Driving foreign investment to renewable energy in India: a payment security mechanism to address off-taker risk

As India prepares to meet its increasing energy demands, which will likely double by 2030, the government has set a path towards ambitious renewable energy targets of 175GW by 2022. Raising enough finance will be central to achieving these targets. The Indian government has stated that a significant portion of finance for these targets will need to come from foreign investors. However, foreign investors face a significant barrier to investing in renewable energy in India: off-taker risk. An off-take agreement is a power purchase agreement between a producer and buyer (or off-taker) of power, typically negotiated prior to construction of a project, that guarantees that the buyer will purchase a certain amount of electricity. This makes it easier for the producer to secure financing. Off-taker risk is the risk that the buyer/off-taker will not fulfill its contractual obligations. Off-taker risk is a key contributor to the overall credit risk of a power project.