Bankability of Renewable Power in India

India has set for itself ambitious targets in the renewable power capacity addition over the next two decades. This is in line with its commitments to strategically reduce its reliance on conventional sources and mitigate carbon emissions. The Ministry of New and Renewable Energy is the nodal agency to regulate and facilitate the growth of renewable power in India. In order to fulfil renewable capacity addition ambitions, the ministry, in close collaboration with its counterpart agencies at the state level, has outlined several policy incentives for both generators and consumers. These incentives include feed in tariffs, capital subsidies, generation linked incentives, renewable power certification etc. The government has also allowed free flow of FDI into renewable power sector.

In spite of incentives and strong stakeholder motivation, many projects in the renewable power sector are proving to be un-bankable. The following are some of the reasons:

1. Transmission and Distribution Issues
2. Availability of Long Term Funds
3. Working Capital Woes
4. Frivolous Motives

Transmission and Distribution Issues

Evacuation, transmission and distribution continue to remain major bottlenecks for renewable power projects. Renewable generation units are characterized by small capacities, variable generation and low PLF. This makes it technically difficult to maintain seamless transmission and distribution. However, the government can identify suitable locations and encourage multimodal renewable clusters and develop dedicated infrastructure for evacuation, transmission and distribution in a clustered fashion. As more and more renewable projects are becoming grid interactive, T&D infrastructure is extremely important to facilitate their growth and sustainability.

Availability of Long Term Funds

Renewable projects are highly capital intensive and require a fairly long payback period. A typical solar/bio-mass project becomes feasible with only when debt funds are available for at least 6-7 years. Availability of long term funds, at a reasonable rate, in the Indian markets is very difficult. Moreover, most banks are facing asset liability mis-match. In this context, a proactive imitative by the government to set up a debt fund which can finance large renewable projects or refinance banks for small projects would prove quite beneficial to the Industry.

Working Capital Issues

Many electricity boards and public utilities across the country are reeling under severe financial pressure. Their ability to honour dues under preferential tariff rates to renewable generators is deteriorating. In this context, renewable developers find PPAs with public utilities unreliable primarily because of the payment woes. Irregular payment of dues would make working capital management of generators quite awry. In this context, introduction of the REC trading facility to delineate cash-flows from environmental attributes (additional tariff for environmental benefits) away from the utilities is an innovative step to improve liquidity in the renewable energy market. However, this measure has failed because of few buyers and sellers in the REC market. Rearranging the renewable obligation, which currently only falls on the distributer, across transmitters, distributers, captive and large consumers would give a shot in the arm to the market, which in turn would enhance the availability of funds in the renewable energy market.

Frivolous Motives

Recently the renewable energy industry has experienced many frivolous investors, equipment suppliers, EPC contractors and operations managers etc whose prime objective is to make a windfall from the beneficial policy environment and incentives. They lack the vision and objective to contribute to a healthy growth in the renewable power industry. Owing to their presence, the due diligence process has become quite tedious even for genuine players. There is an increasing fear that bad players might eventually drive out good players in the market. Hence, it is important for the government to standardize systems, procedures and equipment in this industry. Strong penalties must be imposed on frivolous players and a mechanism to implement the must be put in place by the government.