Enhancing India’s Readiness to Climate Finance
India has taken several steps to improve its national response to climate change. India’s climate finance requirements, however, are very high, and will need to be met through a combination of public, private and international climate finance. See more at: http://shaktifoundation.in/
India has taken several steps to improve its national response to climate change. India’s climate finance requirements, however, are very high, and will need to be met through a combination of public, private and international climate finance. See more at: http://shaktifoundation.in/
Enhancing India’s readiness to access and deliver international climate finance amounted from them? Are there any insights into the reasons for their success or failure? • Bankable projects are increasingly being developed but mainly in the RE sector. These have largely driven by private sector mainly due to favourable RE policy (GBI and tax holidays), size of the market, ease of doing business, investment incentives and lack of red tape. • Developing a strong pipeline of bankable projects in the EE sector is still a big challenge. Donors have indicated that available funds do not have a waiting list of good projects ready for implementation. • Several barriers such as high transaction costs, small project size, lack of EE understanding amongst financial institutions, etc. have hindered the process. 2.4 Have any efforts to address climate risk through finance been made by the private sector (e.g. insurance, etc.)? There is a limited understanding of climate risks in private sector investments • Knowledge of climate change risks is still very nascent amongst the private sector. • There is a need to develop innovative market-based financing mechanisms in the form of infrastructure debt funds, green bonds, mainstreaming of EE in banking etc. to promote greater private sector investments 1 • Currently, operating and maintenance insurance is available for wind, solar and general implementation risk-related insurance. 3. Institutional management of climate finance Does the country have a strong institutional structure to manage domestic & international climate finance? 3.1 Are there one or more institutions that manage domestic & international climate finance? Yes, Indian institutions have clear structures in place to access and manage international climate finance • India has strong institutional arrangements in place to access international climate finance from both bilateral and multilateral sources. • India also has well developed programmes for funding in comparison to its peers, though given the size of economy and huge population, significant scale-up is required. • Bi-lateral access is very streamlined and consultative. Priorities areas for funding are jointly decided by DEA and line ministries. Approval of all ministries is sought for selection of sectors and focus areas, which means there is clear alignment of donor plans and GOI priorities and targets. 3 • Multi-lateral access is also streamlined. Depending on the sector/theme a specific institution (e.g. NABARD for AF, MoEFCC for GEF & CTF) is given the responsibility to engage with the fund and coordinate climate finance access. • The presence of the NAPCC has increased the donor confidence and it is expected that new SAPCCs will streamline climate finance delivery in India. Ref: Ricardo-AEA/R/ED59216/Final Report 85
Enhancing India’s readiness to access and deliver international climate finance 3.2 Do institutions have the capacity to coordinate the delivery of climate finance, using a blend of sources (e.g. public and private) and instruments where necessary? 3.3 What experiences do institutions that can provide NIE type functions have in managing large international projects? There has been limited use of innovative financing mechanisms and blending of finance instruments for low carbon projects in India • The majority of international climate finance to-date has been grant and concession based loans, so there has been limited experience blending various sources and instruments for project implementation. • Existing institutions do not have the mandate or capacity to match the different type of climate activities (by sector, maturity and scale) with the right type of instruments or modalities. This is one of the main issues for developing bankable projects and scaling up technologies with strong climate and other co-benefits. • Blending of various financing sources such as international climate finance, domestic public & private finance will result in better capital availability for low carbon projects. • Different projects may have different risk profiles; matching of risk profiles with appropriate financing instrument will result in effective financing. DFIs (SIDBI, IREDA) have managed some climate related programmes that have leveraged private finance, but capacity to blend various instruments remains low • India has strong experience and capacity in specific sectors such as RE and EE. • However there is a need to develop institutional capacities which could build on programmatic approach of financing. • Also there is a need to build capacity to enable these institutions to blend finance from a variety of funding sources to implement complex climate change mitigation programmes. Indian DFIs’ climate-related management experience is limited to small and medium size projects • Existing DFIs have experience of managing small and medium sized projects • Some medium size projects get support from multilateral institutions such as the World Bank or UNDP for execution. Such project management support may include capacity building, setting up of Project Management Unit for project planning, coordination & monitoring as well as stakeholder engagement. 1 1 Ref: Ricardo-AEA/R/ED59216/Final Report 86
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<strong>Enhancing</strong> <strong>India’s</strong> readiness <strong>to</strong> access and deliver international climate finance<br />
amounted from them? Are<br />
there any insights in<strong>to</strong> the<br />
reasons for their success or<br />
failure?<br />
• Bankable projects are increasingly being developed but mainly in the RE sec<strong>to</strong>r. These<br />
have largely driven by private sec<strong>to</strong>r mainly due <strong>to</strong> favourable RE policy (GBI and tax<br />
holidays), size of the market, ease of doing business, investment incentives and lack of<br />
red tape.<br />
• Developing a strong pipeline of bankable projects in the EE sec<strong>to</strong>r is still a big challenge.<br />
Donors have indicated that available funds do not have a waiting list of good projects<br />
ready for implementation.<br />
• Several barriers such as high transaction costs, small project size, lack of EE<br />
understanding amongst financial institutions, etc. have hindered the process.<br />
2.4 Have any efforts <strong>to</strong> address<br />
climate risk through finance<br />
been made by the private<br />
sec<strong>to</strong>r (e.g. insurance, etc.)?<br />
There is a limited understanding of climate risks in private sec<strong>to</strong>r investments<br />
• Knowledge of climate change risks is still very nascent amongst the private sec<strong>to</strong>r.<br />
• There is a need <strong>to</strong> develop innovative market-based financing mechanisms in the form of<br />
infrastructure debt funds, green bonds, mainstreaming of EE in banking etc. <strong>to</strong> promote<br />
greater private sec<strong>to</strong>r investments<br />
1<br />
• Currently, operating and maintenance insurance is available for wind, solar and general<br />
implementation risk-related insurance.<br />
3. Institutional management<br />
of climate finance<br />
Does the country have a<br />
strong institutional structure<br />
<strong>to</strong> manage domestic &<br />
international climate<br />
finance?<br />
3.1 Are there one or more<br />
institutions that manage<br />
domestic & international<br />
climate finance?<br />
Yes, Indian institutions have clear structures in place <strong>to</strong> access and manage international<br />
climate finance<br />
• India has strong institutional arrangements in place <strong>to</strong> access international climate<br />
finance from both bilateral and multilateral sources.<br />
• India also has well developed programmes for funding in comparison <strong>to</strong> its peers, though<br />
given the size of economy and huge population, significant scale-up is required.<br />
• Bi-lateral access is very streamlined and consultative. Priorities areas for funding are<br />
jointly decided by DEA and line ministries. Approval of all ministries is sought for<br />
selection of sec<strong>to</strong>rs and focus areas, which means there is clear alignment of donor plans<br />
and GOI priorities and targets.<br />
3<br />
• Multi-lateral access is also streamlined. Depending on the sec<strong>to</strong>r/theme a specific<br />
institution (e.g. NABARD for AF, MoEFCC for GEF & CTF) is given the responsibility <strong>to</strong><br />
engage with the fund and coordinate climate finance access.<br />
• The presence of the NAPCC has increased the donor confidence and it is expected that<br />
new SAPCCs will streamline climate finance delivery in India.<br />
Ref: Ricardo-AEA/R/ED59216/Final Report<br />
85
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