India has ambitious renewable energy targets for 2022, but because of the government’s limited budget, a cost-effective policy path is crucial to achieving those targets. Achieving India’s renewable energy targets cost-effectively faces two key barriers – a shortage of debt and inferior terms of debt. Reducing the cost of foreign debt in other currencies is one solution. By lowering the cost of capital, reducing the currency hedging cost could mobilize foreign capital and spur investments in renewable energy. If the expected cost of the foreign exchange (FX) hedging facility is borne by the government, the cost of debt for the developer can be reduced by 7 percentage points, the cost of renewable energy by 19%, and the cost of government support by 54%. If the expected cost of the FX hedging facility is passed onto the developer, the cost of debt can be reduced by 3.5 percentage points, the cost of renewable energy by 9%, and the cost of government support by 33%.
