On 21 February 2017 in New Delhi, India Lab Members met to review the new set of ideas submitted in response to the 2016-2017 cycle Call for Ideas that closed on December 23, 2016. The purpose of the meeting was to allow Members to explore the strengths and weaknesses of the top eight ideas, previously selected by Members from 72 submissions received, and to select the most promising three instruments to then undergo intense analysis and stress-testing through the Lab process. The meeting also provided an opportunity to discuss progress of the 2015-2016 instruments, updates, and strategic direction.
Introduction & Key Updates
To kick off the meeting, Mr. Krishan Dhawan, CEO of Shakti Sustainable Energy Foundation which hosts the India Lab, welcomed participants, and thanked the India Lab for its engaging and iterative work on innovative ideas aiming to drive more investment to meet India’s renewable energy and green growth targets. Dr. Gireesh Shrimali, Director of Climate Policy Initiative (CPI), India which serves as the Lab Secretariat, presented on the progress of the India Lab and spoke about the key highlights of the ideas selection phase, the goals of the meeting, and next steps. He also provided an overview of the screening process to refine the top ideas which Members voted to further narrow in the week leading up to the meeting. Ms. Sharmila Chavaly, Joint Secretary, Ministry of Finance, Govt. of India expressed appreciation for the India Lab’s efforts and emphasized the need for new and implementable instruments to help in driving much-needed capital for green infrastructure, and also laid emphasis on quick implementation of the 2015-2016 cycle instruments.
The Lab Secretariat outlined the key elements of the top eight ideas, including alignment with India Lab criteria (innovative, actionable, catalytic, and financially sustainable), the overarching transformative potential of each instrument for generating private-sector investment, potential impacts, and the implementation plans. Proponents for each of the top eight ideas were invited to participate in the selection meeting, to answer Members’ questions, and clarify points which were not explicit in their initial submissions.
Following the discussion, Members voted to select three instruments to move forward for further analysis and development, based on collective votes and discussion of relative strengths and weaknesses:
|Solar Energy Investment Trust||Key Comments|
|Proposed by CleanMax Enviro Energy Solutions, the goal of this idea is to attract a large amount of domestic capital at a lower rate for the small scale industrial and residential rooftop solar sectors, via a special fund called an Investment Trust (InVIT).
|Strengths: The potential of this idea is immense as it can attract large-scale commercial and institutional capital into the rooftop solar sector, which is in need of long term debt capital at a reasonable rate. It is estimated that India’s rooftop solar sector needs ~$40 billion of capital to achieve the government of India’s target of achieving 40GW of rooftop solar capacity by 2022. If the InVIT business model demonstrates the commercial viability of the sector, it can unlock large scale institutional investors’ capital. This model is both scalable and replicable.
Challenges: Clarity on the leverage and tax structure is required. Currently as per the InVIT guidelines, the special purpose vehicle (SPV) under an InVIT should not have a leverage of more than 49%, but current solar rooftop SPVs are 70% debt investment. Therefore, since the ticket size is fairly high here, the proof of concept has to be established first. Once the concept kicks in, domestic retail investors are likely to show interest.
|Solar Agro-Processing Power Stations||Key Comments|
|Proposed by Village Infrastructure Angels, this instrument aims to promote the use of solar off-grid systems for agro-processing in villages, by lowering the cost of financing.
|Strengths: Members agreed that this is a good idea as it targets the end user and the solution is engineered with respect to what is needed and how to get there. Clear alignment of the business model with existing pay-as-you-go models in the Indian market makes it a proven case for implementation.
Challenges: The lack of funding, or a local implementer can delay implementation of the concept, or may completely prevent it from going live.
|The Matchmaker Service||Key Comments|
|Proposed by Carbon Disclosure Project and Climate KIC, the idea aims to ensure cities have sufficient access to the private capital they need to meet ambitious climate goals.
|Strengths: The Matchmaker Service is likely to have a catalytic impact by bringing together lenders to cities through increased number of partnerships with project preparation facilities, investors and private equity funds. The service could be a good idea for building green infrastructure in smart cities in India by connecting investors to early stage projects which are otherwise not bankable, and in the process enhance municipal corporations’ capabilities to develop and implement climate friendly projects.
Challenges: Identifying the pipeline of projects to invest is the real challenge, and the membership fees model might not be successful.
Next Steps & Strategic Direction
Dr. Shrimali gave an overview of the Lab process and timeline, specifically plans for constituting working groups with cross-sector experts (including Lab members). Phase 2 – Instrument Design will kick off in full in the first week of March to develop the instrument mechanics, with a focus on the innovative and financially sustainable aspects of the instrument. An interim Members’ meeting to review instrument progress is planned for June 2017, after which the Lab’s analysis will focus on the implementation design and pilot support, with a focus on the actionability and catalytic nature of relevant instruments. The Secretariat then plans to host a meeting to discuss and endorse the final instrument designs in October 2017.
Mr. K.S. Popli, CMD, IREDA, announced the three winners and expressed optimism about the India Lab’s due-diligence and analytical capability in developing solutions that are much needed for the overall green infrastructure sector in India.
27 March, 2017 Update:
Following further discussions among Lab Members, the India Lab decided to take forward a fourth idea for further development and analysis. The selected idea is Sustainable Energy Bonds, proposed by cKers Finance. Sustainable Energy Bonds aims to drive finance to sustainable energy projects by attracting impact investors looking for debt exposure and offering them a set of instruments that provides return as well as standardized impact measures.