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panneau solaire travailleurs inde énergie climat asie
© Yashas Chandra / AFD
To mobilize capital to finance its energy transition, the Indian Government has set up an innovation lab to develop new financial instruments in this field. Three years after it was set up, a look at a pioneering initiative for which AFD is providing its expertise.

The Indian Government has made the development of clean energies and access to them a national priority, with the hope of achieving a level of 40% of electricity from non-fossil sources in its total power generation by 2030. But like a number of other actors, India faces a barrier: find sufficient capital to support the installation of these new more environmentally-friendly means of production.

In 2015, India set up the India Innovation Lab for Green Finance to attract more public and private investors. Its objective is to develop initiatives to promote public or private investment in the clean energies and energy efficiency sectors and, more generally, the sustainable development sector. 

This lab comprises high-level experts from the Government, financial institutions and the private sector for renewable energies. Following calls for ideas, these specialists assess the initiatives the best able to unlock investments for clean energy infrastructure in India and subsequently provide financial support and technical assistance to the selected projects. 

The lab was set up in partnership with the Climate Policy Initiative think tank and has been approved by the Indian Ministry of New and Renewable Energy. It is housed and financed by the Shakti Sustainable Energy Foundation, with financial support from the David and Lucile Packard Foundation, the Oak Foundation and the British Government. 

AFD and Proparco – its private sector financing arm – have recently joined this pioneering initiative. They are providing their expertise in financial innovation and project management in the clean energies and urban development sectors. They are also supporting the selection process and the development phase for the selected ideas.

Three promising projects

In 2018, the India Innovation Lab and its partners are supporting three projects to develop new green finance instruments:

  • To accelerate the residential solar market: Low customer awareness, imperfect customer identification strategies and high risk-perception prevent India from opening a residential solar market. This project aims to provide affordable solar power to households in small cities through data-driven customer acquisition, accessible financing options and standardized product offering.
  • To finance low-carbon auto-rickshaws: Auto-rickshaws, the tricycles used for passenger transport, are currently responsible for 10% of pollution in Indian cities. Poor credit profiles and high initial investments discourage drivers from buying their own vehicles and they prefer to rent them. This project provides financing options to auto-rickshaw drivers enabling them to buy their own electric vehicles.
  • To promote the development of electric vehicles: while the Government of India’s aim is for 30% of all vehicles to be electric by 2030, with a particular focus on electric buses, the high upfront cost is a deterrent to many potential buyers. By separating the cost of ownership of a bus from the cost of its traction battery and providing a battery-financing incentive, this project will reduce the upfront cost by 30-40%.