The ministry of new and renewable energy (MNRE) wants the government to back a loan of one billion euros (about Rs 7,750 crore) sought from German bank KfW in order to promote rooftop solar systems worth 1,600 megawatt across the country. German bank KfW is keen on lending one billion euros for the solar rooftop project to India but hedging cost of the loan will make it expensive for borrowers and mar the purpose of accessing funds from abroad, an MNRE official said.
"Our problem is how to make these funds available at a low cost. Hedging against rupee fluctuation makes the loan expensive for domestic borrowers. If the government thinks rupee is going to be stable in future, we want to request the government to take the risk and give a sovereign guarantee so that we can avail of the KfW loan," the official told ET on condition of anonymity.
ndia is scouting for funds from foreign agencies in order to spur growth of the cash-starved sector - one of Prime Minister Narendra Modi's focus areas - and make clean energy affordable.
The ministry wants to make loans for rooftop installation available at interest rate of not more than 8%, the official said, adding that the loan, as and when it comes, will be disbursed either through Indian Renewable Energy Development Agency ( IREDA) or Rural Electrification Corporation (REC).
However, in absence of a sovereign guarantee, the cost of funds can go up to 12%. The MNRE has assessed that the euro loan, which can be borrowed at 2%, will add 8% as insurance (hedging) charges and then become costlier by another 2%, the amount charged by the final lending agency.
"We think the fluctuation risk can be taken by the National Clean Energy Fund (NCEF), which is not too happy to give an interest subvention of 4-5%. That's why a sovereign guarantee can be very useful for promoting 1.5 gigawatt of solar rooftop installation programme," the official said.
Hedging or insurance of the loan is required because the end user will repay in Indian rupee, which may have depreciated in another 10 years.
The industry players involved in solar rooftop installations in the country say a sovereign guarantee can benefit government-related institutions the most.
"Rooftop solar equipment can be installed on all state government buildings, primary health sector, public hospitals and public sector organisations. If lending the euro loan to private entities, a counter or back-up guarantee should be taken. What if corporates default?" asked KN Subramaniam, CEO of Moser Baer, which has done solar roof top installations for ISRO and Oil India.
According to Subramaniam, rooftop installations funded through a government-backed loan do not seem suitable for private or household consumption because recovering money from individuals could prove difficult.
MNRE secretary Upendra Tripathi had in September said that India needs $30 billion (over Rs 1.8 lakh crore) investment in the renewable sector every year but receives only $6 billion (about Rs 37,000 crore). Moreover, defaults by the conventional power sector have made banks averse to lending towards clean energy, contributing to the cash crunch in the renewable energy sector.
Source: Economic Times
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