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Barriers to renewable energy investment: a study of risk perceptions of investors in India

Student Name: Ms Swarnalakshmi Umamaheswaran
Guide: Dr Rajiv Seth
Year of completion: 2019

Abstract:

India’s Nationally Determined Contributions targets a 40% share of renewable electricity by 2030 and a cumulative capacity of 175GW by 2022. Investment requirement at this scale goes beyond budgetary allocations and requires the participation of markets. However recent experiences in the implementation of renewable energy programmes by several states have evidenced difficulties in mobilizing finance for projects due to risks perceived by investors. Risk perception impacts renewable energy projects by increasing the cost of capital as well as reduce the capital available for renewable energy projects and therefore can slow down the achievement of larger policy goals.

This thesis investigates how investors’ perceive risks in the Indian context as well as the drivers that influence such perception. Among the different types of investors the study focuses specifically on debt providers. It follows a multiple methodology approach with elements borrowed from both qualitative and quantitative research techniques. The thesis is presented as two independent studies. The first study involves conceptualization of risk perception within the renewable financing domain though interviews which forms the inputs for designing the questionnaire. This is followed by a survey among bankers to explore risk perceptions and factors that influence it. The second study uses simulation methods to explore the impact of risks and how it affects overall value in renewable energy projects from a practice viewpoint. The results from the second study helps to expand on the results from the first study, specifically in understanding if risks as perceived by bankers diverge from that of actual risks and their impacts on renewable energy projects.

The study shows that bankers perceive payment and regulatory uncertainties are as significant risks .Furthermore factors related to experience and capacity, the local infrastructure financing environment and degree of familiarity with renewable lending emerge as key drivers of risk perception. Results from the second study show that risks related to capacity utilization, degradation and cost overruns have the highest impact on the levelised cost of energy. Combining results from both the studies it can be shown that there is some divergence in the way bankers prioritize risks vis a vis risks prioritised based on actual impact.

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