The Clean Energy Investment Trends is a joint project of the CEEW Centre for Energy Finance (CEEW-CEF) and the International Energy Agency (IEA). By monitoring market activity and identifying market and financing trends, the project seeks to provide a practical guide to stakeholders for understanding how the interaction between risks and regulations is shaping investment flows. The insights generated from the analyses of financing and market trends could be used to inform future policy action geared towards enhancing investment flows.
Themes examined in the Clean Energy Investment Trends 2020 report
The Clean Energy Investment Trends 2020 report examines the appeal of utility-scale solar PV and onshore wind investment in India by analysing project-level equity returns over 2019 and the first half of 2020. Further, it examines key sensitivities of returns and stumbling blocks to attracting capital stemming from issues related to policy uncertainty, financial health of state distribution companies (discoms), demand risk, and land-related constraints. These pieces of analyses are complemented by an update on key renewable energy debt financing and market trends.
Key Findings
  • The availability and pricing of project debt finance has remained relatively stable over 2019 and the first half of 2020, with differences arising mainly due to off-taker risks.
    Utility-scale solar PV and onshore wind projects continue to be highly leveraged, with average debt-to-equity shares of around 75:25 (Figure 1). Lenders were also willing to lend for long tenures, of 16-18 years, at interest rates of around 10-11% (Figure 2). Where perceived risks were higher, so were interest rates; up to 50 basis points higher as compared to projects with the most creditworthy off-takers, controlling for other factors (Table 1).
Figure 1: Debt ratios of close to 75% are the norm for both solar and wind projects
Note: The debt ratio in this chart is weighted by capacity for the corresponding projects
Figure 2: Loan tenures for solar and wind are in the 16-18 year range
Table 1: Average interest rates by off-taker and type of project site
Off-taker Solar park Non-solar park Wind
SECI/NTPC/Gujarat 10.50% 10.65% 10.65%
Maharashtra - 10.75% -
Uttar Pradesh - 11.15% -
Note: These figures refer to lending rates charged by leading NBFCs for renewable energy loans over the period Jan 2019 to Jun 2020. Market interactions indicate that NBFCs were the largest lenders to Indian renewable energy sector over this period.
Source: CEEW-CEF and IEA market intelligence.
  • Equity internal rate of return (EIRR) expectations demonstrated considerable differences depending on off-taker risk, type of site, and in response to ongoing policy, regulatory, and market developments.
    Solar PV EIRR expectations stood at around 15% on a weighted average basis over the course of 2019 and the first half of 2020. These edged up from 14% in the first half of 2019, to 16-17% over the second half of the year through mid-2020 (Figure 3). This rise likely stems from policy and market uncertainty over potential contract renegotiation and the imposition or extension of duties on solar PV imports, later reinforced by supply chain uncertainties caused by Covid-19 and delays to power purchase agreement signings in 2020.
Figure 3: Equity IRR expectations have increased since early 2019
Note: Each point refers to the estimated expected EIRR for the L1 price at renewable energy auctions.
While EIRR expectations for central off-takers and Gujarat discoms were at par, in states where the off-taker utility presented a higher credit risk, required returns were assessed to be nearly 80-200 basis points higher in 2019 (Table 2). Higher spreads were observed for projects between centre and state off-takers in early 2020, perhaps reflecting higher risk aversion among investors as a result of the disruption caused by Covid-19 and other ongoing policy and market developments.
Table 2: Equity IRR expectations fell with increasing creditworthiness of off-taker
State off-taker projects Central off-taker projects
State Month of award EIRR Month of award EIRR Spread state-central
Gujarat* Feb 2019 11.9% Feb 2019 12.1% -0.2%
Maharashtra Feb 2019 12.9% 0.8%
Uttar Pradesh Jun 2019 18.1% Jun 2019 16.1% 0.8-2.0%
Jun 2019 17.3%
Uttar Pradesh Feb 2020 21.4% Feb 2020 15.8% 5.6%
Lower EIRR expectations are also associated with projects with better access to land and timely grid connections. EIRR expectations for projects to be set up on solar park sites (which provide developers with ready land and evacuation infrastructure) were 20-260 basis points lower as compared to those for projects where the developer made arrangements for land (Table 3).
Table 3: Comparison of equity IRRs for solar park and non-solar park projects
Solar park Month of award Equity IRR of solar park project Month of award of comparable non-solar park project Equity IRR of non-solar park project Spread
Dondaicha May 2019 13.0% Mar 2019 15.6% -2.6%
Raghanesda May 2019 15.3% Mar 2019 15.6% -0.3%
Dholera May 2019 15.4% Mar 2019 15.6% -0.2%
Raghanesda Aug 2019 15.3% Aug 2019 17.0% -1.7%
Dondaicha Aug 2019 15.4% Aug 2019 17.0% -1.6%
Note: Spreads for Gujarat solar park projects are computed relative to central non-solar park projects, given the lack of comparable non-solar park projects in Gujarat. This comparison was made considering the similarity in creditworthiness of Gujarat discoms and central tendering agencies. We compared solar park projects in May 2019 with non-solar parks projects from Mar 2019, to preclude the possible impact of Andhra Pradesh’s PPA renegotiations from colouring returns.
Limited tendering activity for wind power in 2019 precluded a comprehensive examination of equity returns in that sector. Projects analysed corresponded to those with more creditworthy off-takers (central agencies and Gujarat discoms) and estimated EIRR expectations averaged around 13 per cent (Figure 4). These were comparable to solar EIRR expectations for the same category of off-takers over the same time period. Moreover, the need to abide by tender-specific tariff caps in the face of rising equipment costs in 2019 due to limited supplier options could also have capped EIRR expectations.
Figure 4: Equity IRR expectations associated with wind projects
Note: Each point refers to the estimated expected EIRR for the L1 price at renewable energy auctions.
  • An evolving level of competition within tenders has been an important determinant of equity return expectations.
    Several recent tenders have been characterised by lower competition, in terms of the amount of capacity bid compared to that tendered, likely as a result of prevailing policy, regulatory, and market uncertainty. These tenders have been associated with higher expected returns by investors (Figure 5).
Figure 5: Higher tender competition was associated with lower equity IRR expectations
Note: The level of competition is measured as the ratio of capacity bid to capacity tendered. Low level of competition corresponds to a ratio < 1.0; medium level corresponds to a ratio between 1.0 and 2.0, and high competition corresponds to a ratio higher than 2.0.
  • The market concentration of developers sanctioning new solar PV and wind capacity has remained high, edging up for solar PV in particular. A shift towards fewer, top developers reflects their greater risk-taking capacity and ability to navigate the uncertainty associated with policy, regulatory, and market changes over the period (Figures 6 and 7).
While the top 10 solar PV developers (in terms of sanctioning capacity) have changed from one year to another over the 2015-2018 period, in 2019, this trend reversed—seven out of the top 10 solar PV developers in 2019 were the same as those in 2018 (Figure 8).
For wind, there has been a greater amount of churn among developers, perhaps indicative of waning interest to invest in wind capacity amid the heightened execution risks (Figure 8).
Figure 6: Solar PV markets remained heavily concentrated

Note: Solar-wind hybrid projects are excluded from this analysis.
Figure 7: Wind energy markets remained heavily concentrated

Note: Solar-wind hybrid projects are excluded from this analysis.
Figure 8: Churn rate for solar dropped considerably in 2019
  • The timely availability of suitable sites for setting up renewable energy projects is emerging as an additional challenge for both solar PV and wind projects.
  • Land-related constraints have slowed the development of solar parks, with the share of new solar PV capacity sanctioned in solar parks down to less than 10% in 2019 from over half in 2017 (Figure 9). In addition, challenges with land availability in wind-resource rich states have delayed wind project development and brought new tendering to a standstill, particularly in the wake of changes in land policies in Gujarat.
Figure 9: Diminishing share of solar parks in overall capacity awarded
  • Payment delays and volume risk* represent key downside risks that, if realised, can significantly undermine returns.
    Given the competitive nature of India’s renewable auctions, developers generally do not factor in these risks in their bids and underlying financial models. Yet, small negative variations in both factors can create considerable deviations between realised and expected returns - as illustrated in the trajectory of realised EIRR for the median expected solar EIRR over 2019 and the first half of 2020 (Figures 10 and 11).
Figure 10: Impact of payment delays on realised EIRR
Note: Each point refers to the estimated expected EIRR for the L1 price at renewable energy auctions.
Figure 11: Impact of lower volume of offtake on realised EIRR
Note: Each point refers to the estimated expected EIRR for the L1 price at renewable energy auctions.
Graphs have been developed using HIGHCHARTS software under the Creative Commons Attribution-NonCommercial 3.0 License

Key Indicators
Equity IRR expectations higher by
80-200 basis points
for state off-taker projects compared to central
Equity IRR expectations lower by
20-260 basis points
for solar park projects compared to non-solar parks projects
Lending rates higher by up to
50 basis points
for projects with state off-takers compared to central
Market concentration in 2019
for sanctioned solar PV and wind capacity
Share of solar parks
in overall solar PV capacity sanctioned in 2019