Page 45 - Banking Finance July 2019

ARTICLE

Government initiatives: matching finance for grid-connected mini hydro and off-
grid village hydro projects impeded banks willing to lend
Some initiatives by the Government of India to
to these sectors. This barrier was overcome under the
boost the Indian renewable energy sector are as renewable energy programme when long-term
follows: financing through a World Bank credit line became
A new Hydropower policy for 2018-28 has been drafted available. The Government, as borrower, receives
for the growth of hydro projects in the country. concessionary terms and re-lends to PCIs in local
currency at market rates, while absorbing the exchange
The Government of India has announced plans to
risk. PCIs thus have access to long-term funds at market
implement a US$ 238 million National Mission on
rates, and more importantly, are hedged against
advanced ultra-supercritical technologies for cleaner
currency depreciation, which is consistent with the
coal utilization.
rupee cash flows of their sub-borrowers.
The Ministry of New and Renewable Energy (MNRE) has
Like other infrastructure projects Renewable Energy
decided to provide custom and excise duty benefits to
projects also may be financed on project finance basis
the solar rooftop sector, which in turn will lower the
where security comes from future cashflows with no/
cost of setting up as well as generate power, thus
little upfront collateral security. These projects are more
boosting growth.
exposed to limited availability of project finance as the
The Indian Railways is taking increased efforts through
share of capital cost in total cost is much greater
sustained energy efficient measures and maximum use
In microfinancing of small but efficient renewable energy
of clean fuel to cut down emission level by 33 per cent
projects banks may play vital role by loaning to SHG
by 2030.
instead of individuals to ensure better repayment.
Underwriting and syndication, club deals and SPV may
Role of Banks and other possible ways to fund
be used by banks for financing large RE projects.
the above schemes:
Banks can play very important role in development of
India has signed a Memorandum of Understanding with
Renewable Energy projects by way of financing project
Germany "to expand bilateral development cooperation in
cost. But it is observed that structure of our rural banks
the field of solar energy by increasing use of solar energy in
is not strong enough to support these projects and
India through technical as well as financial cooperation".
commercial banks are reluctant in financing renewable
energy projects due to high initial development cost.
As a part of this MoU, Germany "would provide concessional
High cost of capital, short tenure and volatility of
loans in the range of one billion euro (over Rs 7,200 crore)
interest rates makes domestic finance unattractive and
over the next five years".
expensive currency hedging in India makes foreign
financing unattractive.
It has to be noted that the government's investments may
To overcome this scenario our government has set up not necessarily be capital in nature but could be in the form
Indian Renewable Energy Development Agency Ltd. of subsidies and tax-free bonds.
which has vital role of supporting various renewable
energy projects including Bio Mass Power project.
Road Ahead:
During the last decade the World Bank and the other The Government of India is committed to increased use of
multilateral banks and the donor agencies have been clean energy sources and is already undertaking various
more active in supporting RE programmes. Given the large-scale sustainable power projects and promoting green
gap in the capital markets of Developing Countries there
energy heavily. In addition, renewable energy has the
is a task for the public sector and the donor community
potential to create many employment opportunities at all
to provide guarantee schemes.
levels, especially in rural areas. The Ministry of New and
The absence of a long-term debt market to mobilise Renewable Energy (MNRE) is committed towards it.

BANKING FINANCE | JULY | 2019 | 45