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Prime Minister Narendra Modi's thrust on putting India on the renewable energy map is luring big corporates to invest in this segment. In the latest such investment in the sector, the Hinduja Group on Monday said it is looking to pump in about a billion dollars to set up solar-based power units in the country to generate 1,000 MW.
"We have identified locations in three States, including Rajasthan and Gujarat," Gopichand P Hinduja, Co-Chairman of the $25-billion Group said at a media interaction. The company has acquired land and is in talks with three potential partners, of which one will be selected after due diligence. Shom Hinduja, the 23-year-old son of Group Chairman Ashok Hinduja, is leading the entry into the solar power business.
YES Bank announced separately that it is issuing India's first Green Infrastructure Bonds to raise Rs. 500 crore. This follows State Bank of India's decision to commit Rs. 75,000 crore to fund renewable energy projects. Given the Centre's focus on India's renewable energy potential and the target of 175 GW of additional capacity installation by 2022, it is estimated that the renewable energy sector will require significant financing.
"Currently, there are a number of challenges in the existing financing mechanisms, including sector limits, high interest rates and asset-liability mismatch and, therefore, there is a need to evolve innovative financing mechanisms to aid projects in the renewable energy and energy efficiency space," YES Bank said, explaining its move. Over the past few weeks a number of other major players have announced plans for this segment. Subhash Chandra-backed Essel Group wants to generate 12,000 MW of renewable energy with a planned investment of over Rs. 75,000 crore over the next five years.
Mahindra Group, Adani and Reliance are also eyeing this space in a big way. Traditional renewable energy players such as Suzlon and Green Infra are gearing up for a big play by getting fresh investments.
While Green Infra has divested 60 per cent stake to a Singapore-based private equity investor for Rs. 1,051 crore, Sun Pharma's Dilip Shanghvi bought 23 per cent of Suzlon for Rs. 1,800 crore.
According to market analysts, Government support will be required to meet these targets. "The technology curve for solar power is evolving. In the past two years, capital cost per MW has fallen from Rs. 14 crore to less than Rs. 8 crore. Consequently, average solar tariff rates have declined from Rs. 15 per kWh to Rs. 8 per kWh.
Crisil believes that for solar power projects to achieve grid parity with traditional sources, capital cost needs to fall below Rs. 5 crore per MW. And until that is achieved, Government support through preferential tariff or viability gap funding will be critical, Crisil said in a white paper released recently.
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