Interview with Rana Kapoor

“Green bonds are emerging as a key debt capital market instrument to fund climate solutions”

YES Bank had committed to finance 5,000 MW of renewable energy projects at the RE-INVEST Summit 2015 and to mobilise climate finance of $5 billion by 2020 at the 2015 United Nations Climate Change Conference, COP21. Since then, it has taken several financing initiatives in this space, including issuing green bonds and partnering with international lending institutions such as the European Investment Bank to fund renewable energy projects. In an interview with Renewable Watch, Rana Kapoor, managing director and chief executive officer, YES Bank, expressed his views on the current state of the sector, the key risks associated with renewable energy projects and emerging renewable energy financing trends. Excerpts…

How has the financing scenario for renewable energy projects evolved in the past one year in the backdrop of the major policy and industry developments taking place?

The year 2017 has been a remarkable one for the Indian renewable energy sector with it witnessing the introduction of several path-breaking and innovative financial mechanisms, along with technical optimisation warranted by national and global projects. Steadfast traction by developers in the bond market has been crucial for the continued appetite of the banking industry in taking greenfield project exposures.

Trends indicate that international institutional investors are placing their trust in the renewable energy sector’s growth trajectory, leading to an increase in partnerships. With the government charting out a clear roadmap for new renewable energy project biddings, stakeholders are keenly watching developments in the project allocation space.

What is the likely impact of Moody’s recent upgrade of the country’s sovereign rating on renewable energy financing?

India’s sovereign rating upgrade is a strong endorsement of the institutional and structural transformation of the economy. Disruptive interventions such as the goods and services tax or regulations such as the Insolvency and Bankruptcy Act are milestones that will pave the way for continued growth. The remarkable improvement in India’s ranking in the World Bank’s Ease of Doing Business 2017 report is yet another testament to these transformations. Such recognitions will be instrumental in driving the growth of the renewable energy sector over the next two to three years via increased access to capital at reduced capital costs. This will further boost India’s ranking in the Renewable Energy Country Attractiveness Index.

What are the major challenges that financiers feel must be addressed urgently to promote growth in the sector?

India has witnessed extensive growth in renewable energy deployment, with capacity having doubled in the past five years. About one-fourth of the total installed renewable energy capacity has been added in the past two fiscal years alone. The government’s persistent efforts and sector-specific policy and regulatory interventions have cemented India’s postion as the fifth largest country in terms of renewable energy deployment, with about 60 GW of installed renewable energy capacity.

These initiatives include offtake arrangements under the Jawaharlal Nehru National Solar Mission by the Solar Energy Corporation of India (SECI)/NTPC (both now parties to the Government of India’s tripartite agreements), the Ujwal Discom Assurance Yojana (UDAY), the solar park schemes and SECI’s recent interstate transmission system-based wind power auctions.

However, the effective implementation of initiatives such as Make in India, stricter renewable purchase obligation compliance and ramping up of the existing transmission network are crucial for achieving the ambitious target of 175 GW of renewable energy capacity by 2022. There is also a need for a cohesive partnership between the state and central governments to ensure that a robust regulatory framework exists.

On the financing side, untapped avenues such as yieldcos, securitisation, takeout and refinancing schemes need to evolve further in order to facilitate a greater churning of conventional banking finance limits. Perhaps if these avenues are leveraged in the way green bonds have grown, it can contribute significantly to the industry’s capital requirements.

What has been the impact of developments such as the free fall in tariffs and reduced project pipeline on investor sentiment?

While there have been some valid concerns on the rapid decline in tariffs and its impact on investor sentiment and offtakers who commit to these projects for the long term, I believe that the industry has taken up this important and challenging task in a mature manner. Bigger players have risen to the occasion and the government is making efforts to resolve these issues speedily and comprehensively.

Moreover, I am happy that a close watch is being kept on investor sentiment while laying out the roadmap for expected biddings in the coming few months. Investors and financiers will strongly pursue stability and certainty in regulatory interventions to tide over this phase.

How can debt financing schemes such as tax-free infrastructure bonds and green bonds help in the financing of renewable energy projects?

Green bonds are emerging as one of the most prevalent debt capital market instruments, besides conventional bank financing, for funding climate solutions in India. YES Bank was the first bank to issue green bonds in the country in February 2015 and helped catalyse the market for other issuers.

The massive capital requirements for the growth of the renewable energy sector in India call for leveraging a much broader investor audience, namely pension funds, insurance companies, sovereign funds, etc., which are progressively moving from conventional energy assets to greener and cleaner technology solutions. A global push towards e-mobility is one such example, wherein we are expecting to see increased traction and opportunities, which would attract business models and institutional investment in integrating clean energy technologies with e-mobility solutions.

Is the financial community satisfied with the government’s role in ensuring the attractiveness of renewable energy projects? In your opinion, what more can be done in this regard?

The government has been taking important measures, which have led to an improvement in the bankability of the sector – right from the transformational NTPC bundling scheme in 2010, which aimed at negating the then existing tariff gap, to the implementation of the solar parks model to scale up capacity deployment. Further, on the demand side, UDAY has gained significant traction over the past two years, with 31 states and union territories joining the ranks and around 86 per cent of debt-restructured bonds issued for 16 major participating states. While the stakeholders fully understand the transparency with which the government has taken various steps to resolve many of the challenges, centre-state collaboration is imperative to actualise the dream of 24×7 power for all.

How attractive are small-scale renewable energy projects in terms of financing? What more can be done to promote the development of small-scale and off-grid renewable energy projects?

Grid-connected rooftop solar and distributed renewable generation assets form a significant part of the government’s 175 GW target, with 40 GW envisaged from small- to medium-scale installations. While India crossed the 1 GW mark in 2016, the year 2016-17 saw an annual growth of about 80 per cent in rooftop solar development. Leading the pack are the commercial and industrial segments, where there is both adequate demand as well as economic viability.

We are also witnessing significant interest in third-party off-take arrangements. This has been possible due to favourable policy measures such as priority sector lending norms, the capital subsidy and net metering schemes, and increased access to financing owing to collaborations with multilateral institutions.

Currently, there are challenges with regard to the standardisation of contracts, individual borrower-level credit profiles and adequate security coverage, which need to be addressed for the growth of the renewable energy sector.


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