Cheaper, Easier Loans for Green Energy Projects

Power sector financiers Rural Electrification Corp (REC) and Power Finance Corp (PFC) have shifted focus to renewable projects and are offering attractive terms.

NEW DELHI: Renewable energy has received a big financial stimulus as loans have become easier and cheaper for projects because there are hardly any projects in pipeline for the conventional thermal and hydropower sectors.

Power sector financiers Rural Electrification Corp (REC) and Power Finance Corp (PFC) have shifted focus to renewable projects and are offering attractive terms, officials said. REC last week reduced interest rates to renewable projects by 50 basis points (bps) to 11.5%. The interest rates on loans to renewable energy projects will now vary between 10.5% and 11.5%, depending on factors like project viability and promoter's strength.

Whereas interest rates on loans to conventional and hydropower projects are higher at 11.75% to 13.40%. "The reduction of interest rates is a combination of two factors. Our borrowing costs have slightly come down in the last threefour months and we want to be more competitive in renewable energy lending," a senior REC executive said.

The company is considering to raise sole funding limit to 50 MW for wind and solar power plants or about Rs 250 crore per project from the present Rs 200 crore. The lending rates to renewable energy projects have come down by 300 bps from 13.5% in 2010-11. The company sanctioned Rs 2,965 crore to renewable energy projects last financial year, up about 10 times from Rs 390 crore in 2010-11.

REC last week received an award from the renewable energy ministry for appreciable performance in financing of renewable energy projects in 2015-16. Cumulatively, the company has sanctioned renewable energy projects of 1,283 MW worth Rs 5,292 crore. REC is evaluating 435 MW of renewable energy projects for sanctions.

PFC last year sanctioned close to Rs 1,900 crore to renewable energy projects. The companies have increased the repayment period of loans for renewable energy projects to 15 years from the earlier 10 years and extended the moratorium period to one year from six months from the project's commercial date of operation. The requirement for collateral security for renewable energy projects has also been done away with.

The companies see tremendous opportunities in green energy space as the government has announced a target to set up 175 GW of renewable projects by 2022. In a recent investor conference call, PFC Chairman M K Goel said the company has identified new business avenues and modified product offerings to capture more market share so as to maintain its business growth. This includes increased focus on renewable funding.