Renewable energy: Easier bank guarantee norms likely for green projects

By: |
March 09, 2020 6:00 AM

Welcoming the move, the national solar energy federation of India (NSEFI) — an industry lobby — has asked the MNRE to extend this benefit to existing contracts as well.

Renewable energy, MNRE, green projects, NTPC, Seci, NSEFI, land acquisition, discomsThe renewable energy industry is one of the major FDI earners with the sector attracting $4.8 billion foreign capital till 2019 end since FY15.

In order to find more ways to bring ease in doing solar and wind power businesses, the ministry of new and renewable energy (MNRE) is exploring alternative mechanisms to reduce the amount of money that developers need to deposit with government agencies for commissioning green power plants.

MNRE has sent a letter to NTPC and Solar Corporation of India (Seci) — the central government agencies which act as the nodal agencies for conducting the auctions — asking them to submit their comments on the feasibility of other arrangements for earnest money deposit (EMD) and payment bank guarantee (PBG) by March 12.

In the letter, reviewed by FE, MNRE proposed that for EMDs and PBGs against renewable energy projects, developers may furnish letters of comfort (LoCs) from the Central government-run green lender Indian Renewable Energy Development Agency (Ireda). MNRE suggested that corporate guarantees should also work as EMD, provided that bidders are blacklisted from future auctions if such guarantees are not honoured. As per the new proposal, pledging of the promoter’s equity in the renewable energy project should be considered as PBG as well.

Welcoming the move, the national solar energy federation of India (NSEFI) — an industry lobby — has asked the MNRE to extend this benefit to existing contracts as well. The move, if implemented, can release about Rs 7,000 crore of bank guarantees, currently frozen with various government agencies which are buying power from renewable energy projects. “Given the current situation of banks in India, while sanctioning PBGs banks are very cautious leading to costly and cumbersome process for obtaining PBGs from the bank,” NSEFI pointed.

Access to funds remains a constraint for domestic renewable energy companies and a large segment of solar and wind projects are backed by foreign investment.

The renewable energy industry is one of the major FDI earners with the sector attracting $4.8 billion foreign capital till 2019 end since FY15. As on January 31, the installed renewable energy capacity was 86.32 gigawatts (GW). Further, an additional 35.1 GW is under various stages of implementation and 34.5 GW under various stages of bidding. If the 45.4 GW of hydro and 6.8 GW of nuclear capacities are included, the target under the Paris climate change accord of having 40% of installed power generation capacity from non-fossil fuel sources can be achieved by 2022 itself.

The major challenges being faced by the renewable energy developers are land acquisition, evacuation infrastructure, non-conducive state policies, curtailment, unwillingness of discoms to purchase renewable energy, delay in receiving payment from discoms and seeking revision of power purchase agreements.

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