Municipal bonds could be used to raise capital and help project developers access debt capital, suggests a new report from the Climate Policy Initiative (CPI). (Source: Climate Policy Initiative)
- Municipal bonds could hold the key to India achieving its targeted 40 GW of rooftop solar capacity by 2022, according to new Scaling up Rooftop Solar Power in India:The Potential of Solar Municipal Bonds report from Climate Policy Initiative (CPI)
- These bonds could address the challenges of high upfront capital expenditure, perceived performance risk and limited access to debt capital
- The measure could be instrumental in bringing down rooftop solar costs by up to 12%
- If successful, municipal entities in India could use the same model to support other infrastructural projects as well
Achieving India’s huge target of 40 GW of solar power capacity via rooftop PV installations by 2022 is not going to be child’s play. At the end of 2016, capacity around 1.26 GW rooftop solar was installed, though government estimates differ. To meet the 40 GW target, 38.8 GW has to be installed. That will require a total of around $39 billion excluding subsidies.
Even India’s parliament recently stated that this is an “unrealistic” target and asked the government to reconsider plans (see Govt Panel Finds Rooftop Target ‘Unrealistic’).
A Feb. 2018 released report, Scaling up Rooftop Solar Power in India: The Potential of Solar Municipal Bonds, from Climate Policy Initiative (CPI), suggests issuing municipal bonds to scale up rooftop solar in India. Bonds could address the challenges of high upfront capital expenditure, perceived performance risk and limited access to debt capital. They could also help lower rooftop solar costs by up to 12%, claim the report’s authors.
The report explains how this could work: a corporate municipal entity (CME) or a municipality-owned master special purpose vehicle (SPV) could play the role of a finance aggregator for renewable energy project developers. It could raise bonds and use the proceeds for SPVs owned by project developers by way of capital lease arrangements. This disbursement will be done under public private partnerships (PPP), similar to the design-build-finance-operate (DBFO) model.
The municipal entity would take care of financing, which would allow project developers to access debt capital markets that are otherwise difficult to access.
The suggestion, though promising, will be fraught with challenges starting from the municipal entity itself. Issues would include transparency, due diligence, the need for regulatory support. There are several other challenges listed at length in the report. It also lists several focused interventions to address these barriers.
Though “radical and futuristic,” this model “could be crucial if India wants to achieve its rooftop solar target by 2022,” suggests the report.
Brought out by CPI along with the Stockholm Environment Institute (SEI) and the Indian Council for Research on International Economic Relations (ICRIER), the detailed Scaling up Rooftop Solar Power in India: The Potential of Solar Municipal Bonds report is available on CPI’s website.