Home >Industry >Energy >REC’s green energy loans to cost less, have longer tenures

New Delhi: In sync with the National Democratic Alliance (NDA) government’s attempt to bring down the borrowing costs for green energy projects, state-owned Rural Electrification Corp. Ltd (REC) has revised its lending guidelines.

Loans for solar and wind energy projects will now be priced 75 basis points (bps) below those for projects fuelled by conventional sources of energy.

These loans can also repaid over 15 years, compared with the earlier 12 years, and will come with a relaxed criteria on collaterals and security.

REC is one of the largest power sector lenders in India.

One basis point is one-hundredth of a percentage point.

“We have decided to offer loans meant for green energy projects at 75 bps less than what we are offering to conventional power projects. Earlier, this discount was 25 bps. Similarly, we have increased the tenure of such loans from 12 years to 15 years to make repayment easier. The decision was taken last month," said a senior REC executive requesting anonymity.

India requires around 10 trillion of green energy investments, and the industry has been demanding cheaper loans to set up these projects.

The REC decision comes ahead of the United Nations (UN) climate conference in Paris in December, which is expected to finalize a global agreement to cut greenhouse gas emissions.

India is taking voluntary steps to cut carbon emissions and diversify its energy mix, with a heavy focus on renewable energy. The Prime Minister Narendra Modi-led government has substantially raised an earlier solar energy target of achieving 20,000 megawatts (MW) capacity by 2022 to 100,000MW. The move could help raise India’s standing at the climate change talks.

“The sector will take off if loans can be provided at sub-10%," said a senior government official, who did not want to be identified.

REC, with a 1.75 trillion loan book, disbursed 33,000 crore of the 53,000 crore loans sanctioned in the current fiscal. Out of this, 3,155 crore went to green energy projects. This reflects the small share of renewable energy in the Indian energy basket. While India has an installed power generation capacity of 255,012.79MW, renewable power has a share of only 12.42%, or 31,692.14MW.

India’s intended nationally determined contributions to tackle climate change, which will form the basis for the Paris talks, are in the works and are expected to be submitted to the UN by June. The government also plans to float five funds of $5 billion each, targeted at promoting green energy sources. India’s National Action Plan on Climate Change recommends the country generate 10% of its power from solar, wind, hydropower and other renewable sources by 2015, and 15% by 2020.

Analysts believe India would add large green energy capacities driven by government initiatives.

“During the first nine months of FY15, wind based capacity addition stood at 1,329MW, a significant increase of 21% over the capacity addition achieved in 9M-FY2014. Icra expects annual capacity addition in the current FY to improve to about 2,200-2,300MW, implying a growth of about 10% over the previous year which is supported by reintroduction of accelerated depreciation (AD) benefit by GoI since July 2014 and sizeable investments under implementation by large players in IPP (independent power producer) segment," said consulting firm Icra Ltd in a 3 February report.

“The overall RE (renewable energy) capacity addition slowdown over the last two years was led primarily by the underperforming wind sector as accelerated depreciation- and generation-based incentives were not available. However, GoI reinstated both these benefits in Union budget 2014 to promote the sector. Ind-Ra expects 8-10% y-o-y growth in wind capacity installations. The agency expects the share of solar power to increase to 11% in FY16 (November 2014: 8%). This would be driven by GoI’s initiative to set up 25 solar parks each with a capacity of 500MW from FY15-FY19 and provisioning 40 bn for the purpose. Additionally, GoI has proposed setting up a 1,000MW grid connected solar PV (photovoltaic) projects through central public sector units and government organizations," wrote India Ratings and Research, the domestic arm of Fitch Ratings, in a 29 January report

The government’s initiatives in renewable energy include plans for setting up solar parks totalling 20,000MW over a period of five years in the states, which will require central support of 4,050 crore. Of these, preliminary work has started on 16 such parks. India has also rolled out an ambitious campaign to promote solar energy through organizations under the ministries of defence and home such as the Indian Army, and central public sector units (CPSUs) such as Indian Railways, NTPC Ltd, NHPC Ltd and Coal India Ltd.

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