Priority lending for renewable to help only small installations
Industry players claim cap is inadequate to meet funding requirements of planned mega projects
Last week, the Reserve Bank of India (RBI) doubled the loan limit for the renewable energy sector under ‘priority sector lending’ to ~30 crore.
Though a long-pending demand for priority sector lending status has been met, industry players pointed out the cap was too less to meet the funding requirements of planned mega projects.
The lending support may, however, help smaller solar projects, especially rooftop ones and makers of solar run irrigation pumps for the agriculture sector. The RBI, in its notification, said the new priority sector lending norms aim to “encourage and support environment friendly lending policies to help achieve sustainable development goals (SDGS).”
According to the new norms, bank loans of up to ~30 crore for purposes like solar-based power generators, biomassbased power generators, wind mills, micro-hydel plants and for nonconventional energy-based public utilities (like street lighting systems and remote village electrification) will be eligible for ‘priority sector classification’.
For individual households, the loan limit will be ~10 lakh per borrower.
“The environment friendly lending policies in the renewable sector is definitely a welcome move by the RBI. This will allow increased credit lending for the small and medium enterprises (SMES) and the micro, small and medium enterprises (MSMES).
Banks can finance start-ups up to ~50 crore. Also, loans to farmers for installation of solar power plants for solarisation of grid-connected agriculture pumps and loans for setting up compressed bio-gas (CBG) plants have been included as fresh categories,” said Amol Anand, co-founder & director, Loom Solar, a Faridabad-based solar systems company. A senior sector executive with a leading renewable energy firm, however, said the decision will not help mega-sized projects, which the government is increasingly offering now. “The limit of ~30 crore is too low for grid-connected projects. At best, one can do a 8-10 Mw project or a small distributed power or rooftop solar power project,” said the executive.
The cost of a grid-connected solar power project is in the range of ~5-7 crore per Mw. The cost of a rooftop solar or micro grid is lower, given their smaller size for projects below or up to 1 Mw.
However, a rootftop segment player Cleanmax said, even for this segment, the lending limit is low. Nikunj Ghodawat, chief financial officer (CFO), Cleanmax, said, “The new lending guidelines by the RBI is a welcome move for the renewable energy sector and indicates the global trend that capital is getting prioritised for clean energy adoption. But to accelerate growth and realise the current potential in the rooftop solar segment, the priority sector lending limit must be higher at around ~150 crore per entity.”
The current solar capacity in India stands at 87.6 GW, which constitutes 23 per cent of India’s total energy basket. The country has set a target of sourcing 40 per cent of its energy needs from renewable sources by 2040, as part of its climate change commitment. For this, the Centre has planned to set up 175 Gw of renewable power capacity, of which 100 Gw is solar power.
In five years, solar power tariff has fallen by 110 per cent and is now the cheapest energy source in the country. Average tariff of thermal plants stands at ~3.5 per unit while that of hydro is ~5/ unit.
However, unlike thermal power, conventional lenders have not shown active interest in renewable energy. Facing the brunt of non-performing assets (NPAS) in the thermal power sector, leading banks have stayed away from investing in the renewable sector.
Last year, the ministry of new and renewable energy had asked the RBI for separate funding streams and financing regulations from thermal power in its regulations and also removal of investment cap. “Lately, banks have become wary of investing in power projects. But renewable energy is a sunrise sector and we don’t want it to be masked by the problems in thermal,” said a senior official.
“India is now offering mega scale projects in solar. The minimum size of projects tendered is 500 Mw and this translates into at least ~2,000-2,500 crore investment,” said an industry executive.