Financing India’s solar energy revolution
India faced demand for electricity that outstripped its generation capacity; the country relied heavily on imported coal, and industry and consumers still suffered from frequent power outages. There was a lack of long-term funding for clean energy projects, including rooftop solar panels and wind power, and around a quarter of the population – 300 million people – had no access to electricity.
The Indian government remains committed to the goal of creating 100 GW of solar power capacity by 2022, an ambitious plan that would require $35 billion in capital and entail 95% annualised growth over the next four years. The government also aims to provide 24-hour electricity to the entire country within the next few years. Private and development capital, including from international sources, is already playing an important role.
The government is delivering on ambitious growth targets for solar power generation, and in 2018 overtook the US to become the world's second largest solar energy market.
Funding rooftop power in India
The scarcity of production resources also represents an opportunity for countries and companies to more easily make a development leap to a better diversified energy mix instead of relying only on fossil fuels for their economic growth. This opportunity was seized by Azure Power already in 2009. At that time, the entire country had only 10 MW of installed solar generation capacity, compared with more than 25 GW now.
It is a remarkable growth story, in the course of which power costs for Azure’s clients have dropped by 80% over the past five years. FMO has taken an active role in this revolution by financing Azure Power and its sister company Azure Rooftop Power. In 2017, we provided Azure Power with a local currency senior loan facility for the equivalent of $30 million, financing that will enable the company to expand its power generation platform rapidly.
In May 2018, together with IFC, Proparco and OEeB, FMO agreed to finance a further $135 million of rooftop solar projects, which will provide to 200 MW of power generation capacity. Azure Rooftop Power is delivering rooftop solar power solutions for a wide range of clients, from government institutions to commercial and industrial businesses.
Local challenges, strategic success
Doing business in India is accompanied by inevitable social and environmental risks, for example with regard to land acquisition. It represents a complex and challenging context for companies such as Azure, which has projects installed and operating throughout the country, and it is critical for Azure to adopt a holistic approach towards safety, health, environment and social-related (SHES) issues.
FMO has supported Azure in integrating a social due diligence process and introducing a land acquisition procedure for all new projects. The company has created a dedicated SHES department, headed by a manager responsible for oversight across the company's growing portfolio, including ground-mounted and rooftop installations. In a FMO-supported workshop, Azure teams have developed innovative solutions to tackle SHES compliance risks throughout the business, and cash-based incentives are provided to staff to reinforce good practice.
With more than 600 personnel on the ground, Azure is well accustomed to dealing with the many linguistic and cultural differences which make India such a complex market in which to operate, especially when introducing new technologies such as solar panels.
Its growth has directly and indirectly created many jobs in India, including in poorer states such as Uttar Pradesh, and it has created cash flows to communities that previously lacked many basic resources but now benefit from a sustained source of income.
A pioneer in the market, Azure has an established track record of installing solar projects and is making a significant contribution to helping India achieve its clean energy power generation targets. From a wider perspective, sustainable energy resources are set to play a vital role in meeting India's energy needs as the country's economic growth drives increased demand for power.