Enabling Change: Role of project structuring and risk mitigation in reducing renewable prices

Role of project structuring and risk mitigation in reducing renewable prices

By Manu Srivastava, Principal Secretary, Government of Madhya Pradesh

There has been a lot of discussion re­cently about climate finance for supporting actions that will address climate change. The United Nations Fra­me­work Convention on Climate Chan­ge (UNFCCC), the Kyoto Protocol and the Paris Agreement have called for fin­an­cial assistance from parties with more fi­nan­cial resources to those that are less endowed and more vulnerable in accordance with the principle of “common but differentiated responsibility and res­pective capabilities”. The whole disco­ur­se has centred on humanity’s entreaties and ex­hortations for climate projec­ts, and that it is the responsibility of ­ri­ch­er countries as also established corp­o­rations to provide finance for such projects. The underlying premise is that climate change projects are inherently unviable and that richer countries and corporations should in­vest in them, not for their economic interests, but for the wider good of the earth and humanity.

Climate finance is definitely needed for adaptation, as significant financial reso­ur­ces are needed to adapt to the adverse effects and reduce the impacts of the ch­anging climate. As regards climate fin­ance for mitigation, large-scale invest­ments are definitely required to significantly reduce emissions. However, it needs to be borne in mind that mitigation covers a range of ac­tivities, many of which need substantial financial assistance while others have, over a period of time, become economi­ca­lly viable and do not need any direct financial assistance. Climate mitigation is really a big room; one corner of the room, say, carbon sequestration, is still not economically viable and needs financial assistance to take into account the externalities, while another corner of the room, say, renewable energy, even more so solar energy and wind energy, involves economically viable activities that do not need subsidy or viability gap funding (VGF) any mo­re. This has not been the situation from the beginning. There was a period when solar power purchase agreements (PPAs) were signed for Rs 20 per unit. The author too has personally signed PPAs for Rs 8.05 per unit in 2012 and Rs 5.05 per unit in 2014. But, to­day, solar energy is cheaper than conventional power. Rather, the re­strictions imposed on open access solar and roof­top solar in the country are testimony to the fact that conventional power has be­gun to rely on such measures to face the reducing solar prices.

The reduction in solar energy prices has been made possible by a host of facto­rs, including technology, economies of sc­­a­­le, efficient supply chain, growing developer experience, rising comfort of financiers, favourable policy and regulations framed by governments, and vigour and initiative of the private sector. One of the factors that has enabled this change and facilitated the substantial reduction in renewable energy prices has been “project structuring and risk mitigation” in such projects. This article focuses on the role that project structuring and risk mitigation have played in the reduction of re­ne­wable prices. These can play an equally pivotal role in improving the economic viability of other parts of the room as well as other climate mitigation measures, as we forge ahead in our joint endeavour to save the earth.

The article draws upon experience from two solar projects conceptualised and im­plemented by the author at two ends of the spectrum – one, a 750 MW gr­ou­nd-mounted project set up over a spra­wling 1,590 hectares or almost 16 square km in Rewa, Madhya Pradesh, and the other on the rooftops of buildings of a large number of government organisations in Madhya Pradesh, each project below 500 kW. Both these projects have been re­cently selected by the Capacity Building Commission, Go­v­ernment of India, among the top 15 “In­novations in Public Administration” in the country. The commission is making th­e­se case studies for capacity building of present and future civil servants, apart fr­om incorporating them in a knowledge re­pository that can be accessed by all civil servants for scaling up successful innovations in the country.

Rewa solar project

The 750 MW Rewa solar project located in Rewa district of Madhya Pradesh is the first project in India to provide solar en­ergy at rates lower than those of coal-based po­wer. Before Rewa, the prevailing solar tariffs in India were over Rs 5 per unit. The Go­vernment of India used to offer VGF so that the distribution companies (discoms) cou­ld procure solar pow­er at that price. Bid­ding used to be on VGF and the developer seeking the minimum VGF was awarded the project. It is in this context that the Re­wa solar project got a first-year tariff of Rs 2.97 per unit in February 2017. This was without any VGF support from the government.

It continues to be the only project in India supplying power to an institutional customer – 65 per cent of the daytime de­mand of the Delhi metro is met from this project and the Delhi metro is saving Rs 1 billion annually.

The Rewa project established the principle that low prices can be achieved without us­ing subsidy and merely on the basis of robust project preparation, an efficient tran­saction structure and careful contractual terms, finally leading to risk mitigation for developers. The lasting impact of the Rewa project has been that the Indian go­vernment incorporated its principles in the Standard Bidding Guidelines (SBGs), which were notified in August 2017, and all solar projec­ts above 5 MW in India can now be set up only under these SBGs.

The Rewa project was set up by Rewa Ultra Mega Solar Limited (RUMSL), a company created by the author, who had served as the chairperson and CEO of the company since its inception in 2015 till the completion of the project in 2020. With the solitary exception of RUMSL, all solar projects in India have been set up by central government companies, namely, the Solar Energy Corpo­ration of India (SECI) and NTPC.

Although the project was managed at the state level, six international companies – Softbank, Engie, Enel, Sembcorp, Solen­er­­gie and Canadian Solar – and a total of 20 companies had bid for the proje­ct. The project was also awarded the Wor­ld Bank Group’s President’s Award. The case stu­dy of the project is being used in Har­vard University and Singa­pore Mana­ge­­ment University.

Rooftop solar projects

Rooftop solar projects on government buildings do not require any investment from government organisations and en­able savings from day one, apart from the obvious environmental benefits.

With the reduction in solar energy prices, it is widely acknowledged that solar energy today is more viable than conventional electricity in project life cycle terms. This is true for rooftop solar projects as well. However, most organisations and go­­­vernments lack the resources or the willingness to invest in rooftop solar projects. India has set a solar target of 100 GW by the year 2022, to be ac­hieved to the extent of 60 GW throu­gh ground-mounted solar and 40 GW th­rough roof­top solar. While India has ac­hie­v­ed sig­nificant progress towards the ins­tallation of ground-mounted solar and almost 50 GW has been installed against the target of 60 GW, the progress in roof­top solar installation is only 8 GW against the target of 40 GW.

To address the situation and to encourage the setting up of solar rooftop projects in public buildings, public-private partnership pro­jects could be set up where the investment would be made by solar developers who will recover their investment by selling power to the beneficiary over the next 25 years. This model has been tried for public institutions by several organisations in India, including SECI and NTPC Vidyut Vy­a­par Nigam, a subsidiary of NTPC, but has faced numerous challenges and has not been successful.

However, the model has been successfully attempted in Madhya Pradesh and over 100 grid-connected net metered rooftop projects are functioning, all set up without any investment by the beneficiary, and enabling substantial savings to beneficiaries from day one. These include central government organisatio­ns, namely IIM In­dore and the Central Academy of Police Tra­i­ning under the Ministry of Home Affairs (getting power at Rs 1.38 per unit), and Powergrid substations (getting power at Rs 1.58 per unit). These organisations, as also nu­merous state government orga­ni­sations, namely, colleges, urban local bo­­dies, me­dical colleges, universities, po­lice stations, etc., are getting green power wi­th­out any investment by them at rates that are a third of the prevailing discom rates, or even lower.

The rate achieved in Madhya Pradesh, Rs 1.38 per unit (with 3 per cent ann­u­al escalation), is by far the lowest in India. This is with the then avail­ab­le subsidy (25 per cent from the MNRE and 18 per cent from the Madhya Pradesh government). If there was no subsidy, as it is now, the rate would be Rs 2.21 – almost equal to the rate of ground-mounted solar projects in October 2018 when the project was bid. The discovered tariff is a fraction of what is being currently paid to the discoms by government institutions in most states –  Rs 7-Rs 8 per unit.

The participation of developers in setting up these solar projects (31 bidders, including Singapore-based CleanTech Solar and PETRONAS-owned Amplus Solar, Cana­da-based AMP Solar), and the attractiveness of the solar tariff (the lowest in the co­un­try) have been ac­hieved by miti­ga­t­ing the risks and un­certainties in these projects for the developers.

Among more than 100 organisations that have rooftop solar projects, there are se­ven medical colleges. They save almost Rs 2 million per month. The projects have be­en commissioned on various dates bet­we­en February 2020 and February 2022. The cumulative savings till now for the me­dical colleges have been over Rs 40 milli­on. Further, the project has substantial environmental benefits – it leads to annual CO2 avoidance of 3,097 tonnes, a benefit that can be achieved by planting more than 140,000 trees. All this is with zero investment by the medical colleges or the medical education department.

NITI Aayog has decided to replicate Madhya Pradesh’s project for setting up solar projects on the rooftops of health ins­titutions under its initiative, Sun’s Blessings and Health (SuBaH). A Na­tional Workshop on SuBaH was held on September 30, 2021. It was chaired by Amitabh Kant, then chief executive officer of NITI Aayog. Ju­naid Ahmad, then World Bank country director in India, ad­dressed the workshop and called the SuBaH initiative “the big message for COP26 from India”.

Benefits of project structuring and risk mitigation

These two projects differ enormously in their size and scope. While one is spread over 1,500 hectares and has an investment of over Rs 50 billion, the other is over individual rooftops, some of which are just 10 kW and cost merely Rs 500,000. But what is common in both these projects is that they have successfully mitiga­t­ed  the risks and uncertainties in these projects for the developers through numerous innovations, robust project preparation, an efficient transaction structure, balan­ced risk allocation and careful contractual terms. The benefits of this are examined hereinafter.

Many developers have not yet left the safe confines of OECD countries and continue to be wary of investing in emerging eco­no­mies. We need to ring fence renewable en­ergy projects set up in emerging eco­no­mi­es from the larger risks of such countries. This would enable a large number of new developers to venture into the third world. Ri­ght now, we are setting up many projects in which the responsibility of arr­anging the land is left to the developer. Anyone who has purchased land in In­dia wo­uld understand that the processes in­herently keep away developers fr­om co­u­ntries that have laws like the US’s For­eign Corrupt Prac­ti­ces Act. Similarly, we develop rooftop solar projects where it is left to the solar developer to arrange for customers, a job that can be more simply un­der­taken by the government as was done in the roo­ftop solar project mentioned abo­ve. The author had the privilege of being in­vited by the Global Infra­str­ucture Facility (GIF), an initiative of the G20 and the World Bank, to its Ann­ual Advi­sory Council meeting in Washing­ton, DC to speak on the Re­wa project. The pr­o­ject is designed to att­ra­ct international investment in emerging ec­ono­mi­es by suitably addressing all risks.

Setting up de-risked projects would en­courage a large number of sovereign, pe­nsion and trust funds to invest in renewable energy projects, since they are ke­ener on assured returns than on windfall profits. Renewable energy projects in­herently me­et their expectations since they have a steady revenue stream after commissioning, with the limited res­po­nsibility of cleaning the panels and se­curity. Such investors would be a boon for renewable energy projects as they have very moderate expectations of re­turns on investment.

Almost 70 per cent of the finance for most projects comes from banks. These financial institutions never enjoy the upside of the project and, hence, they are extremely keen to avoid the downside. Once they are convinced that the project has been de-risked and that they will continue to get the promised interest, they are willing to offer debt at an ex­tremely competitive rate.

Equity and debt are the two components that determine the ultimate cost of a project. With de-risking a project, we can get equity with low expectation of return on in­vestment and debt at reasonable rat­es, both leading to low project costs and ultimately cheaper renewable energy.  Fur­­­ther, most renewable projects have a co­mponent of public investment, both in terms of financial resources and time, who­­se wastage can also be prevented with efficient project structuring, leading to risk mitigation.


The Rewa solar project had 20 bidders even though it was a state-run pro­je­ct because it was seen as a project that had efficiently mitigated the various risks of an emerging economy as also of be­ing a state-run project. Similarly, the roof­top project had 31 bidders since it mitigated in­vestor risk in a manner that had not been, and has still not been, replicated in India.

What lies at the core of the success of these projects and of them being able to achieve what other projects have been unable to do, is efficient project structuring, leading to risk mitigation for the de­velopers. If that is done, we will not have to be­seech and cajole countries and fin­ancial corporations to invest in climate pro­jects for the sake of humanity and the Earth. If the projects are de-risked, de­velopers, investors and lenders would be themselves drawn to such projects.

We ordinarily see a spectre of an appeal to the higher and nobler instincts of the financial world to invest in climate projects. This is what usually happens, akin to Apollo chasing Daphne. If we succeed in efficient project structuring and risk mitigation, finance would by itself flow to climate projects and we would see that “Apollo flies and Daphne holds the chase” to quote from Shakespeare’s fantasy in Midsummer Night’s Dream; only, that would not be a fantasy, or a midsummer night’s dream, ra­ther that would make the sun smile and bless our mother earth.