A report by the CII and IIM Ahmedabad reveals that costs to protect against currency changes are inflating green energy loans in India by up to 8% annually. This extra financial burden deters global investors who want stable returns on projects earning in rupees but funded in dollars. The study proposes a new Green Finance Institution to mitigate this risk and attract more capital.
A new joint report from the Confederation of Indian Industry (CII) and IIM Ahmedabad has highlighted a significant barrier to India’s renewable energy growth: the high cost of managing currency risk. Developers of green energy projects often borrow money in foreign currencies like the US Dollar or Euro because global loans carry lower interest rates. However, these projects earn their revenue in Indian Rupees. When the rupee value changes against the dollar, the cost of repaying these loans can fluctuate sharply.
To protect themselves from this unpredictability, developers must use financial tools to hedge against currency movements. The report found that these hedging expenses add an extra 6% to 8% to the annual cost of borrowing. For many green energy projects, where profit margins are already tight due to competitive bidding, this additional expense can make a project look less attractive or even unviable. This effectively doubles the cost of capital for Indian clean-energy segments when compared to similar projects in developed markets.
This currency mismatch creates a major deterrent for global institutional investors, such as pension funds from North America and Europe. These investors usually prefer long-term, stable returns and are often hesitant to enter markets where they must bear the risk of currency volatility on their own. Without a way to manage this, large-scale capital deployment remains limited.
To bridge this gap, the taskforce has proposed the creation of a dedicated Green Finance Institution. The goal of this platform is to provide a form of blended finance, where public and multilateral funds act as a cushion. By absorbing a part of the currency risk or providing climate insurance, this institution would lower the financial burden on private developers. This is seen as a necessary step to make Indian green energy projects more bankable for international investors.
The timing of this report is critical, as the sector already faces other operational challenges. Rating agency ICRA has noted that the combination of a weakening rupee and rising input costs for solar and battery components is placing pressure on the financial health of developers. Furthermore, while the Reserve Bank of India introduced measures in June 2026 to help bear hedging costs for certain foreign currency deposits, the broader structural issue of high financing costs remains a concern.
Investors and stakeholders should monitor how the government responds to the proposal for a Green Finance Institution. Beyond financing costs, the ability of developers to manage long-term risks—such as the enforcement of power purchase agreements and grid stability—will remain a vital monitorable for the sector’s health. Future updates on project viability, especially as companies look to scale up in emerging areas like green hydrogen and offshore wind, will likely hinge on whether these financial barriers are addressed.