The Indian government is planning to set up a green investment bank to support renewable energy-based power plants. The bank will be powered by the coal tax that the government introduced this year.

Due to the high capital cost and the low efficiencies related to solar energy technology, banks have not been favorable to the project proponents. Projects proponents have to work hard to prepare exhaustive documentation to convince bankers to grant them credit for the projects. The new financial entity would provide easy loans to the project developers which would result in easier and swift execution of power projects.

In February, the Indian finance minister unveiled a $1 per ton tax on coal mined domestically or imported into the country. The finance ministry expects to collect 5,000 Crore (about $1.1 billion) this fiscal year. This fund would be used for providing financial incentives to the project developers who wish to set up power plants based on renewable energy.

The Indian government has announced several financial aid packages to spur investment in the renewable energy sector. Subsidies are being offered at various stages of the project execution.

To promote an indigenous solar energy manufacturing sector the government has made it mandatory for the project developers to use Indian-made equipment in order to get the premium tariffs being offered under the National Solar Mission. However, the Indian solar energy market is still evolving and thus the government is offering subsidies to the manufacturers on fabrication and assembling units imported into the country.

So there is huge demand for clean energy investments but there is no single entity to provide easy financing options to the project proponents. As India attempts to bring all the renewable energy projects (directly government supported or otherwise) under one umbrella to develop a concentrated low-carbon strategy, developing a central financing agency is essential to streamline the execution process and make it easier for new investors to enter the clean energy market.

Currently the financial support for the renewable energy power plants is provided by the Indian Renewable Energy Development Agency (IREDA) which has access to tax-free bonds worth $55 million and loans from banks through direct collaborations. The new entity would either originate from IREDA or would complement it.

Hat tip: Economic Times
Image: Amaresh S K at Flickr/Creative Commons

The views presented in the above article are author’s personal views and do not represent those of TERI/TERI University where the author is currently pursuing a Master’s degree.