Renewable Energy Funding Scenario in India
                     Renewables.org -
Funding Renewable Projects in 
India
February 2022
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Introduction
India has set a target of 175 GW of renewable energy for 2022. This includes 100 GW of Solar 
energy, 60 GW from wind, 10 GW from Bio-power, and 5GW from small hydropower. By the end 
of 2019, India has only installed 85.9 GW of total renewable energy. The broad gap between the 
actual and target capacity can be attributed to a number of factors. The safeguard duty, low 
tariffs, depreciating rupee, high taxation and interest rates, and uncertain regulations have lulled 
the anticipated growth. High capital costs and inadequate debt financing are also major 
concerns.
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What Are The Types Of Renewable Energy 
Funding?
● Funding based on Risk Profile: The renewable energy sector’s higher risk profile attracted 
more debt financing up to 70%, with 30% equity investment.
● Emergence of Lenders: India’s renewable energy sector is attracting interest and 
concessional loans from agencies like the World Bank and the Asian Development Bank. 
There are other banking and non-banking institutions whose financial commitment to 
renewables in India is growing. 
● Government funding: The government has initiated the National Clean Energy Fund, now 
known as the National Clean Energy & Environmental Fund (NCEEF). The Indian Renewable 
Energy Development Agency (IREDA) lends a part of the NCEEF to banks at a 2% interest 
rate. The banks in turn loan out this money for renewable energy projects at a concessional 
interest.
● Green Bonds: Bonds issued outside India, but are in Rupees, and are issued specifically for 
green energy projects. They show much promise and India is now among the top 10 
countries issuing green bonds.
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What Are The Challenges Involved? 
● Domestic manufacturers do not have the capacity to meet the demand. Almost 90% of 
India’s Solar panels are imported. There are also falling tariffs due to the dropping prices 
in solar technology. Low tariffs seem lucrative at the first glance but are actually less 
viable for the developers.
● In the bid to promote domestic manufacturing, imports have become more expensive. 
● The GST reform also brought a dual tax structure for Solar-powered projects set up under 
installers. 70% of the installation contract value would be taxed at 5%, and the rest 30% 
would be taxed at 18%. This resulted in an overall tax of 8-9%, leading to an increase in 
capital costs. This has made investors hesitant to add Solar assets to their portfolios.
● Lastly, most of the funding in the market only serves large consumers such as 
governments and large private commercial and industrial organizations. The market, so 
far, has done little to fund smaller consumers. 
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The Way Forward
● Large-scale investment is necessary to bring effective transition in emerging markets like 
India. This scaling up will also bring down capital costs and secure better margins. 
● The government could subsidize domestically manufactured panels, instead of making 
imports more expensive. 
● Competitive interest rates, risk-sharing models, and longer capital tenure will additionally 
ensure investor retention.
● A stable regulatory framework, coordinated communication between stakeholders, and 
healthy demand growth, all need to be supported through a robust financial system.
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