The report "Meeting India’s renewable energy targets: The financing challenge" highlights that even though under the JNNSM, grid-connected PV capacity increased by 165% in 2011 to reach 427 MW, the targets of 4,000 to 10,000 MW by 2017 and 20,000 MW by 2022 may be hard to achieve under current policies and programs. The biggest obstacle is cited as financing.
The analysis by CPI and ISB show that the high interest rates are the biggest and most urgent problem with regards to financing renewable projects. The report quotes that in the short term, the higher cost and inferior terms of debt in India may cause the cost of renewable energy to increase by 24 to 32% compared to similar projects financed in the U.S. or Europe.
Talking to investors and developers shows that when adjusted for differences due to the less attractive nature of debt in India, the expected returns on equity (ROE) may be lower than in the U.S. or Europe, despite potentially higher country risks. The general financial market conditions in India are the prime cause of high interest rates for renewable power.
The report also highlights that in the medium to long term, attractive, low cost equity may be less available in the future. Continued high borrowing by the government of India is also likely to keep interest rates high.
While not explicitly mentioned in this latest report, inflated prices for important photovoltaic components, through anti-dumping duties, would presumably also slow installation development.
Thin film manufacturer and project developer First Solar has been enjoying some success in India because of the financing challenges identified in the CPI and ISB report. Assisted by financing from the U.S. Export-Import bank, projects using First Solar components can have vastly reduced financing costs.
The complete CPI-ISB Energy and Environment Program report can be found here.