Home/ Politics / Policy/  REC, PFC, Ireda, others to raise Rs5,000 crore via tax-free bonds

New Delhi: State-owned firms, including Power Finance Corp. Ltd (PFC), Rural Electrification Corp. Ltd (REC) and Indian Renewable Energy Development Agency Ltd (Ireda) will raise 5,000 crore by selling tax-free bonds to raise low-cost and long-term funds to help finance India’s plan to quadruple its renewable energy production.

While Ireda will raise 2,000 crore, PFC and REC will raise 1,000 crore each. The companies will, in turn, lend the money to solar energy developers at a low interest rate of 10.5%.

The current base rate is upward of 9.75%, although banks typically lend at base rate plus 1-2% for their best customers. Developers may use these funds for projects such as rooftop solar panel installations.

“We have received the approval from the finance ministry. All these bonds are green bonds as they will be used for funding solar projects," said a senior Indian government official, requesting anonymity. A senior PFC executive confirmed the development.

The government has raised an earlier target of installing 20,000 megawatts (MW) of solar energy capacity by 2022 fivefold to 100,000MW.

In India, the world’s biggest greenhouse gas emitter after the US and China, renewable energy currently accounts for only 11.79%, or 31,692.14MW, of the total installed capacity of 268,602.35MW.

Mint reported on 13 April that the government is approaching at least eight lenders, including REC, PFC, Ireda, India Infrastructure Finance Co. Ltd (IIFCL), IDBI Bank Ltd, ICICI Bank Ltd and Yes Bank Ltd to raise green bonds.

Piyush Goyal, minister for new and renewable energy, power and coal, said on 15 May: “Very soon we are going to have Ireda come up with 2,000 crore of tax-free bonds. So that they can keep a very small mark-up and provide low-interest funds to encourage rooftops all across the country. We have an ambitious 40,000MW of rooftop plans also. This will be a humble beginning and then we will scale it up further. PFC and REC can be financers of the larger solar installations."

India needs as much as $200 billion to meet its target to install 100 gigawatts (GW) of solar power capacity and 60,000MW of wind power capacity by 2022. The low-cost funds raised through green bonds could potentially cut the cost of clean power and make it easier for developers to sell power to distribution utilities. The government is aiming to provide green power at less than 4.50 a unit.

The Narendra Modi-led government has pushed renewable energy to the top of its energy security agenda, seeking to minimize India’s dependence on coal-fuelled electricity. State-owned NTPC Ltd plans to raise $500 million each from its planned global rupee and green bond issues.

The global green bond market touched $37 billion in 2014, with countries including China and India offering sizeable growth potential, Moody’s Investor Service wrote in a 27 May report.

“We expect that the nascent green bond market in Europe and the US (AAA stable) will become more sophisticated, while developing countries such as India (BAA3 positive) and China (AA3 stable) will explore these instruments for the first time, offering sizeable growth potential," said the report.

The emphasis on solar and wind power is also expected to strengthen the country’s standing at global climate change negotiations that culminate in a summit in Paris in December.

Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Updated: 03 Jun 2015, 01:11 AM IST
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