Three Indian projects among nine selected for climate investment funding

Three initiatives for India, two in the electric vehicle space and the other in the solar rooftop sector, are likely to propel the country towards a cleaner economy.

The Lab, an investor driven initiative, essentially aims to drive billions of dollars for climate action by developing and supporting innovative finance instruments. Furthermore, it identifies, develops and launches sustainable finance instruments that can help in graduating towards a low carbon economy. This year, it launched nine new investment vehicles – three of which are intended for India’s populace.

Financing for Low-Carbon Auto Rickshaws, the Battery Subscription Facility and the Residential Rooftop Solar Accelerator are three financing instruments targetted at accelarating low-carbon transit and clean energy access in India.

Encouraging E-autos

A global air pollution database launched by the World Health Organisation in May this year revealed that India has 14 out of the 15 most polluted cities in the world.

On an average, auto-rickshaw fleets in Indian cities are responsible for around 10 percent of this pollution. Also, most auto-rickshaw drivers opt to rent their vehicles instead of own them, due to the high cost of financing and a lack of fitting financing options for ownership.

However, Financing for Low-Carbon Auto-Rickshaws is a loan product, that will enable drivers to purchase electric auto-rickshaws, by providing debt financing for 100 percent of the purchase and lower interest rates, with no collateral requirements. This instrument will incentivise drivers to switch from conventional auto-rickshaws to electric auto-rickshaws and enable driver savings of 20 percent to 30 percent.

Cedrick Tandong, CEO, Three Wheels United (TWU), a startup that uses technology and facilitates finance for sustainable transport, clarifies that the electric vehicles running in Nagpur and Delhi are e-rickshaws that are lighter in weight and run under 25 km/hr. Moreover, they have been approved in the states in the north of India and are different from electric auto-rickshaws. Incidentally, electric auto-rickshaws weigh similar to non-electric auto-rickshaws and can run above 50 km/hour.

On why these autos have not become a full-fledged means of transport, he believes there are several challenges involved, with the most prominent one being that traditional financiers do not want to fund these vehicles because they don’t yet understand how these vehicles will operate. “Additionally, the lack of infrastructure to charge these vehicles and the absence of adequate policies do not encourage drivers to take up the risk of buying these vehicles (which usually have a high upfront cost). Finally, no entity has conducted a large scale pilot involving all the key stakeholders to show the financial and operational viability of electric autos,” he said.

While finance is key to drive this change, a clear business case for all stakeholders required to make this successful has been made. However, to realise a larger scale initiative in multiple cities, Tandong informs that Memorandums of Understanding (MoUs) have been signed with all the key relevant stakeholders in making the vehicle deployment a success, keeping in mind that the asset should become profitable to drivers.

“Basically, what this means is that manufacturers will need to provide vehicles at an attractive price with a longer warranty to ensure the customer’s risk is reduced. The metro rail will have to provide charging and parking spots which will reduce range anxiety and provide for first charging spots before a wider network of charging infrastructure is deployed. As for local governments, they need to be responsible for provision of subsidies (for these vehicles), through the SMART city programs and the replacement of two-stroke autos,” he said.

TWU intends to deploy 12,000 vehicles in the first phase which will span across multiple cities in India among those who show an interest in making electric autos a reality. Currently, this initiative will be undertaken in Bengaluru, Chennai, Hyderabad, Pune, Puducherry and Chitradurga (in the state of Karnataka).

Battery Subscription Facility

The electrification of transport in India is crucial to meeting the nation’s climate goals. In fact, the transport sector alone accounts for 13 percent of energy related carbon emissions and over 40 percent of the total particulate matter emissions in cities.

In such a scenario, the electrification of buses in public transit can be a good starting point as they have high greenhouse gas mitigation potential and high vehicle utilisation per dollar of investment. Moreover, large scale deployment of electric buses is the key to meeting India’s decarbonisation target of 33 percent to 35 percent by 2030 under its contribution to the Paris Agreement. However, high upfront costs, lack of long term financing, perceived technology risk and the lack of supporting infrastructure are barriers to their mass adoption.

The Battery Subscription Facility aims to lower the upfront cost of the electric buses in India by investing in batteries and providing them to bus operators on a subscription basis, charging for use on a daily or per kilometre rates.

Explaining how this will help reduce the ownership of electric buses, Saurav Goyal, senior manager, NN4Energy, states that the cost of electric buses is almost 1.5 to 2 times the cost of diesel buses, mainly due to the high cost of electric batteries. While battery prices are continuously decreasing, the upfront cost of electric buses won’t reach parity with diesel buses until 2025-30. This is compounded further due to lack of awareness and experience with electric bus technology among various stakeholders especially financiers, perceived technology risks and the need for concurrent development of charging infrastructure. Consequently, traditional sources of financing such banks are not yet equipped to provide suitable long-term financing options for electric buses.

The Battery Subscription Facility lowers the upfront costs of purchasing electric buses by providing the bus batteries on a subscription basis to bus owners/operators – renting them on daily or per kilometre rates. It allows buyers to buy electric buses without the upfront cost of batteries and use the batteries on a subscription basis – this lowers the upfront capital cost of electric buses for bus owners/operators by 40 percent to 50 percent and accelerate the adoption of electric buses in cities in India.

This model is perfect for the Indian context where the operational cost due to diesel/CNG is very high and increasing at an alarming rate. Also, it will bring down the cost of electric buses on a comparable level to that of diesel/CNG buses.

Moreover, it is applicable for all kinds of public transport – intercity and intra-city. By reducing the upfront capex investment of bus operators, the facility enables operators to quickly transit to electric buses without worrying about any perceived risks associated with battery technology and availability of the charging infrastructure, Goyal stresses.

Adding value to the sunrise sector

Even though solar rooftop has a sizeable contribution of 40GW in India’s target of 100GW solar by 2022, residential solar has seen a low off-take mainly due to lack of demand from homeowners and the inability of suppliers to serve them cost effectively.

Homeowners are wary of the high upfront cost and uncertain about the performance and life of the system. They carry an incorrect perception about solar energy primarily due to lack of precedent in their neighbourhood. On the other hand, suppliers find it prohibitive to serve homeowners due to high cost of marketing, customisation and maintenance. Low capacity of residential solar also results in thin margins which fail to meet the overheads, Aniket Baheti, Founder, Peacock Solar, told Mongabay-India.

This model intends to heighten the use of residential solar by data driven customer acquisition and efficient finance. Customers can avail a standardised solar offering and pay a monthly sum for the electricity generated. Peacock Solar’s business model is built upon lean operations to minimise the cost of solar for homeowners and thereby propel the demand in Tier II and III cities where customers own independent houses and have access to rooftops, he reasons.

Initially, the aim would be to reach out to smaller, peri-urban areas in Tier II and III cities where homeowners are completely dependent on the vagaries of the present grid infrastructure. In fact, this can open up opportunities for rural homeowners to access electricity through solar power.

Despite an ambitious target, India has got less than 1 percent of its total residential solar potential installed so far. The country, Baheti feels, can achieve 50GW capacity by empowering just 10 million urban households and mitigate 105 million tons of carbon dioxide. Accelerating residential rooftop solar would save India from subsidising distribution companies with $10 billion annually and avert the need to invest $200 billion in the present grid infrastructure for meeting the country’s future demand.

The Residential Rooftop Solar Accelerator instrument is a lease model that targets persistent barriers to the deployment of residential rooftop solar, through several key features like deploying data-driven customer acquisition, standardising product offering, accessible financing options and access to debt financing by minimising off-taker risk.

The instrument plans to install 250 projects of 5 KW each during the pilot in Kota, Rajasthan, by 2019. This would mobilise $1 million and save up to 1,600 tons of carbon emissions. At scale, it has the potential to install 5 KW projects for 20,000 households and this would mobilize $75 million and abate 130,000 tons of carbon emissions by 2022. If the business model were to be replicated by other companies, the instrument could account for 500 MW of installed capacity by 2022, enough to power 100,000 homes, abating 640,000 tons of CO₂.