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We will invest £500 million in climate finance in SE Asia over 5 yrs: Srini Nagarajan, British Internationa.. – ETEnergyWorld

New Delhi: British International Investment (BII), formerly CDC Group, the UK’s development finance institution (DFI) and impact investor, has big plans to commit investments aimed at boosting clean and sustainable economic growth in India and the larger Southeast Asia region. In an exclusive interview with ETEnergyworld, Srini Nagarajan, Managing Director and Head of Asia, BII puts this growth strategy in perspective and talks about why the name change, that comes into effect today, is crucial. Edited excerpts..

What is behind the name change from CDC Group to British International Investment?

Our new name clearly defines us as a British institution and reflects our role at the heart of the UK Government’s international financing offering to our partners in Africa, Asia and beyond. The new name signifies the increased breadth of what we do and it runs alongside the development of our new five year strategy – where we have a clear intention to do more in climate finance, more fully representing part of the UK international financing offer by supporting countries, in which we invest, in combating climate change.

What distinguishes CDC/BII from other investors in the market? As a DFI how can it help India in achieving net-zero, just transition and sustainability goals?

Net Zero carbon in India by mid-century will be essential for the success of the country’s climate ambition. As a coal dependent economy, the coal mining and energy generation industry are two key sectors that will be most impacted by steps toward a just transition.

As a DFI, we have a mandate to mobilise capital toward helping to reach the estimated $100 trillion investment needed, over the next three decades, for climate change mitigating sustainable infrastructure and other innovative solutions that will support global transition to Net Zero. As such, over our new five-year strategy period, we will prioritise investments that increase climate resilience and scale clean power, energy systems, resource efficiency, green transportation, and clean water provision.

With over 70 years’ experience of investing in Asia and Africa, we draw from our broad sector expertise and leverage strategic partnerships to deploy patient capital that supports long-term development goals in markets like India. Taking a toolkit investment approach is also a unique way we support companies, using a wide array of financial products including direct debt, equity and mezzanine to meet business needs and help mobilize third party capital in key sectors. In addition, investing through a climate lens allows a DFI like BII to channel capital directly toward the climate challenge bolstering businesses’ ability to deliver greater impact that supports just transition pathway for communities’ and countries.

In 2021, BII pledged to invest up to $1 billon in climate finance in India over the next five years, to support the country’s journey toward becoming a carbon free economy. India’s transition towards a greener economy must unfold in an inclusive way that leaves no one behind. Our capital will support in enhancing adaptive capacity in business, people and nature, enabling the creation of futureproof jobs that shape India’s just transition and its sustainable future. For example, BII has partnered with Ayana Renewable Power, a leading clean energy developer in India founded by BII (formerly CDC Group) in 2018, to develop a skills programme for rural youth to access solar jobs in Andhra Pradesh and Rajasthan, India’s third largest solar producing state, demonstrating how clean energy helps deliver positive social impact.

What challenges have you experienced in the India market with regards to investing in clean energy infrastructure? What are your biggest concerns at present?

To meet India’s ambitions for renewable capacity by 2030, the country will need to significantly ramp up its greenfield renewable capacity addition track record from the present 8-12 GW. The Indian government is committed to build 500 GW renewable capacity by 2030, which will require 35-40 GW capacity addition per annum over next 8 years, and cumulative investment of $400–450 billion, of which significant contribution will be from private sector. To support this, long-term policy clarity on the regulatory aspects of renewable development could be helpful in increasing investors’ confidence.

Another challenge for renewables developers is the rising price of solar photovoltaic (PV) modules and other key commodities globally. Careful assessment of the short-term impacts of policy and tax changes on the economics of renewable power is thus also important and should be considered alongside the long-run benefits of reduced reliance on imported modules.

From an on-ground execution perspective, solar and wind projects require acquisition of large areas of land keeping in view potential impact on biodiversity. India will also need to fast track investments in transmission infrastructure in resource rich states to evacuate variable renewable power.

Lastly, there is an urgent need to improve the financial situation within the power distribution sector, where there is significant need for funding to support the value chain. Most power distribution companies face operational inefficiencies and acute financial constraints. Alongside financial support from state and central governments, improving the position of distribution companies would require significant structural reforms across the value chain.

What is driving CDC/BII’s plans to expand into South East Asia?

Along with our name change to BII, we articulated our intent to expand into the Indo-Pacific with a mission to pursue further climate finance opportunities. We see a strong need in the region to decarbonise and strengthen the power sector through renewable energy, and we will aim to invest up to £500 million over the next 5 years, to support investments within this focus, along with investments in the water and sanitation sectors.

How do you plan to approach this move into the region? How much do you plan to invest?

We will aim to deploy support across our full capital toolkit: working with trusted partners among sponsor companies and project developers for potential equity investments; fund managers who specialise in infrastructure or more-innovative climate finance; and multilateral development banks and commercial lenders for large project-finance transactions.

So, how will your success in the region be measured?

As in all of our markets, we will look to create a portfolio that is both financially sustainable and delivers our impact objectives. The development impact of all our investments is assessed on how they support “productivity”, how they address a key bottleneck to economic growth in a country; “sustainability”, how they support the transition to a low-carbon and resilient economy; and “inclusivity”, how they reach low-income populations or target the most fragile countries. As we are focusing in particular on sustainability in Southeast Asia and this region has a major need to decarbonise, we will track the emissions avoided by our climate finance investments (from both power generation and resource efficiency investments) and the amount of new renewable power we are able to finance. We also measure the jobs that our infrastructure investments are able to support in the wider economy.

CDC/BII founded renewables developer Ayana, which has now grown significantly. How do you see your relationship or your role in Ayana changing over the coming years?

A key challenge in delivering renewable energy at scale in India is access to patient capital. BII founded Ayana in 2018 with an initial capital commitment of US$100 million and ambition to develop and operate utility scale solar and wind generation projects across growth states in India. Since then, we have increased our commitment to $230 million, with the most recent investment made in 2021, and we have also mobilised $500 million from third party.

Our capital has been contributing to the increased share of renewable energy in India’s fuel mix, displacing thermal generation and avoiding greenhouse gas emissions. In addition to increasing the clean energy supply to grid-connected households, the investment is also helping to support power enabling jobs and meet India’s long-term economic development goals. Ayana now has 3.6 GW renewable portfolio spread across multiple states and across wind, solar and hybrid projects, and the company has a target to achieve a diversified portfolio of 10 GW by 2025.

Our stake in the company has shifted since 2018 when it was established, with National Investment and Infrastructure Fund (NIIF) now the majority shareholder. This is a recognition of the complementary strengths that NIIF, Green Growth Equity Fund (GGEF) and BII as shareholders bring to the platform, and initially supported by the BII, ESG has rapidly become a fully integrated part of Ayana’s independent management team and we continue to be a part of its ESG committee to help ensure ESG best practice remains a core part of the management philosophy. With a management team that has a track record of successful execution of renewable energy projects across various states in India, Ayana will continue to play an important and responsible role in India’s climate ambitions.

We recognise that each infrastructure project is different in terms of risks and returns, sector and country dynamics. When supporting businesses, either existing developers or companies we establish, we take a long-term view as part of our portfolio management activities, with the purpose of filling a market gap, catalysing growth of certain products or segments in the market or creating value in the sector and for the companies.

What are CDC/BII’s infrastructure impact aspirations in its 2022-26 strategy? What do you see as the exciting technologies and investment opportunities on the horizon?

We will focus our finance on critical sustainable and climate-resilient infrastructure, with a priority on renewable energy, transportations and water, sanitation and hygiene services (WASH) projects that will ensure India can build back better from the COVID-19 pandemic and beyond. Under our new strategy, we have set a target for 30 per cent of our new commitments over five years to be in climate finance, meaning a total of over £3 billion for South Asia and Africa. Of this figure, over £2 billion will be focused on infrastructure. The new strategy also expands our remit into Southeast Asia, where we plan to invest £500 million in climate finance over the next five years, with a strong focus on renewable energy.

We are focused on broadening our infrastructure investments beyond renewables like wind and solar and into emerging technologies such as green hydrogen, which we will explore both for use in hard-to-abate industries like steel and fertiliser production as well as for energy storage. We see green hydrogen as a major investment opportunity across multiple markets.

We are also looking at other forms of energy storage including large-scale battery + solar projects. Our infrastructure team is also exploring opportunities where we can support the roll-out of electric vehicles, for example through investing in charging infrastructure.

Can you give a preview of renewable investments we can expect to see this year?

We have just announced an investment of $89 million in two companies that are contributing to scaling renewable energy generation in India. The first investment is a US $47 million follow-on capital to Fourth Partner Energy, a leading renewable energy company for commercial and industrial (C&I) businesses. The investment will fund 294 megawatts of greenfield renewable generation capacity in India, Sri Lanka, Bangladesh, Indonesia and Vietnam, helping to accelerate renewable energy use across South and Southeast Asia – including India. Our second investment of US $42 million is being made to Thar Surya 1 Private Limited, which will support the development, construction, and maintenance of a 300 MW solar project in India. Our investment forms part of an estimated US $200 million total project which is designed to displace thermal generation in the grid and meet the equivalent demand of 151,000 consumers in the country.

The addition of clean energy to the grid will help abate over 697,000 tonnes of greenhouse gas emissions annually, and boost inclusive access to affordable and reliable clean and sustainable energy, while also increasing productivity for businesses and consumers across the country. Both the investments demonstrate BII’s determination to deliver on the UK’s commitments under the UK-India Economic and Financial Dialogue, and ambition to support local companies whose ambitions align with our climate objectives and providing innovative services that can meet India increasing demand for sustainable energy.

Current volatility in oil and gas prices highlights the importance of scaling renewable energy across the world. What has been CDC/BII’s strategy so far in India in clean energy infrastructure and what does it look like in action in terms of recent investments in India?

BII takes a comprehensive and holistic view of the Indian clean energy market and aims to support a range of solutions. This means we look to invest across the capital structure in clean energy, at both grid-scale and distributed generation, and in energy efficiency – which we view as an important complement to new clean energy infrastructure. We have targeted grid-scale clean energy through both equity and debt, for example by setting up Ayana, which recently crossed 1GW in operating capacity; as well as by providing $42 million project finance investment to Thar Surya 1 Private Limited funding the company’s solar PV project.

We also support the commercial and industrial renewable segment with our investment in Fourth Partner Energy, to enable them to help businesses build and access their own renewable energy resources; and finally, we are supporting energy and resource efficiency investments through a variety of channels, including our green credit line to Tata Cleantech Capital and our recent $70 million investment in the Green Growth Equity Fund, which will finance the development of between six and eight innovative ‘green infrastructure’ businesses in India, within the renewable energy, e-mobility, and energy efficiency sectors.

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