The government and three state-run firms will jointly set up an equity fund of up to $2 billion for renewable energy companies to tap into to help New Delhi meet its clean energy goals, two government sources told Reuters on Wednesday.
Private and public companies will be able to dip into an initial amount of more than $1 billion starting next fiscal year, said the sources with direct knowledge of the decision taken after a meeting of government officials more than a month ago. India's government hopes the Clean Energy Equity Fund (CEEF) will attract pension and insurance funds from Canada and Europe.
Around $600 million of the initial pool will come from the National Investment and Infrastructure Fund, under the finance ministry, and the rest from state entities NTPC Ltd, Rural Electrification Corp and the Indian Renewable Energy Development Agency, according to one of the sources.
The sources declined to be named as they are not authorised to talk to the media. Officials at the finance ministry, new and renewable energy ministry, NTPC, Rural Electrification, and Indian Renewable Energy Development Agency did not immediately respond to requests for comment.
Prime Minister Narendra Modi has set a target of raising renewable energy target to 175 gigawatts by 2022, more than five times current usage, as part of the fight against climate change by the world's third-biggest greenhouse gas emitter and to supply power to all of the country's 1.3 billion people.
The programme will depend on getting as much as $175 billion in funding with 70 per cent of that likely in bank loans and the rest as equity, the sources said.
The government reckons loans are not a problem but providing equity to investors may be difficult due to uncertainties over returns, one of the sources said.
"As we expand our clean energy capacity, there may be a shortage of equity next year," said the source. "Private equity is seen as risky in India but if the government itself creates a fund, that gives a lot of confidence."
India's clean energy push was set back earlier this year when US solar company SunEdison filed for bankruptcy. The company is now looking to secure partners to see through its planned India projects.
Nevertheless, companies are still keen to invest in clean energy.
Japan's Softbank Corp, Taiwan's Foxconn and Bharti Enterprises have pledged to invest about $20 billion in India's renewable sector. Global solar giants like First Solar Inc, Trina Solar Ltd and Fortum are also expanding their presence.