Directing Institutional Capital to India’s Renewable Energy Sector

Abstract

Limited access to low-cost and long-duration financing is an impediment to the growth of the renewable energy sector in India. Tapping institutional capital is a potential solution to this problem. In theory, institutional investors such as insurance and pension funds are well positioned to fund the renewable energy sector as traits of this sector align well with the investment objectives of this class of institutional investors. Yet, this class of investors have not invested in renewable energy sector in the magnitude that is warranted. This chapter assesses suitability of Green Bonds, Infrastructure Debt Funds (IDFs), and Infrastructure Investment Trust (InvITs) as financial instruments to provide financing by institutional investors in the renewable energy sector. Our analysis suggests that the renewable energy investment traits align reasonably well with institutional investors’ investments criteria such as return, time horizons, and risk but illiquidity and regulatory restrictions remain a major concern impeding institutional investments. The chapter provides insights, shared by institutional investors, pertaining to policy and perception barriers, which once addressed can increase uptake of these new financial instruments.