Doubling priority lending for renewables to help only small installations

Industry players say cap is inadequate to meet funding requirements of planned mega projects

The Reserve Bank of India (RBI) last week doubled the loan limit for the renewable energy sector under ‘priority sector lending’ to Rs 30 crore. Though a long-pending demand for priority sector lending status has been met, industry players pointed out the cap was inadequate to meet funding requirements of planned mega projects. 

The lending support might, however, help smaller solar projects especially rooftop ones and 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 up to a limit of Rs 30 crore to borrowers for purposes like solar-based power generators, biomass-based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities, such as street lighting systems and remote village electrification, will be eligible for ‘Priority Sector classification’. For individual households, the loan limit will be Rs 10 lakh per borrower.

"The environment-friendly lending policies like including start-ups in priority sector lending, doubling of loan limits in renewable sector is definitely a welcome move by RBI. This will allow better credits and increase credit lending for SME and MSMEs in the segment, consequently adding fillip. Banks can finance start-ups up to Rs 50 crore, 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 company however said the decision will not help mega-size projects, which the government is increasingly offering now. “The limits of Rs 30 crore are too low for grid-connected projects. At best one can do 8-10 Mw projects or small distributed power or roof top solar power project,” said the executive.

The cost of a grid connected solar power project is between Rs 5-7 crore per Mw. The cost of a rooftop solar or micro grid is lower given their smaller size for projects below or upto 1 Mw.

However, a rootftop segment player CleanMax said even for this segment, the lending limit is low. Nikunj Ghodawat, CFO, CleanMax, said, “The new RBI lending guidelines is a welcome move for renewable energy sector and indicates the global trend that capital is getting prioritized for clean energy adoption. But to accelerate growth and realise the current potential in rooftop solar segment, ideally the priority sector lending limit must be higher around Rs 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 goal of sourcing 40 per cent of its energy needs from renewables by 2040, as part of its Climate Change commitments. For this, the Centre has planned to set up 175 Gw of renewable capacity, of which 100 Gw is solar.

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 Rs 3.5 per unit while that of hydro is Rs 5 per unit.

However, unlike thermal power, conventional lenders have not shown active interest in renewable energy. Facing the brunt of NPAs in the thermal power sector, leading banks have stayed away from investing in the renewable energy sector.

Last year, the ministry of new and renewable energy had asked the RBI for a  separate funding streams and financing regulations from thermal in its regulations and also remove investment cap.

 

“Lately, banks have become wary of investing in power projects. But RE is a sunrise sector and we don’t want it to be masked by the problems in thermal,” said a senior official.

Additionally, the MNRE wrote to RBI asking the cap of Rs 15 crore to be removed from priority sector lending norms of the renewable sector as the Centre was planning to offer large-scale solar projects. At the same time, wind power is in need of domestic financing as it faces regulatory challenges and reduction in foreign investment due to the same.

“India is now offering mega scale projects in solar. The minimum size of projects tendered is 500 MW which translates to at least Rs 2,000-2,500 crore investment,” said a senior industry executive.

In a latest industry-government dialogue held in May last year, top sector executives claimed that financing is a major hurdle in the growth of renewable in the country. “Shortage of investment capital and risk of NPAs threatens the sector. It would need $550 billion investment by 2030,” said one of the industry presentation to the government in the ‘Chintan Baithak’ held by MNRE in May 2019.