India Wants Higher Lending Under Priority Sector Status To Renewable Energy Projects

India plans to ask the central bank to allow bigger-ticket loans under the priority-sector category to renewable energy sector so that such projects can borrow more at cheaper rates from state-run banks.

The government will approach the Reserve Bank of India to remove the Rs 15-crore limit for loans granted under the priority-sector status to solar, wind and small hydel power generators, according to a statement by the Ministry of New and Renewable Energy. The decision was taken at a meeting chaired by RK Singh, the minister in charge, with officials of the finance ministry, lenders and power producers.

India is likely to miss its target of 175 gigawatts of renewable energy by 2022 as a fall in tariffs in auctions threatens to turn renewable energy projects unviable. That dried up funding to the sector. The capital cost of setting up solar and wind farms is Rs 4-4.5 crore and Rs 6-7.5 crore per megawatt, according to Kameswara Rao, Partner (Energy, utilities and mining) at PwC.

Singh, however, told the stakeholders that the tariffs discovered through auctions are viable as the maintenance and running costs are less in the long run. Also, he said, technology is becoming cheaper and efficiency of the equipment is improving.

The ministry said it wants renewable energy to be categorised as a separate sector from power sector so that funds could flow to such projects.

But low tariffs can’t be blamed alone. Lenders are reluctant to fund due to lack of transmission infrastructure, non-performing assets and overdue payments from discoms.

Outstanding dues by discoms in the renewable sector are over Rs 40,000 crore, Sunil Jain, chief executive officer at Hero Future Energies, had told BloombergQuint earlier.

Funding to renewable energy projects is constrained by other factors too such as fears of contract renegotiation and regulatory risks, Kameswara Rao, partner (energy, utilities and mining) at PwC told BloombergQuint over the phone. “These issues need to be addressed to improve financing.”

The ministry is also contemplating for banks and financial institutions to tie up with Solar Energy Corporation of India for offering pre-determined loans to successful bidders.

An optional loan facility with projects to be auctioned is a good idea, according to Rao. But it risks constraining the pipeline of projects to those to be auctioned by a single agency and deprive all other bidding routes which may end up hurting the industry, he said.

“If SECI will tie up with financial institutions, it will cause a lot of paperwork and time. Also, many state governments conduct auctions on their own and SECI is not involved. What about those?”