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Priority status for solar power will aid smaller players

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  6 May 2015 12:00 AM GMT

By Saptak Ghosh

The Reserve Bank of India (RBI) recently revised its priority sector lending (PSL) guidelines. Now medium enterprises, social infrastructure and renewable energy (RE) will form part of priority sector, in addition to the existing categories. This has brought excitement to the stake-holders.

The central bank’s move basically means that banks are now mandated to provide a percentage of their annual adjusted net bank credit (ANBC) or the credit equivalent amount of off-balance sheet exposure, whichever is higher, to RE project developers seeking fince.

Bank loans with a limit of Rs.15 crore (approx $2.5 million) will be made available for RE power generation (solar, wind, biomass, and micro-hydro) and for non-conventiol energy-based public utilities such as street lighting systems and remote village electrification. For individual households, the loan limit will be Rs.10 lakh per borrower. Various policy think tanks, research institutes and industry representatives have been lobbying for this move and filly the government has acceded.

How will the solar power sector be impacted with its inclusion in the PSL framework?

To begin with, alysis of the Rs.15-crore limit needs to be highlighted. Today, grid-connected solar PV plants cost around Rs.7 crore/MW. Considering a standard debt-equity ratio range of 3:1-4:1, developers with plans to install around 2.5 MW now have easy access to fince. This means that smaller and emerging players can now enter the market in the 100 kW-3 MW segment and stave off competition from the larger players.

Research has shown that the 60 GW ground-mounted portion of the 100 GW solar target (by 2022) needs a mix of large solar parks (>200 MW), 10-50 MW plants, 5-10 MW plants and plants <5 MW when it comes to grid-connected systems; along with off-grid plants <1 MW for remote rural electrification. Large solar plants (>10 MW) come with baggage (intermittency and associated grid magement and synchronisation headaches, land contention and displacement issues, additiol investment for government for green corridors, and the possibility of cartelisation) whereas smaller centralised distributed generating units (<5 MW) are easy to incorporate into the existing grid infrastructure without any of the aforementioned issues.

Keeping the cap can be interpreted to be the government’s strategy to carve out a market for smaller entrepreneurs to thrive in, while allowing established large solar companies and developers (who already have access to fince) to flourish in the large solar parks segment. It will also allow SMEs to use solar for captive consumption purposes now that they can access fince easily.

Such strategic niche magement can be extended to the off-grid space to eble rural electrification using decentralised solar plants (<500 kW) with micro-grids. A differential rate of interest (DRI) scheme can be introduced under the “weaker sections” category which will allow developers to get loans at less than 10 percent interest, thereby increasing profit margins in market spaces which have been shunned in the past.

The other aspect is with respect to individual households. The Rs.10 lakh limit here means that the government is encouraging urban households to adopt RTPV (rooftop photo voltaic) systems with or without storage using easily accessible loans from banks. Today RTPV costs around Rs. 92,000/kW and Rs. 70,000/kW (with and without two hours of lead-acid battery storage). Research has shown that the largest possible grid-connected RTPV system for a domestic consumer in Bengaluru (without battery backup and meeting 60 percent of the annual electricity demand of the household with solar) is 18.5 kW with an initial investment of Rs. 13 lakh.

Assuming a standard debt-equity ratio of 3:1, the revised PSL guidelines make it possible for this consumer to instantaneously get a loan for a RTPV system. Gone are the days when bankers used to be sceptical every time the words “loan” and “individual RTPV system” were mentioned in the same sentence. Earlier, banks used to associate risk with solar PV in terms of asset magement, technology evolution and individual credit ratings. Keeping the ambitious 40 GW RTPV target (by 2022) in mind, the government has initiated this progressive Rs.10 lakh move. Hopefully, the state utilities will find innovative complimentary tariff mechanisms which will allow the RTPV market space to grow rapidly in the near future. Most representatives of the renewable energy industry are quite excited by RBI’s move and expect that the Rs.15-crore limit will be increased in the near future to maintain an aggressive growth rate in this environment-friendly industry in India.

(Saptak Ghosh is a Senior Research Engineer with the Center for Study of Science, Technology and Policy (CSTEP), Bengaluru. The views expressed are those of CSTEP. He can be contacted at saptakg@cstep.in)

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