The Renewable
Energy sector still continues to be capital intensive though technological
breakthroughs have been successfully bringing the costs down by significant
margins compared to the position many years back. Besides this the costs of
energy generation by using conventional modes too has been on increasing trend
due to interplay of many factors- fuel supply costs, currency volatilities,
stringent measures for environment management, community aspects and likewise.
The converging trends between cost of energy generation from conventional modes
and renewable has been rather remarkable. Like projects in many sectors, the project
viability of Renewable projects are sensitive to numerous aspects covering
policy and regulatory, energy pricing and incentives, fiscal support besides
the availability of project financing and the terms thereof. Traditionally, the
Banks favor lending to utility power projects of large size rather than small
/moderate sized renewable projects due to their understanding of associated
project risks and their mitigation. The
renewable energy space has limited access to institutional finance as the
policies and regulatory elements for the sector are evolving. Appreciating such
situation and the national imperative to take benefit of large endowment of
renewable energy resources Government has been providing support under the
framework of Priority Sector Lending. This refers to facilitated lending to
those sectors which are identified to influence larger and weaker sections of
population. These sectors are usually employment intensive and comprise of
small and medium enterprises which have limited or no access to institutional
finance. Loans disbursed by banks under priority sector lending are provided at
concessional rates which are 1 to 2 percent lower than prevailing commercial
lending rates. For India distributed power generation as well as its linkages
with power infrastructure makes significant sense from economic and social
perspectives besides providing cleaner routes for energy generation.
As per RBI guidelines
the banks are mandated to have 40 percent loan exposure to sectors defined as
priority sector. In practice the Banks have been struggling to achieve this
target and are usually left with significant amounts of non disbursed funds at
their disposal. Expanding the remit further, Reserve Bank of India (RBI),
through a revised guidelines issued in July 2012, had included loans made to
individuals for setting up of off-grid Renewable Energy applications for
household as part of priority sector lending for banks. Additionally, MNRE under its flagship programme
aimed at promoting off-grid solar applications such as irrigation pumps, home
lights and solar lanterns provides 30 percent subsidy
directly to solar equipment makers on such installations. This subsidy scheme
has seen huge success and resulted in unanticipated rise in demand. The total
installation of solar off-grid applications across the country increased to
35.09 MWp (megawatt equivalent power) in 2013-14 from 17.59 MWp a year ago. The
total number of installations rose to 20 lakh by the end of 2013. Under this
subsidy scheme, vendors charges consumers only 70 percent of the product price and
the balance 30 percent is claimed from government.
The ministry had
allocated INR 350 crore for off-grid solar projects out of the total budget
outlay of INR 1,500 crore per financial year, which is proving insufficient in
view of the success of this scheme and thus Government has recently announced
review of this subsidy scheme.
Extension of
priority sector lending benefits to off-grid renewable energy projects is a
significant step and shall open up new and greater project financing possibilities
for the sector in India. Such incentives are expected to provide needed support
for roll out of national programs like National Solar Energy Mission and, like
wise the National Wind Energy Mission expected to be announced during 2014.
Under JNNSM Phase III, there is cumulative target of 1000 MW off-grid solar
applications and 10 million solar lighting systems by 2013-17.
Steps are
required to encourage banks to park more funds in renewable energy projects and
an important step to address this would be carving out a special window for
lending to renewable energy projects by banks. This can be done by defining a
particular funding limit for renewable projects, and delinking this from
lending limits for utility power projects.
Going forward,
several other measures are required to be undertaken concurrently in order to
compliment the effects of steps like priority sector funding. Awareness among
consumers about off-grid renewable applications as well as financing options
available needs to be raised.
By
InfralineEnergy Renewable Knowledgebase Team
Disclaimer
The
views expressed here are solely those of the author in his private capacity and
do not in any way represent the views of the Infraline Technologies (India)
Pvt. Ltd. (organization). The organization is not liable for any use that may
be made of the information contained therein and any direct/indirect
consequences resulting therefrom.
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