India can build on an FID for a major renewable ammonia plant through a mixture of public and private-sector finance initiatives, writes Akansha Victor
In India, as elsewhere, access to financing still presents a major challenge for many planned renewable hydrogen projects. Unlocking access to foreign capital or dollar-denominated financing options and blended finance facilities will be crucial for bringing projects to fruition, according to industry participants.
There have been some signs of progress along India's large project pipeline, notably the first final investment decision (FID) for a major plant — a 1mn t/yr renewable ammonia facility in the southeastern Andhra Pradesh state. For many developers, securing firm offtake deals will be the key step towards bankability, but delegates at this month's International Conference on Green Hydrogen in New Delhi also pointed to specific instruments that can pave the way to more FIDs.
Many Indian developers are primarily eyeing seaborne exports and could seek to secure financing from the Gujarat International Finance Tec City (GIFT City) in Gandhinagar, which provides access to dollar-denominated financing, REC chairman and managing director Vivek Kumar Dewangan said. GIFT City is a special economic zone with an international financial services centre that enables financial entities to conduct transactions in foreign currencies for clients outside the domestic economy. It facilitates these transactions through financial institutions such as banks, non-banking financial companies and global lenders.
Hedging overseas capital to protect against currency fluctuations can increase the cost of loans by 3-3.5pc, according to the chairman and managing director of the Indian Renewable Energy Development Agency (Ireda), Pradip Kumar Das.
REC and Ireda are among the state-owned financiers that are in the process of opening subsidiaries in GIFT city, where India is also planning to launch a global hydrogen trading mechanism by 2026.
Nishaanth Balashanmugam, country manager for India at non-profit the Green Hydrogen Organisation, agreed that there is a need for effective foreign exchange-hedging instruments. Different measures are needed to lift restrictions on contributions from foreign institutional investors — such as banks, hedge funds, credit unions or pension funds — to Indian projects, he said. This could include classifying climate finance as a priority lending sector, Balashanmugam said.
But Balashanmugam also urged Indian institutional investors, such as the Life Insurance Corporation, to step up efforts, noting that little institutional capital is allocated to climate initiatives, despite the need to advance the energy transition.
The right blend
For many projects, blended finance approaches that use public funds to catalyse private-sector investments will probably be key, Ireda's Das said, and efforts to facilitate this are under way by international and domestic institutions.
The World Bank offers various instruments, such as concessional funding blended with climate finance from institutions such as the Climate Investment Funds and Green Climate Fund, infrastructure programme leader Moez Cherif said.
Meanwhile, the National Investment and Infrastructure Fund (NIIF), India's sovereign wealth fund, is preparing a blended finance facility to raise $2bn for green transition projects, including for renewable hydrogen, according to its senior strategic initiative and policy advisor, K Mukundan. NIIF is willing to accept lower returns and provide concessional capital, while it is looking to raise commercial capital from international investors, Mukundan said. The new facility is in the fundraising phase and this could be closed in the next few months, Mukundan said.
Other tools that public-sector institutions have at their disposal include guarantees, Cherif said. These can assure commercial lenders over repayments, thereby encouraging them to lower finance costs, he said.
