India could cut the cost of subsidizing wind energy by as much as two-thirds by introducing new policies to allow projects to raise cheaper, longer-term loans, according to a study.
Helping wind farms and solar-power plants to reduce borrowing costs and obtain loans with terms as long as 20 years would be a cheaper way of supporting clean energy than existing policies, according to a study by Climate Policy Initiative, a San Francisco-based analysis firm, and Bharti Institute of Public Policy at the Indian School of Business.
Indian commercial banks offer 10-year loans with interest rates of about 12 percent to renewable plants. Such unfavorable terms add as much as 32 percent to the cost of renewable energy in India, according to the report.
India, ranked Asia’s third-most attractive country for renewable investments by Ernst & Young LLP, plans to generate 15 percent of its power from clean sources by 2020. Federal and state-level programs have promoted the development of wind and solar farms through a combination of tax incentives, grants and above-market power tariffs.
A cheaper way for the federal government to support renewables would be through debt-related policies, such as paying part of the interest-rate obligations of projects or lending funds below commercial rates or for longer tenors, according to the study.
For example, if the government helped wind farms halve the interest rate on their loans to about 6 percent and double the tenor to about 20 years, that could reduce the total cost of federal and state subsidies by as much as 78 percent. In some cases, interest-rate subsidies would also allow 83 percent more wind farms and 30 percent more solar plants to be built for less money, according to the report.