CEF Insights - Annual Issue 2023

The existing cap (INR 12/kWh) on the market clearing price (MCP) has traditionally restricted high variable cost generators from participating in power exchanges. The Ministry of Power’s high-price day-ahead market (DAM) segment will provide a platform for these generators, including battery energy storage systems, to sell costlier electricity on power exchanges. In return, buyers can access high-price DAM during high-demand periods.

The launch of high-price DAM in March coincides with the onset of the summer season. It will be interesting to see how high-price DAM addresses supply–demand mismatches in the upcoming high-demand months.

Like many other countries, India has been rolling out electric vehicles, including e-buses, for urban public transport. The appeal of these buses is that they have minimal costs of operation. However, this is the first time a double-decker e-bus has been launched in the country, that too on a gross cost contract (GCC) basis.

There have been quite a few e-bus deployments in various cities in India, but financing these vehicles has been a herculean task in itself. Therefore, it would be interesting to see what types of financing mechanisms the government and private players adopt. That being said, it is imperative to track the footfall in double-decker buses to determine whether they are profitable.

Green hydrogen production requires large capital investments and policy support to transform India into a global hub. Funding for large-scale green hydrogen projects is at a nascent stage, and the European Investment Bank’s (EIB) funding support can help lower the risk perception among investors, thereby expediting the decarbonisation of the economy.

What will be the eligibility criteria for large-scale hydrogen projects for receiving this funding?

What will be the cost of borrowing under the separate credit facility that aims to commercialise upcoming green hydrogen technologies?

The allocation of INR 35,000 crore (~USD 4.2 billion) is a priority capital investment towards the energy transition, net zero objectives, and energy security. However, it is noteworthy that of the total allocation, INR 30,000 crore was capital support to oil marketing companies (OMCs), and INR 5,000 crore was earmarked to augment India’s strategic petroleum reserves.

What activities do OMCs eventually fund against the INR 30,000 crore allocation? A range of activities will ultimately need to be financed to close the estimated average annual USD 28 billion investment gap to achieve net zero by 2070.

Although not India’s first sub-sovereign green issuance, it comes soon on the heels of India’s maiden issuance of INR 16,000 crore (~USD 2 billion) worth of sovereign green bonds in two tranches. The pricing advantage achieved in the sovereign issuance and the 5.91x oversubscription garnered by the Indore Municipal Corporation are powerful indicators of the appetite for green at all levels.

A record USD 3.6 billion was raised by Indian RE developers in international debt capital markets in the first six months of 2021, but that was during a low dollar interest rate environment. With rising USD interest rates, raising money overseas has become increasingly expensive. Will this sub-sovereign issuance also spur growth in the domestic INR corporate green bond market?

Lithium is a key mineral used in producing lithium-ion batteries, which are essential for advancing the energy transition. India’s domestic industry requires access to a predictable supply of critical minerals to become more self-reliant in clean energy manufacturing. These minerals are often concentrated in geographies characterised by unfavourable commercial regimes or political instability. In this context, the lithium deposits could translate into reserves that meet a portion of these needs.

It remains to be seen what scale of reserves these deposits yield. Besides lithium, domestic industries require reliable access to several other minerals, such as cobalt and nickel (used in storage), palladium (used in electrolysers), and rare-earth metals, to support the indigenisation of domestic clean energy manufacturing. For this purpose, India needs a concerted strategy to secure these minerals to further its energy security.

Punjab became the sixteenth Indian state to provide consumer incentives to its EV buyers. States with EV subsidies have shown 2X higher growth in EV volumes compared to states without them. With the FAME II policy ending soon, the onus now rests on state policies, such as the one introduced by Punjab, to drive India’s EV transition.

Punjab’s EV sales trends have plateaued over the last year. The introduction of subsidies for its e-2W and e-rickshaw segment, which together form 95 per cent of all EVs in the state, can be expected to boost the state’s EV volumes and penetration over the next year.

This list of activities eligible to generate credits for carbon trading under Article 6.2 is expected to attract investments from international sources and facilitate the adoption of emerging technologies. It has the potential to close the investment gap of USD 3.5 trillion that India will face in achieving net-zero by 2070.

Japan and Singapore have expressed interest in cooperating with India under Article 6.2. It will be interesting to note which other countries will follow suit and, out of the 13 activities, which activities will attract the most investment.

India needs over USD 10 trillion in investments sourced from conventional and non-conventional pools of capital to meet its 2070 net zero targets. Defining the various subcategories of green, social, and sustainable (GSS) bonds is essential to building domestic markets for such securities. These bonds can play a part in financing India’s Nationally Determined Contribution (NDC) targets and beyond, especially in sectors such as water and others in their infancy.

Who will issue and subscribe to these subcategories of green bonds? 

What features, sizes, and benchmarks can be created for each subcategory? 

The role and usage of these securities in the process of building up national green infrastructure will be interesting to note.

India's significant and expanding energy needs, coupled with its projected population overtaking China's, make it a crucial player in global climate change targets, as highlighted by the World Economic Forum (WEF). Recognizing the urgency of transitioning to green alternatives and reducing reliance on fossil fuels, India's latest Budget demonstrates the government's commitment to propel the economy, create new sectors, boost GDP, and ultimately achieve net-zero carbon emissions by 2070.

What potential impact do industry officials foresee as a result of the budget allocation of Rs 35,000 crore for green energy transition and the additional benefits for the renewable sector?

India has limited solar module manufacturing capacity, which has resulted in a significant dependence on imported modules for solar installation. To become self-reliant, the Indian government launched the Production-Linked Incentive (PLI) scheme for high-efficiency solar modules in 2020 and allocated 8,737 MW capacity under Tranche I in 2022. With the recent allocation of 39,600 MW under Tranche II, India is gearing up to achieve 48 GW of domestic manufacturing capacity by 2026.

(a) Will there be a mandate to provide demand security for these high-efficiency solar modules, such as the domestic content requirement (DCR) for these high-efficiency solar modules, at least in government tenders to provide demand security?

(b) India aims to become a solar module exporter eventually. Hence, it is critical to monitor the cost-competitiveness of domestically manufactured solar modules in domestic and international markets.

Since Phase 2 of the Ministry of Heavy Industry’s FAME policy for electric vehicles (EV) is ending in 2024, there is anxiety in the market regarding the uptake of EVs. In this context, a Parliamentary Committee has suggested not to scrap it entirely but extend it by two years to address concerns and uncertainty in uptake and the instability of all the new start-ups in the industry that may have to shut down.

The FAME subsidy(s) have led to a significant rise in sales and start-ups in its nine years of existence. However, the subsidy has failed to produce an organic and indigenous supply chain in the country. 

Moving forward, it would be interesting to see how EV subsidies are designed to address this issue, given India is considered a leader in automobile manufacturing.

This partnership demonstrates a growing interest in green hydrogen in India. Considering that there are only a handful of electrolyser manufacturers in India, the agreement between L&T and McPhy Energy is a step forward in meeting India’s domestic electrolyser requirement of 60 GW, as estimated by NITI Aayog.

About 35 per cent of the price of green hydrogen is the electrolyser cost. How will L&T raise finance for the planned gigawatt-scale manufacturing facility? Will it be eligible to access funding provided under the Strategic Interventions for Green Hydrogen Transition Programme (SIGHT) programme of the Green Hydrogen Mission?

The lifting of the mandate allows the use of solar modules manufactured by foreign manufacturers (beyond those in the earlier approved list) for government projects, schemes, and programmes, as well as open access and net-metering projects. This solar push will benefit projects of ~25 GW granted before the Approved List of Models and Manufacturers (ALMM) was introduced, but whose commercial date was set after it. The government has also imposed a 40 per cent basic customs duty on module imports and a 25 per cent duty on cell imports.

Some overseas manufacturers are introducing superior and efficient products at an even lower cost. When can our indigenous manufactured units at least match international quality and pricing? How can the government continue pushing for solar energy while promoting domestic manufacturing?

EV registrations have crossed the one million mark in FY 22–23, and the transition is being led by e-2W and e-3W. However, a closer look reveals stark differences. FAME II approved models account for approximately 93 per cent of e-2W sales since FY20. In contrast, only 12 per cent of e-3W volumes were FAME II approved models. Further, as of September 30, 2022, approximately 70 per cent of the FAME II subsidy allocation remained undisbursed.

Can the higher incentives for e-3W spur volume growth in approved models? Evidence shows that states that offered higher incentives to e-2W benefitted from a more than 4x higher e-2W volume growth compared to states that offered lower incentives.

Reserve Bank of India (RBI) rules require that a minimum of 75 per cent of non-banking financial companies – infrastructure finance company (NBFC-IFC) assets be deployed in infrastructure loans. As an NBFC-IFC, Indian Renewable Energy Development Agency (IREDA) can take higher exposure to eligible infrastructure categories, such as electricity generation. This should ensure that IREDA remains focused on lending to segments such as renewable energy (RE), thereby better supporting India’s energy transition.

India’s erstwhile 450 GW RE target by 2030 required investments in generation totalling USD 200 billion between 2020 and 2030. Investments needed for the revised 500 GW non-fossil fuel capacity by 2030 target are comparable. The overall exposure of all domestic banks and NBFCs to the power sector is approximately USD 160 billion. Opening up the domestic bond market could help ease potential financing constraints.

India’s transition to EVs will be led by categories such as e-2W and commercial vehicles, that are most amenable to electrification. The availability of easy finance for these vehicles is key to their mass adoption. The State Bank of India (SBI), one of the first movers in EV financing, through its ‘green car loan’, has extended the contours of its EV portfolio beyond passenger vehicles. This can be expected to have ripple effects among other financiers.

The growing popularity of EVs, especially for commercial use, may encourage more industry players to come together and forge such partnerships. Innovative financing that is jointly made available by original equipment manufacturers (OEMs) and financiers could play a key role in combating the inherent cost disadvantage of EVs, thus making them more accessible to the end consumer.

The announcement comes in the wake of India’s Green Hydrogen Mission, launched in January 2023, which aims to drive the production of 5 MMT of green hydrogen annually by 2030.

The announcement, which includes plans to convert all tugboats in the country to non-fossil fuel-based alternatives by 2030, is expected to drive domestic demand for green hydrogen. Further, greening of tugboats powered by hydrogen and its derivatives is a key step in decarbonising India’s maritime sector.

What technology will be championed in the initial hybridisation of tugs? How will hydrogen and its derivatives-fuelled tugboats overcome cost challenges? Further, retrofitting tugboats poses particular challenges, and it will be interesting to see how the government extends support to mitigate them.

The developing world needs investments of USD 2.4 trillion annually by 2030 to build climate-related infrastructure. Of these investments, more than half would need to come from developed economies, which today are contributing far below the promised USD 100 billion. In this scenario, the role of multilaterals with improved products, essentially grants and improved speed of deployment, would be critical for the finance to flow into economies like India.

Will the diversion of funds from developed economies to meet global climate objectives happen? Can the scale of ambition of countries such as India, which alone needs ~USD 527 billion just for its power sector by 2030, be attractive to overseas investors? How the multilaterals would respond to solve this investment challenge, provide support in increasing the capital flow, and aid in de-risking investments remains to be seen.

To establish itself as a global electric vehicle manufacturing leader, India should focus on 100 per cent electrification of its two- and three-wheelers and their sales within the next five years. Such efforts will not just place India at the forefront of global EV manufacturing but also aid in achieving its larger climate goals.

We may see increased research and development of electric vehicle components and partnerships between Indian companies and global manufacturers.

The future of green mobility in India looks promising, and we can expect to see continued progress towards a cleaner and more sustainable transportation system.

Most installed renewable energy (RE) capacity is financed through traditional financing sources, which may not be sufficient to finance upcoming RE capacities. This is where infrastructure investment trusts (InvITs) can come in to fulfil investment requirements. As of April 2023, Virescent Renewable Energy Trust is the only RE InvIT in India, and the success of Mahindra Susten’s InvIT could encourage RE developers to explore InvITs as an alternative financing source.

To achieve its 500 GW RE target by 2030, the Ministry of New and Renewable Energy (MNRE) has directed RE implementing agencies to conduct 50 GW of RE bids each year till 2027–28 to augment RE capacity addition. Given this, the investment requirement will go up. To fulfil it, will RE developers explore the InvITs route?

Valuation of InvITs and investors’ shares in it will be interesting factors to watch out for. 

In FY2022, just about 15 GW of RE was auctioned in India. Beginning in 2023, the MNRE plans to auction 50 GW of utility-scale RE capacity for the next five years to achieve approximately 250 GW of new additions by 2028. This is a mammoth task in terms of sheer scale, almost comparable to what China achieved with solar last year (~53 GW in 2021), when they ended solar subsidies.

The plan also includes setting up at least 10 GW of wind power. Since the government has pulled the plug on reverse auctions, it would be interesting to see what bidding arrangements and regulations the Ministry of Power (MoP) and MNRE adopt this time. Another key factor is how the indigenisation of the supply chain plays into this. Prima facie, it seems that current indigenous manufacturing of this scale (50GW per annum) is almost impossible to imagine.

India already has a thriving voluntary carbon market, and the core carbon principles will further advance its growth by ensuring the integrity, reliability, and credibility of offsets/credits. A robust and well-governed voluntary carbon market enables transparency and accountability, which are essential for maintaining investor confidence in the market and unlocking additional investments for low-carbon projects.

The quality and integrity of carbon credits will depend on the uptake of core carbon principles by project developers.

Will implementing these principles drive significant climate finance towards the sustainable development needs of India?

Power Finance Corporation (PFC) is one of the major financing schemes for electric vehicle (EV) assets in the country. It aims to diversify in the E-mobility space using debt financing for early-established start-ups like BluSmart. This will boost the government‘s efforts towards achieving its ‘net zero’ emission target. In FY23, EV sales for the passenger 4W(C) were just over 7000 units. This scheme aims to deploy and acquire 5,000 passenger and 1,000 cargo EVs by BluSmart.

Will investments by central public sector undertakings (CPSUs) such as the PFC spur growth for other start-ups in the e-mobility space?

Will other non-banking financial companies (NBFCs) be encouraged by this move from the leading power sector lender?

India’s energy transition financing needs are significant, and achieving its targets depends on getting private capital to flow towards the transition at a significant pace. Blended finance involves leveraging scarce public capital to mobilise private capital, many times the quantum of the public capital. This can effectively bridge the large investment gap on the road to India’s 2070 net zero target.

Blending usually requires the public capital portion to be offered as grants or on concessional terms. Will developed countries that have significantly under-delivered on their promise of providing USD 100 billion per year of climate finance to developing countries seize this opportunity to make up for lost time?

A national carbon market will have wide-ranging implications for Indian corporates. It should be considered against the context of an ecosystem where Scope 1 and 2 emissions disclosure will become mandatory for large listed companies under SEBI’s Business Responsibility and Sustainability Report (BRSR) reporting. Internal carbon pricing can be a valuable tool for corporates looking to direct capital towards internal low-carbon investments and, in the process, lowering external capital outflow requirements for carbon credit purchases.

Shadow carbon credits already exist in the form of renewable energy certificates (REC), which assign a value to the green component of electricity. What will be the price of carbon that is eventually crystallised on the carbon market, and how will fungibility work between carbon credits and RECs?

Odisha has amended its 2021 EV policy to provide higher purchase incentives to EVs across all categories to boost EV adoption in the state. It now extends INR 5,000/kWh to e-2W and INR 10,000/kWh to e-4W, with ceilings of INR 20,000 and INR 1.5 lakh, respectively. E-3W will also receive a flat subsidy of INR 30,000.

A CEEW-CEF analysis demonstrates that states with higher incentives record superior EV volume growth. Tthis move towards higher subsidies may see a more successful greening of Odisha’s transport sector, which currently sees low EV volumes and penetration levels of just 5 per cent. Presently, only 80 out of the country’s 500 EV original equipment manufacturers (OEMs) operate in the state,

this move may provide greater confidence to them to enter this market.

The introduction of these standards by the Bureau of India Standards (BIS) may improve customer usability and increase the charger utilisation rate for charging point operators (CPOs). It could also reduce some of the financial risks associated with the EV sector. Furthermore, the interoperability of the charging network will increase the EV penetration, and widespread EV roaming may be achieved.

Will this standardisation build confidence for the EV financiers? Whether these standards further trickle down to standardisation of one or two types of chargers as per the power requirement of an EV?

Approving the land policy for green hydrogen (GH) production and earmarking land towards identified corporates in Gujarat can provide a big push toward achieving the national 5 MMT GH production target by 2030. Per estimates, the allocation could support almost 4 MMT of GH and 100 GW of RE production in the state. However, the actual implementation and deployment pace for these projects will depend on the economics, incentives, GH demand, and other factors.

What other incentives (beyond land) would be required for increasing GH projects on the ground? Who will be the consumers of GH? How will the financing manifest, and what will be the terms?

Developing a green hydrogen fuelling station, established by Jackson Green, can hasten India’s progress toward achieving net zero emissions. Once operational, it is projected to offset 3.7 tonnes of carbon dioxide every day, reinforcing hydrogen‘s crucial role as a new energy transition fuel. This will reduce India’s dependence on imported crude oil, minimise pollution, and aid Indian efforts towards a greener tomorrow.

Sufficient production of green hydrogen, secure storage solutions, and distribution networks need attention.

We can look forward to how it will leverage a part of the new power technology mix in the Indian automobile industry.

In its latest nationally determined contributions (NDCs), India committed to achieving 50 per cent of the installed generation capacity from non-fossil fuel-based resources by 2030. As of FY23, the share of non-fossil-fuel-based generation capacity crossed the 40 per cent mark, and the share of coal-based generating capacity continued to decline. In GW terms, the non-fossil fuel-based generation capacity reached 172.1 GW versus the 500 GW target.

In a move to achieve the 500 GW target, in April 2023, the Ministry for New and Renewable Energy (MNRE) announced the RE bidding trajectory. It directed implementing agencies to conduct bids of 50 GW annually till FY28. What steps will be taken to increase the share of variable RE in the grid and ensure the grid'’s security and reliability?

Access to finance seems to be a major concern for electric vehicles (EVs). In this context, after extensive consultation with various stakeholders in the EV space, the Small Industries Development Bank of India (SIDBI) has launched a pilot scheme that aims to scale up EV adoption among small businesses. It plans to offer attractive terms of finance such as low interest rates for purchase, charging infrastructure, and swapping. The project is co-run by the World Bank under their EV4ECO programme.

What will be the exact terms of financing for micro, small, and medium enterprises (MSMEs) (interest rates, tenures, eligibility criteria etc.) under the pilot scheme?

Will MSMEs, often plagued by inadequate capital, be able to access this money successfully? And if so, under what conditions?

In light of the evolving wind turbine generator technology, MNRE published the draft wind repowering policy in October 2022 to incorporate latest technology, improve land utilisation, and increase wind power generation capacity. However, to facilitate the repowering of old wind turbines, challenges such as evacuation infrastructure modification, decommissioning costs, and lack of a conducive regulatory environment need to be addressed.

As of April 2023, the installed wind power capacity in India was 42.8 GW and MNRE estimates it to reach 100 GW by 2030. Since wind rich sites are scarce and existing good wind resource sites have already been utilised by older turbines with lower CUF, what steps will the government take apart from releasing a policy to make wind repowering a financially appealing case to the developers and reach the 100 GW target?

The recent reforms to the ‘Approved List of Models and Manufacturers for Solar Photovoltaic Modules’ (ALMM) by MNRE should significantly impact the solar manufacturing industry. With an 80 per cent reduction in application fees and relaxed time constraints, domestic manufacturers will be encouraged to enter the market. This could increase domestic manufacturing capabilities, introduce a wider range of module options, and generate more employment opportunities.

Will these reduced application fees and streamlined enlisting procedures entice foreign manufacturers to start operations nationwide?

How might such steps eventually contribute to increasing industry competition and aid in lowering module prices?

The announcement came during a side event of the Energy Transition Working Group (ETWG), which falls under the Sherpa Track of the G20. The new renewable purchase obligation (RPO) trajectory announced in July 2022 features a dedicated wind RPO for projects commissioned after March 31, 2022. It also features an energy storage obligation (ESO). A balanced mix of renewables and storage is essential as the share of renewables (including hydro) has crossed 40 per cent of installed capacity.

Given that offshore wind is an expensive technology, viability gap funding (VGF) will be on offer. Bidders with the lowest VGF bids will win capacity, which is then expected to be sold to off-takers. Tamil Nadu and Gujarat are reportedly willing to purchase power at INR 4.0 per unit. 

At what price will VGF eventually come in? That will indicate the actual cost of offshore wind.

While temporarily breaching the 1.5o C warming threshold in the next five years is not the same as a long-term 1.5o C increase in global temperatures, the World Meteorological Organization (WMO) report indicates that sufficient progress has not been made in cutting emissions. As a result, managing climate risks is increasingly important for financial institutions, as noted in a July 2022 Reserve Bank of India discussion paper on climate risk and sustainable finance.

With financial supervisors noting that climate risks threaten financial stability, it would be interesting to see how regulation facilitates the management of climate risks by financial institutions. Lending and investment mandates for financiers and concessions on regulatory requirements (such as capital adequacy) for climate-aligned investments are some possibilities regulators could consider.

A CEEW-CEF publication shows that e-2W are better placed to reach their FAME policy targets than other categories. The policy initially provided incentives worth INR 10,000/kWh to e-2W, subject to a cap of INR 20,000/vehicle. In 2021, this was increased to INR 15,000/kWh, up to 40 per cent of the e-2W cost. The recent amendment reduces the e-2W subsidy back to INR 10,000/kWh, which is up to 15 per cent of the vehicle’s cost today.

As FAME II nears completion, it has met only 56% of its e-2W target. Lowering unit subsidies is an attempt at subsidising a larger volume of the country’s most successful EV category. With an increase in the total allocation from INR 2,000 crore to INR 3,500 crore, it remains to be seen whether 4,00,000 e-2W can be subsidised by March 2024.

The recent announcement emphasises India’s commitment to transitioning its maritime sector towards cleaner fuels, further advancing the earlier commitment to convert all tugboats to non-fossil fuel-based alternatives by 2030.

The integrated approach may create domestic demand for green hydrogen, which aligns with India’s comprehensive Green Hydrogen Mission, which aims to produce 5 MMT of green hydrogen annually by 2030.

What policy incentives will be introduced to address the concerns of financiers regarding the high costs associated with hydrogen bunkering, considering it is a novel technology?

EV sales have been continuously multiplying in the country. EV penetration, which was around 1% at the beginning of FY23, topped 5% by the end. However, financing, which acts as an enabler, may grow at a tepid pace impacting overall adoption rates. The risk matrices for EVs as a lending class are yet to crystalise, and there’s no secondary market for them, unlike traditional vehicles, impacting the appetite of financiers.

What policy measures will come up to allay the fears of financiers?

Can some instruments like the World Bank–SIDBI First Loss Guarantee kick-start the EV financing revolution in the country

India’s carbon credit trading scheme reflects its dedication to decarbonisation and clean energy sources, representing a significant step towards establishing a domestic market. Drawing from experiences such as the Clean Development Mechanism and the voluntary market, the government has taken informed steps to make this semi-voluntary initiative a reality. While it will require time to activate the market fully and set mandatory targets, it demonstrates India’s proactive approach and commitment to addressing climate change.

There are three ways of pricing carbon: establishment of a domestic carbon tax, use of an emissions trading system, and application of an import tariff on the carbon content.

How is India planning to price carbon emissions? 

Earlier this year, the Cabinet approved the National Green Hydrogen Mission. It aims to set up at least 5 MMT per annum of green hydrogen production facilities by 2030 which will require a renewable energy (RE) capacity addition of ~125 GW. NTPC's deal with Ohmium for proton exchange membrane (PEM) electrolysers is a significant contribution towards the achievement of the national target as well as NTPC's target of 60 GW RE by 2032.

Will this deal act as a catalyst in the development of green hydrogen production facilities in India and enable its path towards a green hydrogen powerhouse? 

It will be interesting to see who NTPC will sign the buy-side contract with.

After the announcement of the much talked about National Green Hydrogen Mission (NGHM), this is the most significant policy announcement concerning green hydrogen. The document outlines incentive programs that will be implemented between 2025-26 and 2029-30 respectively as part of the NGHM. It is worth mentioning that the total outlay of Rs 175 billion is broken down to Rs 44 billion for electrolysers and the rest to support GH2 manufacturing.

It will be interesting to see, how much of the outlay is actually used and by what type of firms and industries?

Additionally, what will be the bureaucratic bottlenecks and loopholes concerning reimbursement of these incentives and how the government aims to tackle those is very crucial.

Realising India’s clean energy ambitions requires capital mobilisation of at least USD 200 billion. RE projects are typically financed by conventional sources which may not have sufficient headroom left for further lending. Green bonds offer a lucrative alternative to meet RE financing needs owing to medium and longer tenors and greenium among other benefits. Indian developers see substantial interest in international green bond issuances as they have been oversubscribed by 3.6 times on average.

Will the introduction of a framework for sovereign green bonds (SrGB) in 2022 and the USD 2 billion SrGB issuance in Q1 2023 enhance market confidence?

Will green bond issuances, both domestic and international, be able to fill the financing gap for RE deployment in India?

This significant milestone, coupled with a notable 14% EV penetration in the previous month of May, highlights the effectiveness of the Delhi government's incentives and policies. However, the distribution among EV categories remains unchanged. Electric four-wheelers (E4Ws) account for only around 11% of total EV sales, while electric two-wheelers (E2Ws) dominate with 65%. Moreover, the Delhi Government has an ambitious target of achieving 25% EV penetration by 2024, to accelerate the transition.

What measures will the government take to ensure fulfillment of this ambitious target?

With increasing EV penetration, the need for improved and robust charging infrastructure is even more crucial. What more steps are required to accelerate it?

As the share of variable renewable energy (RE) increases, so does the need for solutions that balance out its intermittent nature. In FY 23, variable RE accounted for 11.8% of India’s electricity generation. Going forward RE capacity addition is expected to be dominated by solar, which sees peak generation during daytime hours. Measures that make electricity cheaper when it is plentiful can be an efficient way to balance the grid.

To what extent can measures such as dynamic tariffs, acting in concert with innovative procurement formats such as round-the-clock (RTC), limit the need for expensive storage solutions, including pumped hydro?

While market mechanisms pertaining to emissions abatement already exist (REC, PAT, and the emerging CCTS scheme), this is the first such mechanism that targets broader environmental attributes. This can potentially be a starting point for a broader structured push for using fiscal and financial regulation to advance sustainability.

Will the proposed voluntary nature of the demand of these green credits be sufficient to generate demand?

Will financial regulators issue complementary regulation that targets broader environmental considerations than climate?

The Ministry of Heavy Industries recently announced that the INR 15,000/ kWh FAME II subsidy on e-2Ws, was to be revised downwards to INR 10,000/ kWh from 1st June. The policy previously subsidised up to 40%  of the cost of an EV, which in some cases helped reverse its inherent price disadvantage. The reduction in subsidy amount is expected to hike up e-2W prices, thus impacting their demand.

The reduction in subsidy amount has already negatively impacted the demand for e-2Ws. May witnessed an e-2W sales peak of 1,05,283 units. However, less than a quarter of that has been sold as of 22 June. E-2W sales, and by extension EV sales as a whole may see a sudden dip over the next few months. However, as more states release their EV policies, we may see the segment recover in time.

Chandigarh becomes the first city to ban ICEV 2W and 4W registration, once the registration target for this financial year is reached under its pioneering EV policy. To promote wider EV adoption, the policy integrates command and control regulations, incentives, and a dedicated consumer category for EV charging. Chandigarh's proactive approach in leading the transition to green mobility sets an exemplary model for other regions to follow.

The suddenness of the policy decision may disrupt the market. Buyers may instead opt to register their ICEV in the neighbouring states to circumvent the ban. It remains to be seen how the state administration will effectively manage the potential challenge and enforce the ban?

The development is notable as it aims to address the capital constraints typically faced by Micro, Small, and Medium Enterprises (MSMEs) and emphasizes the importance of their green transition in India. MSMEs not only contribute significantly to greenhouse gas emissions but also have the highest employment footprint. The collaboration between IFU and UGRO Capital holds the potential to drive sustainable practices by providing essential financial support, promoting eco-friendly initiatives, and fostering green entrepreneurship in the country.

In the coming months, it will be worth looking forward to the tangible outcomes of the collaboration between IFU and UGRO Capital. Specifically, keep an eye on the innovative green financing solutions that will be offered to Micro, Small, and Medium Enterprises (MSMEs) in India. The partnership aims to support the green transition of these businesses, so tracking the implementation and impact of the provided financial support on MSMEs' sustainability efforts.

It is tough to decarbonize various sectors including heavy transportation with the present low-carbon or carbon-free technology, such as solar, wind, lithium-ion batteries, etc. The domestic output for green hydrogen is predicted to increase to a whopping 55 MT by 2050, Hydrogen is expected to alleviate these challenges and help decarbonize these difficult-to-abate industries.

Will India establish any policy or regulatory framework to promote the growth and implementation of hydrogen technologies in various industries?

India is already looking westward by exploring a link with the UAE. Connecting with Singapore on the east will position India at the centre of two regions that are home to fast-growing and dynamic economies. It can also mitigate grid integration challenges that will inevitably follow as the share of RE (including hydro) generation doubles from 22.8% in FY23 to 43.3% by 2030, per the RPO trajectory.

Can linking transmission lines to transport electricity have a wider geopolitical impact? Supply chains for oil and gas have traditionally been associated with stronger links between countries at various points of the chain. Will the same repeat in the case of RE?

The importance of energy storage in mitigating the inherent intermittency of renewable energy (RE) is well documented. Despite being one of the key storage technologies, pumped hydro has not gained much traction in India until very recently. With this tender of 2 GW, the National Thermal Power Corporation’s (NTPC’s) RE wing aims to carry out an in-depth exploring pumped hydro as an energy storage solution.

Pumped hydro is capital-intensive and has environmental implications. Additionally, construction takes several years to complete, many of which are spent on assessments, studies, land acquisition, and planning. In that context, it is susceptible to regulatory vagaries and cost overruns. It will be important to see how regulatory and clearance issues are handled and environmental considerations accounted for and how long it takes for the project to be completed.

FAME (Faster Adoption and Manufacturing of Electric Vehicles) has catalysed the growth of India’s electric vehicle (EV) ecosystem by incentivising both demand and supply. Despite robust EV sales, some gaps remain. The ecosystem still requires support till EVs gain wider consumer acceptance. The continuation of FAME will boost EV adoption and could herald the emergence of a robust indigenous supply chain.

Will FAME lll set an official EV target – something the first two versions did not incorporate? Will it feature higher per-vehicle incentives to spur volume growth of approved electric three-wheeler models? Will it introduce incentives for light-duty vehicles?

India’s electric mobility transition has so far been dominated by just two categories – namely, two-wheelers and e-rickshaws. Together, they account for ~95% of EV volumes. As these vehicles can be easily charged in a residential setting or even in unorganised charging hubs, their volumes have grown without much recourse to organised public charging infrastructure. However, a holistic transition will require volumes to grow across all categories, including four-wheeler passenger cars.

Achieving India’s vision for electric mobility by 2030 (as presented by NITI Aayog) would require a formidable USD 206 billion in terms of consumer spending. In comparison, the investment requirement for corresponding charging infrastructure is estimated to be USD 2.9 billion. Can meeting the relatively modest investment requirements of charging infrastructure organically catalyse the far larger consumer spend amount?

The Central Electricity Authority expects India’s energy needs to grow 1.7 times by 2030, from 2022 levels. To strike a balance between its energy security and decarbonisation objectives, India needs substantial deployment of low-emissions technologies. If effectively deployed as blended finance, this amount of USD 1.5 billion can aid in scaling up such technologies, as it is estimated that setting up 450 GW of RE generation capacity would require USD 200 billion.

This investment aims to address viability funding gaps and off-taker risks and boost grid integration. Considering that solar and wind technologies are commercially viable, will it focus on financially underserved technologies such as offshore wind and storage? Will the investment be able to suitably de-risk and stimulate private capital flows to such emerging technologies?

India’s National Green Hydrogen Mission envisions the development of India as a global hub for the production and export of green hydrogen. This represents the first occasion when a port has allocated land for this purpose. Projects primarily targeting export markets would be well suited for international debt financing.

What will be the share of international versus domestic off-takers for the green hydrogen produced? Would certain geographies dominate the international demand? Will the project be able to secure international debt financing?

As a leading auto manufacturing state, Tamil Nadu could play a vital role in India’s EV transition. It provides multiple incentives to promote investments as capital and turnover subsidies, reimbursements, and exemptions, all of which have helped it attract investment commitments worth INR 43,000 crore (~USD 5 billion) for EVs in the last two years alone. In comparison, India expects total EV investments worth USD 191 billion in vehicle production, battery manufacturing, and charging infrastructure by 2030.

In addition to providing manufacturing subsidies, how else can Tamil Nadu signal its EV readiness to investors, including subsidies for charging infrastructure? Will this further spur EV adoption in the state, which is currently the sixth-largest market by volume in the country, but has an EV penetration of just 4%?

In FY23, the share of RE (including hydro) in the total generation mix stood at 22.8%. As per the RPO trajectory, this percentage would need to grow by two times to 43.3% by 2030. As most of the growth is estimated to come from variable RE, the introduction of solar Time-of-Day (ToD) tariffs will encourage the efficient use of solar energy by shifting loads to solar hours and offering cost savings to consumers

Smart meters are a prerequisite as per the ToD amendment. However, of the 250 million smart metres expected to be deployed by 2025–26, only about 5.5 million have been installed as of February 2023. What steps will the government be taking to accelerate the deployment of smart meters for commercial and industrial consumers by 2024, and for residential consumers by 2025, so that more consumers can take advantage of this development?

India would require INR 13.9 lakh crore (~USD 200 billion) to install 450 GW of RE by 2030. PFC can play an important role in bridging the gap between the required and current finances available to RE technologies. In PFC’s loan portfolio, the share of conventional generation sources is steadily declining, with a shift in focus to RE-based generation. In addition, PFC’s commitment will also cover projects related to green hydrogen and battery storage.

PFC as an entity has been historically lending to state-owned gencos and discoms. Will its ongoing shift towards RE also coincide with a shift in balance towards the private sector? PFC plans to invest in offshore wind, pumped hydro storage, and solar module and cell manufacturing. Will investments in such technologies be increasingly routed through the PFC’s GIFT City subsidiary, which is currently awaiting RBI approval?

Till recently, the private sector was not allowed to mine minerals such as lithium, beryllium, niobium, tantalum, titanium, and zirconium. Approval for mining these critical minerals comes on the heels of the recent announcement by the Ministry of Mines, which has specified 30 minerals, including those which are critical for the energy and mobility transition. A composite licence to conduct exploration,  undertake prospecting operations, and operate mines can encourage more private investment in the sector.

How will the government ensure sustainable and responsible mineral exploration and mining? Given the criticality of these minerals, will the regulations governing their mining substantially differ from those for other minerals? This amendment is intended to attract private players. However, how the licences will be allotted (auctions or direct allotment) remains to be seen.

The shift to electric vehicles (EVs) is largely dominated by two-and three-wheelers. Electrification of public transport has remained subdued, with only ~5,000 e-buses on-road (August 2023). By approving the PM-eBus Sewa scheme, the government targets to achieve two purposes: catalysing the adoption of e-buses and providing an organised public transport system to underserved cities. The scheme has a target of 10,000 e-buses and associated infrastructure in 169 cities under the public-private partnership model.

Will this scheme complement the much-awaited FAME-III scheme or act as a substitute for subsidies it may provide to e-buses?

Who will lead the deployment of e-buses under this scheme?

Will the special emphasis on establishing charging infrastructure help catalyse the electrification of public transport?

The scheme will cover cities with a population above 0.3 million; what other criteria will be employed to select the cities that will benefit from this scheme?

India’s electricity consumption is touching record numbers. This is also evident in the growing electricity demand in the national capital. The state’s draft action plan on climate change aims to diversify its electricity mix by reducing the dependency on hydropower and shifting towards energy storage. Given the scale of electricity demand and the current status of battery storage technology, such a step is both bold and pioneering.

Since electricity demand is only set to grow from here, what other steps could the Delhi government take to deal with peak demand? Will moving away from hydropower lead to power outages?

What will be the quantum of investment required for the installation of the additional storage capacity to offset the reduction in hydropower dependency, and who will bear it?

As per the Central Electricity Authority, the wind energy sector could account for 140 GW of capacity by 2030. In an effort to realise the potential of onshore wind projects, the government released the draft wind repowering policy in 2022. With the government’s announcement to conduct bidding of offshore wind energy projects and provide viability gap funding (VGF) for the same, the offshore wind sector can also contribute to achieving the 140 GW.

To lower the cost of offshore wind projects and boost their adoption, the government waived off the Inter-State Transmission System (ISTS) charges for such projects in May 2023. With the announcement of VGF for offshore wind projects, the costs can come further down. Will these incentives be enough to attract developers to bid for these projects?

In March 2023, India announced a bidding trajectory for renewable energy (RE), which envisages bid issuance of 50 GW per year for five years commencing FY 24. This is more than 2x the capacity that has been auctioned in recent years. As RE projects are often ~75% debt financed, lenders such as IREDA will need to significantly enhance the scale of their operations if bid issuance is to translate into incremental on-the-ground RE capacity addition.

While auctions for RE capacity have picked up pace in Q1 of FY 24, they remain slightly below the average of 12.5GW per quarter rate that annual bids of 50GW per year translate into. Will we see a further pick up in the pace of auctions flowing from the enhanced bidding trajectory in the coming quarters?

India's National Green Hydrogen Mission aims to position the nation as a global centre for both, the production and export of green hydrogen. An essential step in producing green hydrogen from water is electrolysis. Fostering the growth of domestic electrolyser manufacturing through such tenders, and concurrently implementing incentives like exemptions on transmission charges and banking fees could help India achieve its target of producing 5 MMT per annum of green hydrogen production  capacity by 2030.  

How can demand aggregation be effectively managed to promote the penetration of green hydrogen in the domestic economy?

What measures will be required to achieve export ambitions as a part of India’s National Green Hydrogen Mission?

What will be the geographic composition of the domestic participation for this tender?

This is an indication that India is willing to engage with other countries for trading carbon credits. However, it is unclear whether such engagement would proceed solely through Article 6 of the Paris Agreement or if India is open to linking the domestic carbon credit trading scheme (CCTS) with international markets. The interoperability of the CCTS with Article 6 could further streamline the flow of capital from international carbon markets.  

Which sectors will the emerging CCTS cover? Will the rules governing the CCTS provide for interoperability with Article 6 and international cap and trade systems?

Delhi’s EV market has seen ~3x volume growth since the introduction of its EV policy which subsidises e-2Ws, e-3Ws and e-4Ws. The policy, which was due to end in July 2023, has now been extended till a revised version is introduced. States with consumer subsidies have experienced 2x better EV volume growth than states without. Delhi’s subsidy extension is an attempt to keep the momentum on its mobility transition going, without any breaks. 

While e-2Ws and e-rickshaws have led Delhi’s EV volumes, commercial e-4Ws have led penetration at ~53%. Delhi’s transport department is working towards releasing a revised EV policy in the coming few months. We look forward to its many features, such as the targets it may set and the categories it may incentivise.

There has been a lack of clarity on the definition of  green hydrogen and what its GHG emissions threshold should be across the value chain. This notification brings clarity for the buyers on these two aspects and will thus advance the National Green Hydrogen Mission. However, these standards could be further improved by: (i) specifying granular details around GHG emissions scope type, (ii) acceptable biomass sources, and (iii) the definition of other green hydrogen production technologies.

Certain standards in the notification may need further refinement to align with international standards. How will India plan to synchronise these standards with its potential trade partners in the near future?

Free trade agreements (FTAs) have resulted in increasing duty-free imports from Southeast Asian countries like Vietnam. India has been heavily dependent on imported solar PV modules. The small and medium scale (SME) indigenous solar panel manufacturers, comprising half of India’s solar PV manufacturing capacity, receive tough competition from imported modules. Easier lending norms would ensure capital flow to the SME solar manufacturers, who have the potential to catalyse thousands of additional jobs in the sector.

To encourage domestic manufacturers, 39.6 GW of manufacturing capacity was allocated in Tranche-II of the production-linked incentive (PLI) scheme in March 2023.  On the other hand, India's ongoing FTAs are resulting in rising imports and outflow of foreign exchange. In the current puzzle, apart from easing the lending norms, what other measures could the government take to ensure the prosperity of the domestic SME module manufacturers?

This news comes close on the heels of another Adani Group entity, Adani Energy Solutions (AES), securing a $1 billion loan for a green high voltage direct current (HVDC) link project. Adani Green is one of the few publicly listed RE developers in India and with it now in advanced stages of tying up $1 billion for itself, the group appears to be recovering from the Hindenburg Research overhang.

The consortium behind the earlier $1 billion loan to AES was made up of European, Japanese, and Singaporean banks. Will we see a similar geographic make-up of the consortium behind the reported $1 billion being raised by Adani Green for RE project capacity addition?

Wind power, although immensely critical for India’s clean energy goals, has hit a roadblock in the last few years. Its revival will rest on adopting a multi-solution strategy. In this regard, the government has proposed a bid to allocate seabed sites along the coast of Tamil Nadu for the development of offshore wind projects. Since this would be the first offshore wind bid in India, the government also plans to provide some additional incentives.

Given that offshore wind is still an expensive source of electricity, it will be interesting to see what the bid entails In addition, what will be the technical rigour of the feasibility studies that will be conducted at the selected sites? Ultimately, will this bid lead to a flourishing offshore wind market in India?

The cost of debt finance required to deploy battery storage technologies to support RE integration remains elevated due to associated risk perceptions. These perceptions stem from limited track records of technology performance and, in turn, contribute to reduced cost-competitiveness of RE deployed in tandem with storage. A technology de-risking fund that mitigates technology underperformance risk for lenders can help lower the cost of finance and help generate a track record of deployment.

What kinds of solutions will the proposed fund finance? Which types of storage projects will be eligible for support?

A policy directing investment towards manufacturing EVs in India will be invaluable to the growth of this emerging segment. Such a policy could augment existing policies, such as FAME, and highlight the government’s commitment to this transition. It will provide confidence to new players looking to enter this market and established auto players, alike. India’s EV segment provides a USD 206 billion opportunity which a policy of this nature could help catalyse.

Will the proposed policy encourage domestic and international EV original equipment manufacturers (OEMs) to invest in India at scale?

As more policies encourage greater localisation of the EV supply chain, movement towards market consolidation may be seen.

Technology partnerships between domestic and international auto brands.

As the share of variable RE increases, the need for solutions to balance its intermittent nature grows. In FY 23, RE (including hydro) accounted for 22.8% of India's electricity generation. As per the RPO trajectory, it needs to grow ~2x to reach 43.3% by 2030. As most of the growth is expected to be dominated by variable RE, BESS could be one of the ways to enhance grid stability and maximise RE generation.

Is VGF sufficient to achieve the desired levelised cost of storage (LCOS) to make the technology financially viable?

Will this VGF be sufficient to mobilise capital to fund 208 GWh of BESS by 2030, as projected by the Central Electricity Authority (CEA)?

Declaration encourages G20 countries to triple their installed RE capacity by 2030. In India’s case, this would mean that its 178.4 GW installed RE capacity (as of August 2023) will grow to surpass the existing target of 500 GW by 2030. If this increase is dominated by variable RE, it may require significant deployment of energy storage solutions beyond the levels currently anticipated.

How will existing issues such as land acquisition, adequate financing, responsible deployment, and grid infrastructure, among others, be tackled?

Will tripling their installed RE capacity by G20 countries also give a push to transnational grid interconnections such as the One Sun, One World, One Grid (OSOWOG) initiative?

The domestic bond market is an attractive route for highly rated issuers to raise capital in large volumes. The recent spurt in issuances by lenders comes within months of India’s announcement of its annual 50 GW RE bidding trajectory over five years. Achieving India’s 2030 RE targets will require USD 200 billion for generation alone, and the capital raise by lenders should contribute to increased lending to finance these targets.

Infrastructure spans a wide canvas. How will the capital thus raised be split between RE and other infrastructure categories that also need capital expenditure urgently?

Solutions that allow issuances that are presently unable to access the bond market directly may be invaluable in mobilising capital to achieve India’s RE targets.

Installation of 500 GW RE generation capacity, in pursuit of SDGs 7 and 13, would require at least ~USD 200 billion. The exposure of Indian banks and NBFCs to the power sector, as of April 2020, stood at USD 160 billion. Considering that conventional sources may face headroom challenges, and even though innovative financial instruments such as InvITs and thematic bonds exist, more will be necessary to mobilise finance for the rapid deployment of RE.

So far, there is only one RE InvIT and no issuance of transition bonds in India. What additional measures are needed to trigger the roll-out and uptake of new financial instruments at scale?

Globally, many corporations have adopted greening strategies and are venturing into clean energy. In a significant move, two of the largest government-owned enterprises in India, Oil and Natural Gas Corporation (ONGC) and NTPC, have signed a memorandum of understanding (MoU) focussed on RE, storage, and green hydrogen projects. This should help ONGC diversify its portfolio and, ultimately, mitigate transition risks. This may also encourage other enterprises to take similar steps to decarbonise and contribute to India’s 2070 net zero target.

The MoU envisages a potential joint venture in the future. Since both these organisations have distinct business specialisations, it will be interesting to see how they collaborate to decarbonise collectively.

A list of 30 minerals that are critical to the energy and mobility transitions was released in July this year. To facilitate self-sufficiency on the critical minerals front, the Ministry of Mines announced a financial incentive for exploration, equivalent to 25% of the project cost, for public as well as private agencies. Incentivising domestic exploration for critical minerals is crucial to reaching India’s long-term goal of net-zero by 2070.

What will be the criteria and schedule for availing the incentive?

India has approved 15 private exploration agencies as of now. Will this incentive attract more private agencies to participate in exploration activities?

Even though 100 per cent foreign direct investment (FDI) is allowed in the mining and exploration sector, currently, the sector has not received significant FDI. Will Government’s efforts encourage international agencies to participate in mining and exploration activities in India?

The Delhi government had earlier announced a public e-scooter and e-cycle sharing facility (PeSS and PeCS, respectively) to increase sustainable last-mile connectivity. The sharing facilities were planned for 150 locations across the city. Its first pilot, consisting of 3,000 e-two-wheelers (e-2Ws) in Dwarka, available across 90 locations, comes at an estimated cost of INR 18 crore. In the past few years, EVs have played a pivotal role in bridging last-mile connectivity in several states.

In other states, last-mile connectivity efforts have been led by e-rickshaws, which largely run on  lead-acid batteries. Will the Delhi government’s e-2W–based efforts lay the path for an alternative to existing last-mile connectivity options?

A strategic selection of drop-off locations will be crucial to the success of this pilot.

The Standards and Labelling (S&L) scheme – aimed at raising awareness about energy efficiency, was introduced in 2006 to empower consumers to make well-informed decisions when purchasing energy-consuming appliances. The S&L Program for solar panels will enable prosumers to select panels based on effective efficiency (Neff). While the labelling covers both domestic and imported panels, it could promote the manufacturing of high-efficiency panels domestically.

How many manufacturers will be approved under higher star–rated categories? How will the S&L Program operate in tandem with List-I of the Approved List of Models and Manufacturers of Solar Photovoltaic Modules (ALMM).

After filing its draft IPO papers recently, the Indian Renewable Energy Development Agency Limited (IREDA) – India’s premier renewable energy non-bank financial company (RE NBFC) – has announced that it plans to publicly sell a 25% stake in the company, no later than March 2024. The agency plans to use the capital from the new issue portion of the share sale for the expansion of its businesses. This is a significant move given that, currently, the scale of capital seems to be an issue for RE deployment. Till now, IREDA has reportedly disbursed over INR 1 trillion towards ~ 22 GW worth of projects.

IREDA’s expansion has been ongoing for the last few years – its loan book reported a 30% CAGR between FY21 and FY23.

To what extent will loan growth exceed the figures recorded in recent years, and will the portfolio mix see significant changes? 

In September 2023, Tata Motors delivered two first-of-its-kind hydrogen fuel cell–powered buses to Indian Oil Corporation Limited. This marks the beginning of the transition to hydrogen vehicles, which could cater to the long-route travel and heavy-duty freight segments. The freight sector is expected to grow 5x by 2050, and with their lower tailpipe emissions, longer range, higher payload capacity, and quicker refuelling, hydrogen vehicles can be instrumental in India’s clean mobility transition.

India’s EV transition has been fuelled by incentives provided by central and state governments. Will we see similar incentive strategies for hydrogen vehicles?

India’s domestic demand for hydrogen is expected to quadruple by 2050, with the transport sector contributing to ~22 per cent of this demand. How will infrastructure be scaled up to meet the incremental demand from the transport sector? 

Light electric vehicles (LEVs), which include e-2Ws, e-3Ws, and e-rickshaws, have dominated India’s EV market, comprising a staggering 93.5% of the total EV sales in FY23, as of October. The BIS approval should instil further confidence in the sector. Furthermore, it may also enhance EV roaming, provide versatile charging  for LEVs, and eliminate the need to carry bulky chargers, making EV adoption more convenient.

How will charging point operators (CPOs) and original equipment manufacturers (OEMs) streamline the existing infrastructure with the new standardised connector, and who might emerge as the

short-term winners?

Considering the convenience this approval brings, can it translate into a significant increase in EV sales?

Building on the existing Performance-linked Incentive (PLI) Scheme for Advanced Chemistry Cells (ACC), the reported second PLI scheme could accelerate cost reduction in indigenous battery manufacturing. In tandem with the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) Scheme Phase-II and the PLI scheme for automobiles and auto components, it could further accelerate the development of the domestic electric vehicle (EV) manufacturing ecosystem and promote EV uptake.

The existing PLI scheme, which promotes domestic battery manufacturing, is technology agnostic. Thus, it could end up advancing manufacturing based on lithium-ion technologies, which are the most commercially viable option but also rely on global value chains for the sourcing of mineral raw materials. Could the reported second PLI scheme include a dedicated allocation for promoting technologies that rely on raw materials that are abundantly available in India?

As per the RPO trajectory, India’s RE generation is expected to grow to 43.3% by 2030, largely dominated by variable RE. Integrating the national transmission network with other nations can reduce the need for RE storage technologies to mitigate grid integration challenges. Additionally, this MoU can help advance India’s 500 GW RE target and the National Green Hydrogen Mission by establishing reliable and resilient supply chains of materials used in RE and green hydrogen.

The MoU aims for the co-development of green hydrogen and RE projects. Will it be accompanied by financial and/or technical contributions from Saudi Arabia?

Indian EVs, which have seen considerable domestic uptake in recent years, have now begun to make strong headway in international markets. The segment reportedly witnessed a 2.5x growth in value terms in the first seven months of 2023. This demand was led primarily by Nepal and a few European nations, such as France and Germany, which have emerged as stable and growing export markets for Indian EVs.

How will domestic EV policies influence India’s small but emerging EV export market in the coming months? 

Will EV exports mirror the trends previously observed in internal combustion engine vehicle (ICEV) exports? Which countries and vehicle categories will emerge as frontrunners?

The Green Energy Corridor (GEC) is crucial for India’s energy transition, especially the power sector subtransition. Ladakh became the eighth state to join the Inter-State Transmission System (ISTS GEC-II) with this 13 GW project. The Power Grid Corporation (PGCIL) will be the implementing agency for this particular project.

The project will help in developing long-term energy security, promoting sustainable growth by reducing carbon footprint, contributing to India’s 500 GW non-fossil fuel target for 2030.

How many other RE-rich states will be encouraged to join the ISTS GEC-II?

How will challenges such as complex geography and harsh weather concerns be addressed and managed throughout the project?

The scale of India’s energy transition is such that it will require capital from both domestic and overseas sources. The fund’s focus on RE and e-mobility means that it will be targeting sectors that together account for ~50 per cent of India’s greenhouse gas (GHG) emissions. The additional emphasis on waste management and water should also bring circular economy opportunities into investor focus.

India’s RE sector is well established, and e-mobility is fast emerging. Both these sectors thus benefit from a large number of players and business models. However, circular economy businesses may either be less established or operate on an unorganised basis. How rapidly will funding enable such businesses to mainstream themselves?

The introduction of the distributed renewable energy (DRE) component in the renewable purchase obligations (RPOs) trajectory is expected to give a push to India’s target of achieving 40 GW of rooftop solar (RTS) capacity by 2026. As of Q2 FY24, RTS stood at ~11 GW. Further, the RPOs for wind and hydro are mandated to be fulfilled by the projects commissioned after March 31, 2024. This would translate into greater demand certainty for the upcoming projects.

Will this lead to further announcements of state-centric DRE policies and regulations?

Since their inception, RPOs have largely remained unmet. With the recent inclusion of the RPO trajectory under the Energy Conservation Act, 2001, will we see increased RPO compliance?

Recently, the Ministry of Heavy Industries announced that 20 GWh of the PLI scheme for ACC battery manufacturing, approved in May 2021, will be retendered. It is expected that half of it may be dedicated to supplementing RE capacity addition. Given that, 208 GWh of battery energy storage (BESS) would be required to support ~400 GW of projected solar and wind installations by 2030. This move could be instrumental in fulfilling India's BESS demand domestically.

Will it prompt the government to launch an exclusive PLI scheme for manufacturing grid-scale BESS?

In a boost to India’s clean energy industry, IREDA’s IPO saw almost a 5x oversubscription on day 2 of bidding. After filing its IPO papers recently, the company invited bidding for shares worth ~USD 260 mn, comprising an offer for sale as well as a fresh issue of equity. IREDA became the first public-sector undertaking (PSU) to conduct an IPO in the last 18 months.

In an earlier announcement, IREDA had stated its plans to go public by next March, but it brought its IPO forward. Will a successful issuance prompt other PSU lenders to tap public markets through follow-on fresh issuances of equity?

This is the first of its kind initiative by any state government to amalgamate youth employment goals and green initiatives. Himachal Pradesh has registered only ~160 e-4W(C) and e-buses as of November 2023, underscoring the untapped potential of the state’s EV market. The state aims to establish charging stations along six identified corridors to address charging challenges and plans to replace the entire fleet of about 3,000 HRTC buses with e-buses.

Will states facing disparate development challenges be encouraged to emulate Himachal Pradesh’s strategy of addressing different challenges simultaneously to address development holistically?

The lack of information on climate-vulnerable areas that require climate finance has been one of the pressing challenges in effectively directing finance to climate action. The development of digital public infrastructure (DPI) can be a significant step in reducing information asymmetry by collating climate and weather data from multiple agencies. It can enable effective fund allocation by identifying areas and communities that are most vulnerable to climate change.

What will be the climate data indicators that will be gathered by DPI? What steps will the government take to ensure the quality of the data collected?

Contracting RE through open access has emerged as one of the most popular routes for corporates to decarbonise. There are several factors spurring them to green their power purchases. Cost is one of them. The open access route can result in significant savings for corporates even after accounting for various surcharges and duties. Regulatory push is another, with Scope 2 emissions featuring as a mandatory disclosure item under SEBI’s BRSR framework.

India’s RPO trajectory mandates obligated entities, primarily discoms, to procure 27.08% of their electricity purchases from sources such as wind, solar, and hydro by 2023–24. This will progressively rise to 43.33% by 2029–30.

Will the appetite of corporates to independently contract RE through open access diminish as the embedded green in the power they purchase from discoms increases as per the RPO trajectory?

India notified its domestic Carbon Credit Trading Scheme (CCTS) in June 2023. However, the operationalisation of the CCTS required an elaboration of procedures, including the specification of obligated sectors, trajectories, and targets. The publication of the ‘Draft Detailed Procedure for Compliance Mechanism Under the CCTS’ is a step in this direction. The formalisation of the draft procedure should provide greater clarity with regard to the implementation of the CCTS.

The draft procedure contains text that suggests that renewable energy certificates (RECs) will be excluded from the CCTS. If finalised, how would this provision affect the existing market for RECs?

What kind of enforcement mechanisms will be specified for obligated entities and how effective would these be in ensuring compliance?

With a firmly entrenched energy transition underway in India, a variety of innovative business models have emerged that go beyond those pursued in the early phases of the transition. A company that spans RE, water, and carbon offsets has the potential to expand the canvas further by framing business opportunities under the broader ‘climate’ umbrella.

While RE as a sector has seen significant growth with the emergence of some dominant players, water remains a fragmented business. Can the experience of RE be replicated in water?

As per the RPO trajectory, renewable energy (RE) share needs to reach 43.33% by 2030, dominated by variable RE. The usage of EVs as energy storage is a timely discussion in this context. The vehicle-to-grid (V2G) system could mitigate the high balancing costs of intermittent RE. The recent introduction of solar time-of-day (ToD) tariffs could also nudge consumers to charge during off-peak hours and supply to the grid through V2G during peak hours.

Considering it is a novel technology, how can infrastructure be tailored to meet the technical requirements of V2G? 

Given the recent push for E-buses, will they emerge as the centrepiece for this proposal?

In September 2023, India touched the highest-ever single-day electricity consumption of 5,224 MU. The nation’s growing power demand highlights the importance of round-the-clock (RTC) power supply from RE resources. Thermal capacity, both individually and bundled with RE, can solve the problem of intermittency in RE power by providing RTC supply. The call to add ~80 GW of thermal power by 2031–32 can be viewed in this context.

The per unit cost of RE RTC with storage is significantly high. With viability gap funding support, announced in September 2023, the levelised cost of storage for battery energy storage (BESS) could go down to INR 5.50–6.60/kWh, further lowering the cost of RE RTC. To ensure RTC supply beyond adding more thermal capacity, what other steps would be taken by the government to make BESS cost-competitive?

The 200 de-coaled mines identified by the Ministry of Coal feature the prerequisites for pumped storage projects (PSP), i.e., they have land, reservoirs, and head of water. The diversification of these mines would be a two-pronged solution to the just transition issue – providing economic diversification as well as employment opportunities.

Just energy transition partnerships (JETPs) in some countries have focused on scaling up energy storage and diversifying stranded coal assets. Would projects like these pave the path for an announcement of JETP in India as well?

Kerala has allocated INR 12,400 crore for greening existing economic trade corridors by providing opportunities for e-mobility, industry, renewable energy, transport, tourism, and trade. Additionally, it has allocated INR 90 crore for phase-I of the green hydrogen (GH2) valleys project. Kerala is the second state, after Gujarat, to plan GH2 valleys under the Mission Innovation initiative. GH2 valley projects bring the entire hydrogen value chain – production, storage, distribution, and utilisation –in close geographical proximity.

Will more states follow Kerala’s footsteps and earmark budgets to transform trade corridors?

Which other states will take up GH2 valley development projects?

Additionally, in case the end consumers and RE resources are dispersed across neighbouring states, will there be collaborations between states in developing GH2 valleys?

After seeing considerable success over the last decade, India’s energy transition now faces a challenge of scale as RE capacity must grow 3x in the next seven years. Recently, Adani Green announced that it is setting up a 30 GW solar park over 726 sq km in Gujarat. Once functional, the plant will power over 20 million homes and serve as the world's largest solar park, overshadowing the current largest by over 10 times in terms of capacity.

When will the mega plant commence operations? And how many jobs will it generate during and beyond its EPC (Engineering, procurement, and construction)?

India aims to reach net-zero emissions by 2070. To realise this goal at pace, the transition of the three highest carbon-emitting sectors, power, industry, and mobility, is necessary. These three sub-transitions will require investment support of USD 1.4 trillion to mobilise USD 3.5 trillion. In this regard, the proposed climate finance solutions, for areas spanning e-mobility, renewable energy, and green hydrogen, could help narrow the financing gap.