Banks reluctant to fund renew projects

Uncertainty of government support to discoms leading to unreliable PPAs shrink the sector's scope for raising debt, says Animesh Damani, Managing Partner, Artha Energy Resources in an interaction with POWER TODAY.


Please throw light on your company and its activities.
Artha Energy Resources is a four-year old data first company, a part of the Artha Group of companies. Artha is a part of Damani group with interests across venture capital, power, hospitality, stock markets, and real estate. At Artha Energy Resources, we have built a proprietary database that spans over 90% of the power generation capacity and 40% of the power consumption demand in India. Artha Energy has three verticals, mergers and acquisition (M&A) of distressed solar, wind and hydro assets, marketing of roof-top solar leads and bilateral trade of power.

Why are solar photovoltaic (PV) prices rising? How will this impact the sector's growth?
Solar PV prices have been on the ascent primarily due to increased demand from China, US and India. Demand in the US and India has been more driven due to the likely imposition of anti-dumping duties on Chinese panels.

Increasing module prices push up the capital cost of a solar project, and this in turn affects demand at institutional and retail levels. Moreover, those players who have bid at aggressive prices for utility scale projects might also face some difficulty in maintaining their projected internal rate of return (IRR).

Bidders are placing bids at razor-thin margins owing to competitive bidding. How is their enthusiasm likely to be impacted in future?
Currently, the supply of funds against the demand for projects is much higher. Many funds have raised capital for deployment into greenfield projects. With government doing away with the feed-in-tariff (FIT) regime, utility scale projects are being sold solely through the auction route. This action had artificially reduced the supply of projects, due to which we have seen this aggressive bidding. At such bids, project profitability will come into question. Eventually, logic has to prevail and margins will get rationalised.

What is likely to impede achievement of national renewable targets? What are the remedies for this?
Lack of policy clarity was hurting the sector as many investors were shying away. However, there has been increased communication from the central government, and this should go a long way in clearing many of the policy-related impediments.
Another worry is the sustainability of power purchase agreements (PPAs) which were signed at higher rates. State governments have been trying to renegotiate these PPA's looking at the prices unveiled at the recent bids.

However, it is illogical to push such an agenda as the capital cost for solar PV projects has come down from 17CR per MW in 2012-13 to 4 CR per MW currently.

Lastly, the inertia of state discoms and dealing with multiple departments to get approvals create a lot of stress in the eco-system. Projects are delayed either due to approvals, delays in net-metering connections, or delays in the commissioning certificate. There has to be a time-bound single window policy system to get regulatory approvals.

What is the impact of lax implementation of renewable purchase obligation (RPO) guidelines and how demand for renewable power can be increased?
Lack of implementation in the RPO guidelines directly affects the renewable energy sector. Without strong implementation, state discoms will prove to be a stronger deterrent in the growth of the renewable energy sector.

Demand for renewable power can be increased through multiple ways. Firstly, industries that set-up and/or procure power from renewable sources must be incentivised in the form of tax and/or duty cuts. Moreover, energy banking rules must be made consumer friendly. Preferential treatment in getting OA approvals must be given to consumers and producers of Renewable energy. Lastly, policy stability in OA, energy banking, duties, taxes and transmission/distribution charges must be there to ensure stability in demand and supply of RE.

This alone will go a long way in ensuring that commercial and industrial establishment that contribute majorly to power consumers start supporting and moving towards renewable energy.

Renewable sources of power may need advanced grid. Are we prepared for the same, and what has been the experience so far?
Advanced grids are required for renewable sources of power since the electricity produced from renewable energy is intermittent. Solar runs only in the day and also produces lesser power during cloudy days. 70% of electricity from wind turbines is produced during the period from April - September. Our grids have to be able to absorb this intermittent flow of power to ensure that on peak days we are not cutting off renewable supply.

This involves investments in the transmission network, battery storage, as well as flexibility in thermal capacities that can immediately ramp-up production when the flow from renewable energy drops.

How bankable are renewable projects, and is there any difficulty in sourcing funds?
It is unfortunate that banks do not lend to renewable projects without collaterals. The wind turbine or the solar plant in itself is considered worthless. Traditional collaterals in the form of land, shares, FD property, etc are required to secure funding. Hence, there is no point in taking a loan against a renewable energy project by giving additional collateral of the project for zero value.

Banks tend to view the sector with skepticism as they are unsure of the government's support to the PPA's signed by the discoms. They believe that many PPA's will be renegotiated to achieve lower tariffs, which in turn affects the project's viability. Hence, given that the PPA (which is supposed to be sacrosanct) is not bankable, the entire project becomes unbankable without traditional collateral.
Because of this reluctance in lending, it is difficult to raise debt for renewable energy projects.

- BS Srinivasalu Reddy