The Clean Energy Investment Trends is a joint project of the CEEW Centre for Energy Finance (CEEW-CEF) and the International Energy Agency (IEA). By monitoring market activity and identifying market and financing trends, the Trends report seeks to provide a practical guide to stakeholders for understanding how the interaction between risks and regulations is shaping investment flows. The insights generated from the analyses of financing and market trends could be used to inform future policy action geared towards enhancing investment flows.
Themes examined in 2021
The Clean Energy Investment Trends 2021 report analyses project-level equity returns expectations associated with plain vanilla assets over the period of July 2020 - June 2021 and select solar-wind hybrid projects awarded in 2020. It endeavours to contextualise these returns expectations by comparing them with those in other geographies and examines their sensitivities to solar photovoltaic (PV) module prices, which are now subject to increased volatility. The report also examines land-related challenges inhibiting the utility-scale RE sector and offers updates on debt financing and other key market trends.
Key Findings
  • The pricing of project debt finance for solar photovoltaic (PV) and wind has declined in the period of analysis, which was enabled by accommodative monetary policy, the increased participation of central public sector undertakings (CPSUs) and new international independent power producers (IPPs) in tenders.
    Utility-scale solar PV and onshore wind projects continue to be highly leveraged, with average debt-to-equity shares of around 75:25 (Figure 1). Loan tenures for solar and wind are in the range of 16-18 years (Figure 2).
    The interest rates for solar PV and wind project loans/debt fell by around 100 basis points to a range of 9.25-10.00 per cent in the period of July 2020 - June 2021 from prominent non-banking financial companies (NBFCs), with even cheaper debt available from banks (8.75-9.50 per cent). This was primarily because the Reserve Bank of India maintained an accommodative monetary policy to support the domestic economy amid the disruption caused by the COVID-19 pandemic. In addition, CPSUs and international IPPs have brought in low-cost debt from other sources. Compared with domestic IPPs, the CPSUs can access lower-cost debt from the bond market owing to their quasi-sovereign status, while international IPPs can tap into a wider diversity of debt financing sources.
Figure 1: Debt ratios close to 75 per cent are the norm for both solar and wind projects
Figure 2: Median loan tenures for solar and wind are in the 16-18-year range
Table 1: CPSUs have access to the lowest-cost debt while market players pay a debt premium for projects with less creditworthy state off-takers
Entity Off-taker Solar park Non-solar park and wind
Bank Central off-taker 8.75% 9.00%
State off-taker 8.75–9.25% 9.00–9.50%
NBFC Central off-taker 9.25 % 9.50%
State off-taker 9.25–9.75% 9.50–10.00%
CPSU Central off-taker 7.50–8.00%
State off-taker
Note: Among the CPSU bidders, the cost of debt factored in for NTPC is 7.5% and for SJVN is 8.0%.
Source: CEEW-CEF and IEA market intelligence.
  • Equity internal rate of return (EIRR) expectations for solar PV declined to 13.3% in the first half (H1) of 2021 from around 14.9% in 2020 (nominal terms). Wind EIRR expectations remained comparable to those in 2019.
    Average EIRRs decreased by over 150 basis points in H1 2021 compared to the whole year of 2020. Greater participation of CPSUs, most prominently NTPC and Satluj Jal Vidyut Nigam (SJVN), and international IPPs in tenders led to record low tariffs of INR 2/kWh and EIRRs of around 12.0 per cent in November-December 2020. In addition to the continued participation of these players, discoms’ desire for low tariffs amid rising input costs also put pressure on average returns over H1 2021. CPSUs and international IPPs, which have access to lower cost debt, maybe at an advantage under these market conditions.
Figure 3: Solar EIRRs have generally fallen over the course of 2020 and 2021
Note: The Kerala State Electricity Board (KSEB) tender of November 2020 witnessed limited participation from developers and the tariff discovered (INR 2.97/kWh) was close to the ceiling tariff applicable to the tender. Thus, the equity IRR for that tender is an outlier.
The 1.2 GW SECI Tranche-X was the solitary tender awarded in H1 2021, with no capacity awarded throughout 2020. The EIRR expectations for this tender stood at 12.7 per cent, which is comparable to the 13.0 per cent average observed in 2019.
  • Volatility in capital costs, especially solar PV module prices, pose a significant downside risk to realised returns.
    Rising PV module prices, driven by higher raw material and transportation costs, could significantly lower realised returns compared to expectations. Our analysis indicates that a 20 per cent increase in realised module prices from those assumed in the most competitive tariff bids could lower equity returns by around 45 per cent (Figure 4). Besides supply chain factors, the Government of India’s decision to levy basic customs duty (BCD) on cell and module imports starting April 2022 is likely to prompt several developers to advance their module purchases to beat the deadline, which may further increase the upward pressure on module prices.
Figure 4: Sensitivity analysis of EIRR to module prices
Note: Sensitivity based on changes in module prices applied to the 500 MW solar PV tender run by GUVNL (Phase XI) in December 2020.
  • Analysis of return expectations for solar-wind hybrid projects reveals higher initial EIRRs than those for plain vanilla tenders, though expectations have converged over time.
    The Indian RE sector is witnessing increased innovation in procurement. While plain vanilla tenders (i.e., for single technology projects) have helped India scale renewables deployment, the country has introduced innovative tender designs to reduce output variability and facilitate RE grid integration. The analysis of solar-wind hybrid tenders (without storage) in this report indicates that the returns expectations associated with a hybrid tender awarded in January 2020 were around 300 basis points higher than comparable vanilla tenders (Figure 5). However, returns expectations converged with vanilla tenders by the end of 2020.
Figure 5: EIRR expectations for hybrid tenders have converged with plain vanilla peers over time
  • Configurations deployed in hybrid tenders seek to maximise returns within the constraints of the tender specifications. CEEW-CEF and IEA’s analysis indicates that solar projects offer superior equity returns at the same tariffs compared to wind projects. Solar-heavy configurations (with behind the meter oversizing) were found suitable for maximising returns for tenders with minimum CUF requirements of up to 50 per cent (Figure 6).
Figure 6: The maximum possible EIRR for a hybrid project depends on constraints set in the tender
Note: 1 The chart depicts all possible combinations for the AEML hybrid tender at a tariff of 3.24 INR/kWh, which had minimum annual CUF requirements of 50 per cent.
2 Configurations with annual CUFs lower than 50 per cent are invalid and are represented by dashed lines.
3 In the case of lower CUF configurations with other conditions remaining the same, the solid lines would shift leftward in the chart.
  • If challenges related to reliability of power purchase and timely availability of land and transmission capacity can be addressed, EIRR expectations in India could be lowered by around 350 basis points.
    To understand how India's renewable energy sector compares to international markets, the report assessed spreads between EIRRs and benchmark sovereign bond yields across markets to isolate sectoral risks from underlying country and currency risks. Higher sectoral risks in India have kept return expectations 320 basis points higher than in the United States and 360 basis points higher than in China (Figure 7).
Figure 7: Higher spreads between EIRRs and sovereign bond yields in India indicate higher sectoral risks
Note: EIRRs and bond yields correspond to average values for 2020
  • Land and ecological preservation-related issues may slow down renewable energy deployment
    Solar PV capacity awarded in tenders dropped sharply to 2.6 GW during H1 2021 from 15.3 GW (including 1.6 GW solar-wind hybrid capacity) in H1 2020 and 21.2 GW for the entirety of 2020 (including 4 GW hybrid capacity). The pace of solar capacity awards slowed considerably in 2021 as a result of a backlog of unsigned power sales agreements (PSAs) with the Solar Energy Corporation of India (SECI), of around 20 GW, towards the end of 2020. These PSAs correspond to capacity awarded at relatively higher tariffs compared to average solar tariffs in recent times.
    Wind capacity awarded continues to be limited, with no new projects awarded in 2020 and only 1.2 GW in H1 2021. With solar auctions yielding lower tariffs, a preference for solar capacity by discoms could have played a role in the sluggish tendering of wind capacity. In addition, challenges with the availability of sites for setting up projects could also have constrained the tendering of new capacity.
    RE parks provide a plug-and-play solution (land, evacuation, and other supporting infrastructure in exchange for a fee) to investors for installing RE projects. While land for setting up solar parks is generally identified in remote locations, acquiring this land from local communities has proved to be an onerous process. Experience from solar parks has shown that disputes have held back the development of RE parks, particularly in Rajasthan, Gujarat, and Madhya Pradesh. The same is evidenced by the diminishing share of solar parks in the overall capacity auctioned between 2017 and 2020 (Figure 8). Government agencies did not auction projects at solar parks in 2020. While the solar park project capacity auctioned rose to 650 MW in H1 2021, it is still short of the 3.0 GW auctioned in 2017.
Figure 8: Share of solar parks in overall capacity auctioned has diminished
  • Acquisitions of renewable power companies and assets have surged in 2021, topping USD 6 billion, reflecting opportunities for greater scale and consolidation.
  • Access to a robust secondary market helps developers enhance their ability to finance projects by recycling capital and reinvesting it in new projects. Acquisitions also provide a way for developers to realise higher returns, by selling operating projects that have been de-risked through the construction phase, and presents an attractive investment route into renewables for new actors, such as financial investors or investment trusts.
  • Asset sales are a means for project owners to realise higher returns than if these assets were held for the duration of their useful life (Figure 9). However, the higher returns associated with asset sales are realised over much shorter durations, which exposes sellers to reinvestment risk. At the same time, buyers generally realise returns lower than those realised by the seller and even those corresponding to the returns for project developers holding assets for the duration of their useful life. This reflects the lower risk profile of operational assets, which are not characterised by the execution risk typical to greenfield assets.
Figure 9: Expected EIRRs for select utility-scale solar PV projects awarded over 2016-17 and acquired over 2020-21
  • The industry market concentration for solar PV development increased notably in 2020 and H1 2021, with a few players securing a large share of the capacity awarded, greater participation of CSPUs, and low capacity auctioned in H1 2021.
    Despite new players entering the market, including Indian and international developers, market concentration reached the highest level seen in the last seven years (Figure 10). Churn rates (the extent of change in the top 10 developers with respect to the previous year) also rose, indicating that players dominating capacity awards in the solar PV space are not consistently the same year-on-year (Figure 11).
Figure 10: Market concentration for solar PV experienced an increase in 2020 and H1 2021
Figure 11: Churn rate saw an increase for solar PV markets in 2020
Graphs have been developed using HIGHCHARTS software under the Creative Commons Attribution-NonCommercial 3.0 License

Key Indicators
Equity IRR expectations for solar PV declined to
in H1 2021 from 14.9% in 2020
Equity IRR expectations for wind stood at
in H1 2021 with no wind capacity awarded in 2020
Equity IRR expectations could lower by
for a 20% increase in realised solar module prices
NBFC lending rates fell by
100 basis points
to 9.25-10.00 % for solar and wind projects
Market concentration in H1 2021
up from 86% in 2020 for solar PV