Solving India’s Renewable Energy Financing Challenge: Which Federal Policies can be Most Effective? A CPI-ISB Series

CPI welcomes the use of its material for noncommercial purposes, such as policy discussions or educational activities, under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. For commercial use, please contact [email protected]. About CPI Climate Policy Initiative (CPI) is a team of analysts and advisors that works to improve the most important energy and land use policies around the world, with a particular focus on finance. We answer pressing questions posed by decision makers through in-depth analysis on what works and what does not. CPI works in places that provide the most potential for policy impact including Brazil, China, Europe, India, Indonesia, and the United States. Our work helps nations grow while addressing increasingly scarce resources and climate risk. This is a complex challenge in which policy plays a crucial role. Acknowledgements The authors acknowledge inputs, comments, and internal review from CPI staff: Ruby Barcklay, Tim Varga and Elysha Rom-Povolo. We also thank ISB for its continued support toward our research efforts. The views expressed in this paper are the authors' own. Descriptors Sector Renewable energy finance Region Rapidly emerging economies About ISB The Indian School of Business (ISB) is a global business school offering world-class management education across its two campuses – Hyderabad and Mohali. The School has grown at a rapid pace over the twelve years since its inception and already has several notable accomplishments to its credit – it is the youngest school ever to consistently rank among the top Global MBA programmes, the first institution in South Asia to receive the prestigious AACSB accreditation, one of the largest providers of Executive Education in Asia, and the most research productive Indian management institution. A vibrant pool of research-oriented resident faculty and strong academic associations with leading global B-schools, have helped the ISB fast emerge as a premier global Business school in the emerging markets. For more details visit www. Executive Summary The Government of India has set ambitious targets for renewable energy — a doubling of existing renewable energy capacity to 55,000 MW by 2017. However, unsubsidized renewable energy is still 52-129% more expensive than conventional power, and requires policy support. This policy support is currently provided through a combination of state-level feed-in tariffs and federal subsidies in the form of a generation based incentive, viability gap funding, and accelerated depreciation. Given the ambitious goals, but limited budgets, the cost-effectiveness of these policies becomes an important criterion for …