India’s renewable energy sector will need an investment of Rs 3 lakh crore over the next five years to double generation capacity by 2020, but securing finances for such projects may prove to be difficult, according to a report issued by Crisil Ratings and PHD Chamber on Friday.
A rise in environmental concerns along with disruptions in the supply of coal has led Indian companies to explore renewable energy sources. In the next five years, India is expected to double its solar and wind power generation capacity to 48,000 MW from the current level.
According to the Crisil-PHD Chamber report, 70%, or around Rs2 lakh crore, of the funds needed by the sector will have to come through debt. However, the report says that “the ability of banks to cough up monies is limited given low appetite for renewable projects and crowding-out by conventional power sources.”
The renewable sector typically involves credit risks, for which banks charge a higher rate of interest on loans extended to companies in this sector, which in turn affects their debt servicing ratio. Other factors include uncertainty in geographical conditions, along with technological risks.
Banks already have an exposure of Rs 4.3 lakh crore to the overall power sector in India, and a lot of this debt has turned doubtful or bad, due to regulatory and policy-related hurdles such as availability of coal.
Manish Gupta, director of Crisil Ratings says that the renewable power sector needs to explore alternate avenues of funding through the bond market route. “This would entail solar and wind power projects to attain high safety credit quality levels using innovative financing and credit enhancement mechanisms,” Gupta said.
Pension funds, provident funds and insurance companies are sitting on a large corpus of funds, but are bound by regulations to invest only in high-rated debt instruments, which leads to a lot of renewable power companies getting excluded.
The solar power industry has seen the entry of companies with ambitious plans to roll out a portfolio of projects in the medium term. Private equity funds have invested around Rs4,500 crore in the renewable power space in India, out of which Rs2,800 crore have been given to large companies in this sector. Institutions like the International Finance Corp and other multilateral development agencies have also invested around Rs2,000 crore in the Indian renewable power space thus far.
Give tax sops to renewable energy projects: Report
Tax incentives, easier overseas borrowing norms and innovative financial instruments for clean energy projects will boost India’s efforts to achieve sustainable development in the long term, says a report. The renewable energy sector should be put under Priority Sector Lending category and unutilised amount under PSL should be diverted to clean energy, Ficci UNEP Inquiry Report said.
With Inputs from PTI