Delhi.

(2010) ‘Copenhagen De-briefing: An analysis of COP15 for long-term co-operation’, Climatico.

(2009) ‘Delivering Copenhagen: The role of the city’s financial services sector in supporting action onclimate change’, City of London.

(2009) ‘Financing energy efficiency: recent experiences’, International Energy Agency.

(2009) ‘Financing major clean technologies’, TI-UP, DFID.

(2009) ‘Handbook on Best Practices for the Successful Deployment of Grid-Connected RenewableEnergy, Distributed Generation, Cogeneration, and Combined Heat and Power in India’, United StatesEnergy Association (USEA).

Justice S (2009) ‘Private financing of renewable energy: a guide for policymakers’, UNEP.

Kaur J et al. (2008) ‘Cleantech venture capital and private equity in India’, Cleantech group llc.

Kumar R & Siddy D (2009) ‘Sustainable investment in India 2009’, International FinanceCorporation (IFC).

(2008) ‘National Action Plan for Climate change’, Government of India.

(2009) ‘Powering Up: The Investment Potential of Energy Services Companies in India’, WorldResources Institute.

(2009) ‘Private-investment partnership pipeline development’, ECO Quarterly Report Oct-Dec 2009,Asia- Pacific Partnership.

(2009) ’10 years of experience in Carbon finance’, World Bank.

Prasad & Kochher (2009) ‘Climate change and India – some major issues and policy implications’,Ministry of Finance, Government of India.

Robins N et al. (2008) ‘Wide Spectrum of Choices: India’s climate investment opportunitiesrevealed’, HSBC.

Sharp J (2009) ‘Low Carbon environmental goods and services: an industry analysis’, BERR, UK.

(2008) ‘Scaling up carbon finance in India’, World Bank.

Stern N (2007) ‘The economics of climate change: The Stern Review’, Cambridge University Press.

(2009) ‘Task force on Low-Carbon prosperity’, World Economic Forum.

(2010) ‘World Development Report’, World Bank.

(2009) ‘World economic and social survey 2009’, United Nations.

(2009) ‘World Energy Outlook’, International Energy Agency.

Resource Guide for

Indian Business:

Low Carbon Investment

in India

March 2010

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