Producing renewable energy in India is more expensive than in the US and Europe. This is because of high interest rates and relatively short-term loans for renewable projects, says a study.

These financial factors add 24-32 per cent to the cost of renewable energy in India, compared to similar projects in the US and Europe, says the study carried out by the Climate Policy Initiative and the Centre for Emerging Markets, Indian School of Business, Hyderabad.

Tough targets

The Government has set a goal of reaching 4,000-10,000 MW of renewable energy by 2017 and 20,000 MW by 2022. However, debt market issues make it more expensive and challenging for the country to meet these targets.

Even if the cost of debt goes down, issues with loan-term access to low-cost equity, limits on foreign debt and national banking practices may present additional hurdles to growth in the sector in the medium and long term, it said.

According to estimates the capital cost for setting up 1 MW of solar energy works out to Rs 10-12 crore.

India has more than enough wind and solar potential to meet the country’s ambitious targets, said Reuben Abraham, Executive Director of the Centre at the ISB. However, without policy solutions, the country’s financing challenges will force this sector to fall behind, he cautions. The study takes a close look at the real-world problem of financing renewable energy, says Reuben.

Effective policy

The San Francisco headquartered Climate Policy Initiative and the ISB Centre have done two research studies on India to analyse the effectiveness of energy and climate policies in the country.

In 2011, India launched Renewable Energy Credits, a market-based national policy, to give an impetus to the sector. The present study found that the Indian renewable energy certificate market is not likely to achieve Government objectives. Though the design mechanism appears adequate, the performance of the market has been far from satisfactory.

Somasekhar.m@thehindu.co.in

(This article was published on December 6, 2012)
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