IFC turns focus on renewable energy funding

To focus on corporate debt finance after having made made equity and debt investment in the past

The International Finance Corporation (IFC), part of the World Bank Group, is refocusing its power sector investment strategy and would soon invest in renewable and hydropower projects in India.

It has made equity and debt investment in wind and solar segments and is now looking at corporate debt finance. IFC has invested $275 million in debt and $47 million in equity in wind and solar energy projects in India.

“We do not finance coal projects any more. While natural gas is a difficult sector, solar and wind projects can be deployed rapidly to meet the government’s 24x7 power supply plan,” Gaetan Tiberghien, principal investment officer, infrastructure and natural resources, South Asia, told Business Standard.

Tiberghien said coal-based power generation projects take about three years to go on stream, while hydropower can take around seven years. Wind projects can be completed in a year and solar ones faster, he added.

Though analysts have expressed concern at unrealistic rate bids by solar power generators, Tiberghein said these have been able to sustain because it coincided with the rapid decrease in costs. “Bidders have been lucky as they have been able to take the benefit of a fall in costs. Unlike the road sector, where aggressive bids caused concern, there have been no cost overruns in solar. But that might not be the case anymore, as costs in solar have stabilised and it could be risky to put in aggressive bids”.

The two main concerns for IFC, however, are curtailment and financial health of distribution companies. Tiberghein said the curtailment being faced by wind power generators in Tamil Nadu was that these were in a position to generate energy but the transmission grid was unable to carry it. “About 20 per cent of wind energy in Tamil Nadu is curtailed. A similar problem is witnessed in China, too,” he said.

The restructuring of distribution companies has not yielded much, Tiberghein said, especially as the agriculture sector was given a preferential rate or free power, making business unviable for distribution companies.

India, unlike Nepal and Sri Lanka, however, had an advantage of not having a monopolistic market in buying power, he said. Though there are a lot of charges on captive generators, a large number of companies use open access and group captive routes to sell power instead of selling to distribution companies.