India’s government is setting up a USD 1.25bn renewable energy fund that observers expect will bring down the cost of debt financing for projects.
Joint secretary of the Ministry of New and Renewable Energy Varsha Joshi announced the initiative during the 4-5 February India Investment Summit. Modelled on the INR 400bn (USD 5.9bn) National Investment and Infrastructure Fund (NIIF), it is being set up as a fund of funds and can make equity investments in other funds.
A source active advising on India infrastructure deals added that the NIIF and renewable energy fund may then raise debt financing for projects at more attractive rates than they would be able to without the involvement of a government-backed fund.
Local media have reported that state-owned companies including Power Finance Corp and the Rural Electrification Corp have committed USD 300m to the REF to date. The source added that state-backed PTC Financial Services is also involved in the renewable energy fund launch. None of the three companies responded to requests for confirmation.
One key motive for setting up the fund is renewable energy’s potential as a hedge against future oil price rises said the source. Historically, oil prices have negatively impacted India’s fiscal deficit. That deficit is coming into focus once again in the lead up to Finance Minister Arun Jaitley’s 2016-17 budget address to parliament on 29 February.
