IREDA: Balance of power

The Indian Renewable Energy Development Agency (IREDA), an arm of the Ministry of New and Renewable Energy (MNRE), is at the forefront of financing renewable energy projects. K.S. Popli, chairman, discusses IREDA’s role, the challenges it faces, and the prospects of renewable energy.

A number of institutions have launched green bonds lately, but IREDA’s bond issue of Rs 500 crore in February 2014 was the first (although without the ‘green’ tag). Considering the World Bank issued green bonds in 2007, why did India take so long to start? How satisfied are you with the response?
We did not have permission to issue tax-free bonds earlier, so we issued taxable bonds. At that time, the concept of green bonds had not caught on. We started work in 2009. So we were not too far behind the World Bank. This year, we should get permission for a green bond issue of Rs 1,500 crore to Rs 2,000 crore. We had government guarantees when we went for the first issue, so we were expecting the success that it got.

Why is finance such a problem for renewable energy projects?
Developers feel bankers are reluctant, loan tenures are too short, and interest rates are too high. And bankers talk of ‘asset-liability mismatch’.Initially, the bankers were right. There was a technology risk even five or six years ago. But now that wind and solar projects are performing, investment is coming into renewable energy. Globally, 500 GW to 600 GW of renewable energy projects have been installed. So technology risk will not be a big issue. But once capacity goes up, say beyond 50 GW, integration issues come up. In Tamil Nadu, which has 7,000 MW of wind power, the producers had to back down [as the distribution companies reduced buying from them]. There are issues in transmitting the power as well. Policy risk remains in cases where the producer is not selling to the grid.

The Comptroller and Auditor General (CAG) has said that more than 65% of the loan applications IREDA received between 2009-10 and 2012-13 were rejected. Why did this happen?
Had we sanctioned all the loans asked for, the CAG would have said our appraisal was weak. I don’t think we have ever been unreasonable. First, if proposals do not come with the statutory clearances, we turn them down. Second, if they don’t have the right proportion of equity, we reject them. We give long-term loans and sufficient time to create mortgage. In many cases, we go ahead with the financing even when power purchase agreements (PPAs) have not been signed, because in some states, PPAs are signed only after the project is commissioned. Also, those seeking finance should be in the possession of the land.

There was a time when a lot of projects were based merely on the idea that they would produce renewable energy. We did not finance them because they were not bankable. For example, we knew biomass projects could not be sustained if tariff is not reviewed every two years. In some cases, project costs were very high. So, there is a tendency to take higher debt, which cannot be permitted. Sometimes, after we sanctioned loans, there were dropouts because the developers could not create security or there were other issues. Developers apply for loans before other things are in place, thinking if a financial institution clears a project, they will manage to get other approvals. It does not work like that. It is not that only serious players apply.

The government has set ambitious renewable energy targets. Are they feasible?
The target is 175 GW by 2022, of which 100 GW is for solar and 60 GW for wind. The investment needed is $200 million. But there are several factors. China wants to export solar panels and if these are cheaper and better than the others, it is possible that Chinese banks will fund the projects. Then there are many multilateral financial institutions willing to promote green energy. The Global Climate Fund is also there. We have a domestic bond market, though I’m not saying this will bring huge money. We have added 3,000 MW of solar energy, which is huge, considering we were only at 6 MW four years ago. If we can add 15,000 MW per year for seven years, we will get past 100,000 MW. Of this, the target for rooftop solar plants is 40,000 MW. These won’t require big loans and local banks can fund them. Overall, our installed capacity is around 35,000 MW, so we are looking at adding around 130,000 MW. At the RE Invest conference in February, the government received commitments from banks to fund 73,000 MW over five years. We will still have another two years left to meet the 2022 target. So, it is possible [to achieve the target].

India is producing about 3 GW of solar energy and 23 GW of wind energy. Why is the solar target higher?
Solar energy will surpass wind this year itself. Solar plants can be set up in every state, unlike wind farms.

How much money has IREDA disbursed so far? What are your future plans?
We have disbursed more than Rs 16,000 crore [till May 2015]. We support 45 to 55 projects each year. We intend to increase staff strength, which will enable us to take up more projects and work faster. We have lines of credit from Japan International Cooperation Agency, [its French counterpart] AFD, and the European Investment Bank. The Asian Development Bank is in the pipeline. And then there are the bonds we issue. This year, our target is to disburse around Rs 3,600 crore. We have increased our target by 40% over last year.