INDIA FOCUS

ENGINEERING SUSTAINABILITY SCIENCE
CLIMATE FINANCE ARCHITECTURE INDIA AND
NET ZERO ASSET VISIBILITY VS VIABILITY GAP FUNDING (VVGF).

India, there is a lack of proper resources of finance to build appropriate infrastructure. In long-term projects, there is a need for significant financing resources, but how to arrange those resources is difficult. Some projects may not be financially viable, but they are economically justified and necessary. The government has identified the mechanisms of Private Sector Investment (PSI) and Visibility and Viability Gap Funding (VVGF) to complete these types of projects.

The Climate Finance Architecture, the specialized public funds that help implement climate mitigation and adaptation projects and programs, is crucial if the world is to overcome the climate change challenge. These funds play a valuable role in deploying renewable energy to restoring degraded forests and often mobilize even larger funding volumes from the private sector and other sources.

The current Visibility and Viability Gap Funding (VVGF) limit is not sufficient to meet the requirement of the PPP projects. Therefore, the government has raised the quantum of Visibility and Viability Gap funding up to 30% from Private Sector Investment (PSI) in the Social Infrastructure Projects vs. 70% for Foreign Direct Investment (FDI). The limit should be increased for the other infrastructural projects also as the current limit is insufficient to meet their requirements. The Visibility and Viability Gap Funding Model aims to ensure a Private Sector ownership guarantee; this will provide more significant financial stake holding and encourage more private sector sponsors to start working on PPP projects.

Private Climate Finance in India:

Reports by the MoF and Low Carbon Expert Group that India faces a multimillion-dollar funding gap, and private finance will play an essential part if India must meet its climate goals. In addition, the International Energy Agency has estimated that, by 2020, 40 percent of global climate investment will come from private households, 40 percent from businesses, and 20 percent from government. Therefore, the ability of countries to leverage personal climate finance will become instrumental in delivering climate action.

Some of the sources of Private Climate Finance:

(1) Clean Development Mechanism: The CDM provided under Article 12 of the Kyoto protocol enables the PSI to participate with the government to undertake mitigation commitments flexibly and cost-effectively by financing mitigation projects. While investors profit from CDM projects by obtaining reductions at costs lower than in their own countries, the gains to the developing country host parties are in the form of finance, technology, and sustainable development benefits.

(2) Private Climate Finance in India exists in the form of Debt Finance. These are usually in the form of local and foreign currency loans. Domestic (public and private banks) and Non-Banking Financial (NBF) Institutions/Agencies are given the former. Public banks that lend to India's renewable energy sector are the State Bank of India, Canara Bank, and Central Bank of India. Private Banks lending to the industry include ICICI, HDFC, and Axis Bank. On the other hand, foreign currency loans come from development banks, export-import banks, and foreign banks. In India, these loans come from JICA, Exim Bank of China and USA, Overseas Private Investment Corporation (OPIC), and Asian Development Bank.

(3) GREEN BONDS are fast emerging as another mechanism to finance green initiatives to meet the renewable energy target. There is a need to look at innovative channels for financing, and banking alone would not support the vast requirements. "Green bonds could be a potential option to keep these funding needs. They can act as a successful bridge between capital markets and addressing climate change.

(4) Private Equity and Venture Capital have also become one of the most significant sources of funds for renewable energy projects, especially wind and solar power projects. Total PE/VC investments in the sector are around 4.1 billion in 2016.

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