About the Financing Investment in Clean Energy Platform
Under the European Union (EU) – India Clean Energy and Climate Partnership (www.cecp-eu.in), which was agreed at the EU-India Summit in 2016 and confirmed in 2017, 2020 and 2021, the EU Delegation to India is developing the “EU-India Financing Investment in Clean Energy Platform (FICEP)”. The objective of FICEP is to encourage investment in the field of energy efficiency and renewable energy systems in India and the EU. FICEP is expected to act as a catalyst for investments and is intended to inform and connect various actors in the energy sector, including initiators and innovators, project promoters and entrepreneurs, project developers and the European and Indian financing community. The platform will monitor the investment trends (from the EU to India and vice-versa) and will assess the potential for investments in energy efficiency and renewable energy, the investment gap and the main barriers for this gap. It will look at the possible solutions to address the most relevant barriers. The platform will look into policy and regulatory barriers and solutions and would enable policy-level discussions and act as a platform for research. It will create a framework tool / manual to assist project developers/entrepreneurs in creating bankable and market-ready proposals.
It will also provide a comprehensive compendium of Central & State policies, programmes and initiatives in the EU and India. The platform would also facilitate business-to-business (B2B) collaboration, by linking European and Indian energy efficiency and renewable energy businesses and connecting them to the financial actors and knowledge on the platform. The platform will have an IT component, supporting all these objectives.
Standalone Solar-based Cold Storage Market in India and Europe
India’s strategic position in the agriculture sector is one of the key drivers for the growth of cold chain industry in the country. For example, India is currently the world’s largest producer of milk, second largest producer of fruits and vegetables and has a substantial production of marine, meat and poultry products. Other significant drivers for the growth of the cold chain industry in India include the growth in organized retail and food service industry, rising export demand for processed, frozen food, and also the virtuous effect of various government initiatives.
Despite the significant potential, large amount of India’s agricultural production is lost to waste due to a lack of appropriate pre-cooling and storage infrastructure. Currently there is a 4-6-hour gap between the depositing of produce by farmers and its collection by pickup trucks from procurement centres in India (The Economic Times, 2018). Most of the horticulture/floriculture produce requires a cooling temperature between 0°C to 15°C for safe storage and transient purposes and the produce cannot be stored in the village itself due to erratic power supply. With lack of adequate storage capacity, there are often cases wherein either the quality of produce is adversely affected, or it deteriorates to an extent that it is not fit for consumption. In the absence of cold storage and related cold chain facilities, the farmers are forced to sell their produce immediately after harvest which results in overabundance and low-price realization for them. Hence, standalone solar powered cold storages is one of the most efficient solutions for operating small cold storage systems in rural areas where there is certain limit of power load. Also, solar energy-based refrigeration systems are relevant to Indian weather because the country receives a good amount of solar energy throughout the year.
Investment Potential in the Standalone Solar-based Cold Storage Sector in India
The first step in calculating the investment potential of standalone solar-based cold storage sector, it is paramount understand the available market size. For calculating the market for solar-based cold storages in India, number of systems required are calculated on the basis of Total Available Market (TAM). A demand side approach has been taken to calculate the total available market for solar cold storages in India. TAM is the total market demand for a particular product or service calculated from the potential customer base and availability of the product for the market segment. TAM has been deduced from a recent study conducted by GOGLA4.Out of the TAM, serviceable market (SAM) has been identified based on interactions with the private sector players active in the Indian market. The exercise has been carried out for five market segments, namely, farm-gate, residential, healthcare, dairy and micro-enterprises.
Environmental Impact Assessment
The environmental impact assessment of any project shall assess the impact of projects on the surrounding environment, which might cause discomfort to the local population or might lead to discord in the local area. For this, it is important to first understand the process of categorization and disposal of different system components and then assessing the impact of their disposal on the environment. Battery Management As a general practice, upon the completion of the battery lifecycle, it is recommended that the batteries are sent back to the battery manufacturers. The battery manufacturer further shall have authorized agents that collect the discarded batteries and have been licensed to recycle the battery material. Certificate to Operate of the vendor must be provided to the lender / investor to verify the details of the vendor. The vendor must comply with the guideline of the Central / State Pollution Control Board for environmentally sound recycling of lead acid and li-ion batteries. The drained acid from the batteries must be neutralized and treated in the Effluent Waste Treatment Plant.
While debt has been a popular route to secure finances for the projects by the companies, equity has also gained momentum in financially aiding the projects. Equity is usually invested by the private enterprises in a company. This type of financing is residual in nature, wherein once the obligations and liabilities are paid off, the balance can be attributed to equity investors. While the equity is considered to be a riskier proposition, given the residual recovery nature of it, the same also has an opportunity to accrue higher returns compared to the debt financing. This mode of financing involves giving a stake to the equity investors in the company, against the investments made. This section details out the best practices that should be followed in order to facilitate equity financing to the solar cold storage stakeholders
in the value chain. This will not only attempt to safeguard the investments in the sector but will also ensure constructive utilisation of funds for the growth of the sector. The equity financing can be facilitated in terms of private equity, venture capital, development finance instruments. Private equity is one of the most common forms of equity investment which involves direct investment by private
companies, usually institutional investors, to purchase a stake in the company. While the venture capital funds, which is a form of private equity, is usually witness investments being made in start-ups and in small businesses to establish or upscale their business. The development financing instruments usually involves equity investments made by the Development Finance Institutions (DFIs) in the companies.
Collaboration with Europe
Collaboration on Financial Front
The biggest avenue of collaboration with Europe lies in exploring the route of Foreign Direct Investment (FDI) in standalone solar-based cold storage sector in India. External Commercial Borrowing (ECB) can be raised for creation of cold storages / cold rooms at farm level at the pre-cooling stage for preservation or storage of agriculture/horticulture produce. As per extant policy, up to 100% FDI for FPI sector is permitted under the automatic route implying that no prior approval of the Government or RBI is required. Below mentioned fiscal incentives are also available to the investors for boosting investment in the sector.
The second way through which European institutions can be engaged in the Indian standalone cold storage sector is through foreign institutional investment (FII) route whereby equity financing and, to some extent, debt could be accessed through impact investors, venture capitalists and European funds targeting the standalone solar cold storage sector in India. These ecosystem financiers could provide commercial investment to early-stage enterprises, thereby supporting innovation in the off-grid solar cold storage sector. The essence of this best practice manual is to provide such investors with an understanding of what the basic requirements of providing debt and equity instruments to Indian
enterprises are. As shown in the section 1.2 of the report, the total investment potential immediately available across off-grid solar cold storage segments in India stands at ~INR 26,000 Crores. Further, funding through bilateral and multilateral organizations by the means of alternative financing, such as results-based financing, risk guarantee funds, and design-stage grants, could de-risk potential investments and herald growth in the off-grid solar cold storage sector.
The forum can be digitally hosted on the Financing Investment in Clean Energy Platform (FICEP). The platform would facilitate a repository of key stakeholders such as the technology providers, supply chain actors, academic and research institutes, financing agencies, etc. in Europe and India which are active in the DRE sector. In case of any query/request for collaboration is realized from either of the sides, the same can be raised on the FICEP and the concerned stakeholders may connect with each other for the exchange of information. As indicated in previous sections, EU holds considerable value addition for the Indian market through technology and financing modes, the forum can be pivotal in enabling the transfer of the said requirements. In addition, this can also open up avenues for the EU companies to invest in India, either through FDI or FII mode, by collaborating with Indian companies.