Clean Energy Finance and Investment (CEFI) Roadmap for India, 2nd workshop on MSME energy efficiency, 10 May 2022

1. Tuesday, 10th May 2022 | 1:30 – 5 pm (IST)
for the 2nd workshop on MSME energy efficiency under the
Clean Energy Finance and Investment (CEFI) Roadmap for India
Hybrid meeting: Delhi (in-person) and Zoom (online)
Poonam Sandhu
NRDC
psandhu@nrdc.org
John Dulac
OECD
john.dulac@oecd.org

2. Clean Energy Finance and
Investment Roadmap
Workshop II: ENERGY EFFICIENCY FINANCE FOR MSMES
2
10 May 2022
John Dulac,
OECD
&
Poonam Sandhu,
NRDC

3. • Enabling the energy transition
requires considerable capital for
clean energy
• Targeted use of public, climate
and development finance can
enable a pipeline of bankable &
investor-ready projects
• A roadmap can prioritise actions
to mobilise stakeholders and
crowd-in private capital
3
CEFI Roadmap context
USD 300b+
needed to finance India’s
clean energy targets to 2030
~3x
increase over current
investment levels

4. The Roadmap process is designed to:
• bring together stakeholders through a series of
consultations and three workshops
• assess critical barriers and prioritise solutions to
improve clean energy finance and investment
(Workshop I)
• deliberate financial tools and investment vehicles to
raise capital at suitable scales (Workshop II)
• agree on recommendations & steps forward for
actions to unlock finance and investment over the
next 3-5 years (Workshop III)
4
CEFI Roadmap context

5. 5
Recap: Workshop I
• Awareness, training & capacity building efforts are time/resource intensive but need to be
scaled up, pooled/replicated
• Data availability challenges contribute to high risk perception as well as transaction costs for
financial institutions
• Technology solutions and systematic demonstrations, including customisation for Indian
context/needs, are needed to facilitate energy efficiency uptake
• Cost of finance is a critical barrier at both domestic (e.g. for borrowers) and international
levels (e.g. with Fx hedging and guarantees) and needs to be addressed to enable/encourage
greater flows of capital to MSME energy efficiency upgradation

6. 6
Workshop II
Today’s discussions will:
• follow Chatham House rules (followed by workshop summary for feedback)
• frame overall cost considerations and recap input from stakeholder consultations
• aim to identify solutions reduce the cost of finance for clean energy investments
• prioritise actions to enable a pipeline of projects in line with 2030 ambitions
• Draft CEFI Roadmap with solutions & actions to carry forward to be circulated in June/July for
feedback

7. 7
Cost of finance: MSME technology upgrades
6.75-27%
range of interest rates
offered on MSME loans
USD 1.7k - - USD 220k
range of project costs for MSME technology upgradation
USD 63k
average project cost for MSME
technology upgradation
1-3%
range of processing fees
charged on MSME loans
1.5-10 years
range of tenures
on MSME loans
20-40%
range of collateral
requirements on MSME loans

8. 8
Cost of finance: MSME technology upgrades
0
0.2
0.4
0.6
0.8
1
1.2
Mean Median 1st quartile 2nd quartile 3rd quartile
Crore
INR
INR 0.2 crore
average loan size
5 years
loan tenure
10%
Interest rate
0.01-0.2 crore
savings from interest repayment
(e.g. dropping interest to 6-8%)

9. 9
Recap: consultations
• 20-50% of MSME financing may be the efficiency component; delays in support payments
(e.g. under CLCSS) can be a challenge
• Programme fees (e.g. processing fees for guarantees) can add 0.5%-1%+ to project costs;
facility (e.g. through blended finance) could support these and bring down cost of finance
• Hedging risk mitigation can be done with currency swaps, could possibly be cut in half, but
full-fledged swap over longer periods has higher swap price
• Possible regulatory barriers with hedging by entities without underlying asset – need for
a facility (e.g. like TCX) or other approach to do this
• Leverage capacity is potentially large (e.g. 9-10x), but may need sizeable “seed” funding
(not traditional grants)
• International experience with tools like the Carbon Risk Mitigation Facility, the French Terawatt
Initiatives, TCX – possible applications for the Indian market?

10. 10
Group discussion I: Financing needs
i. How much finance is needed and what is the cost breakdown?
• What are the (typical) costs for MSME efficiency upgrades? How does this relate to broader
financing needs (i.e. the non-efficiency component)?
• What financing is typically needed, and how is this being done?
• What are the typical terms & tenures of financing?
ii. What levers impact the cost of financing for MSME efficiency upgradation?
• How do solutions (e.g. the CLCSS and TEQUP schemes) impact the cost of financing and/or
borrowing capacity of MSMEs?
• What influences cost of financing, and how much (e.g. in basis points) impact do these have?
• Where have current/previous initiatives addressed financing issues? Where have they not?
• Any other elements influencing cost of finance (e.g. Forex costs for int’l support)?

11. 11
Group discussion II: Solutions
i. What solutions can support lending for MSME efficiency upgradation?
• What can support lenders to increase financing of MSME efficiency measures (e.g. through
common documentation, technology lists, training & capacity building)?
• What can improve perceived/real risks (and the subsequent cost of finance)?
• Are there lessons to be learned from previous initiatives to lower the cost of finance (including
from international experiences)?
ii. What can increase/improve international finance and support for MSME efficiency in India?
• Is current MSME efficiency financing prepare/packaged in a way that facilitates international
finance & investment, and if not, what can help to address this?
• What solutions (e.g. for Forex hedging) can help to lower the cost of finance?
• What role can blended finance play, and how should related support (e.g. on training & capacity
building) be treated to address the cost of financing?