THE IDEAS

Crowdsourced Ideas

The Call for Ideas for the 2016-2017 India Lab cycle is currently open, from 19 September 2016 to 23 December 2016. Visit www.climatefinanceideas.org to submit an idea and for more information.

At the start of each annual cycle, the India Innovation Lab for Green Finance seeks proposals for innovative financial instruments that have potential to manage investment barriers and scale up attractive capital for green infrastructure in India, through an open Call for Ideas.

On October 25 2016, after a year of analysis, development, and stress-testing, Lab Members chose to endorse three instruments in the 2015-2016 cycle to move forward for piloting, listed below.

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Rooftop Solar Private Sector Financing Facility

The Rooftop Solar Private Sector Financing Facility aims to drive capital at a lower cost of financing for developers of rooftop solar projects, by providing long term debt financing through securitization. It also aims to demonstrate the commercial viability of sustainability-focused, asset-backed securities for the Indian rooftop solar sector. Over 2017-2022, the Facility can mobilize USD $320 million of private capital for rooftop solar power.

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Loans4SME

Small and medium enterprises (SMEs) in renewable energy and energy efficiency in India are facing two key financing challenges: availability of capital and cost of capital, particularly in the case of debt finance. These challenges are largely derived from a banking system that has traditionally relied on collateral and past track records as key factors in lending decisions. SMEs often don’t meet these requirements, and are thus challenged by limited financing options.

Loans4SME offers a solution that could expand the source of domestic debt capital for SMEs beyond banks, to include high net worth individuals, family investment offices and corporate treasuries. Loans4SME will launch a curated marketplace that will connect businesses with debt providers directly via peer-to-peer lending. It will focus on cash flows and the repayment capabilities of the projects in order to increase investor confidence and offer timelier financing.

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FX Hedging Facility

Foreign investment is a potential source of significantly more finance for renewable energy in India. However, currency risk, which is unexpected devaluations when using a foreign currency, is a major deterrent to many foreign investors, resulting in reduced investments in the country due to the higher perception of risk, and necessitating the use of a currency hedge (or foreign exchange swap) to protect against the devaluations, which can add significant costs to transactions.

The FX Hedging Facility is a customizable currency hedging product that lowers currency hedging costs by targeting a particular tranche of currency risk, thereby allowing allocation of risks to suitable parties and eliminating the credit risk premium otherwise charged in a commercial currency swap.

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P50 Risk Solutions

A formidable risk in the renewable energy sector is weather variability, especially for wind energy. Weather variability translates to revenue variability, which has a direct effect on the ability of projects to meet their debt obligations. Banks take a conservative approach to this risk, and this limits the availability and cost of capital for renewables.

P50 Risk Solutions is an insurance product that guarantees a minimum level of revenue generation against the payment of an upfront annual insurance premium. If the revenue during the year falls below this level, the insurer makes up for the difference (up to a maximum predetermined cap). The product is designed so that the customer has certainty of achieving a minimum revenue with 90% probability, increasing the level and reducing the volatility in projected revenues.

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