SOLAR APPLICATION
NABARD had been encouraging financing of renewable energy sources. PV Ramachandran,
GM, NABARD, in an interview with Mehul Dani, throws light on the developments in the solar
energy sector and financing opportunities available in the energy related projects:
NABARD’s Capital Subsidy-
cum-Refinance for Off-grid
Solar Applications
N ABARD has recently launched the scheme on Capital
Subsidy-cum-Refinance for Solar off-Grid (PV Thermal)
and Decentralized applications under Jawaharlal Nehru
National Solar Mission of the Ministry of New & Renewable
Energy in a meeting held at NABARD head office, Mumbai. Dr.
K.G. Karmakar, MD, NABARD, released the scheme guidelines
to the commercial banks and RRBs on pan India basis. Under
the scheme capital subsidy of 30% will be extended for
individuals and groups for installing solar off-grid system like
solar lighting, water heating, etc. In addition, banks will extend
loan up to 50% of the cost to the borrowers with refinance
support from NABARD. Dr Karmakar requested the banks to
install solar units to energize all branches especially, in power
deficient areas as a demonstration of solar energy. NABARD
will extend grant assistance at 50% of the total cost to first 20
branches of each commercial bank for this purpose. Similar
assistance is already available for RRBs and cooperative banks.
The scheme is a major initiative to promote ecologically
sustainable growth while addressing India’s energy security
challenges. The scheme under JNNSM has immediate focus
on setting up an enabling environment for solar energy
penetration in the country through a multi agency approach
for centralized and decentralized applications of solar energy.
38 BANKING FRONTIERS DECEMBER 2010
It is introduced by NABARD to enable the commercial
banks and the RRBs to extend capital subsidy and loans at
subsidized rates to people opting to install solar (photovoltaic
and thermal) applications like home lighting, water heaters,
irrigation pump sets, etc. Under the scheme, the borrowers
will get 30% capital subsidy and bank loan at 5% interest
per annum for installing solar devices in their premises. To
begin with, the scheme would cover solar home lighting
systems having PV module capacities ranging from 10 watt
peak (Wp) to 200 Wp per unit and Flat Plat and Evacuated
Tube Collector based solar water heating systems. The scheme
is likely to be extended to cover higher PV modules having
capacities up to 100 KWp and mini grids up to 250 KWp and
thermal and other applications including SPV water pumping
systems shortly. P.V. Ramachandran, GM, NABARD throws
light on the developments in the energy sector and financing
opportunities available in the energy related projects:
Mehul: What is the current energy generation scenario
in India?
Ramachandran: More than 30% of primary energy
consumption in the country comes from non-commercial,
non-renewable energy sources like firewood, agricultural
waste, dung cakes, etc. Kerosene and LPG are other main sources
of energy in the countryside. Though 83% of our villages are
electrified, only 43.5% of the households are electrified. There are
over 78 million households yet to receive electricity connections.
Energy generated through commercial sources falls far short
of the demand, leading to non-availability of power for most
part of the day even in many urban areas. Installed capacity of
electricity generation in India is 1.52 lakh MW - 64% thermal,
25% hydro and 8% renewable (including small hydro, biomass,
wind energy and solar) and 3% nuclear power. Projected demand
is 3.88 trillion kWh by 2031 (761 billion Wh during 2006).
India is the 4th large producer of wind energy with 8.7
GW generation, which amounts to 10% of world production
through wind. Tamil Nadu, Maharashtra and
Karnataka are the main states harnessing
wind energy in the country. India is the
7th largest in producing Solar PV Cell
energy with a generation of over 400
MW. Most part of India has enough
sunshine for most part of the year
and for 6-8 hours daily. India
ranks 8th in the hydro electricity
generation. Major drawback is high
capital and social costs and high
gestation period. Potential for small
hydro projects is around 15 GW.
Power from bio wastes has high
potential. Small sized generation is possible. 20 GW can be
produced from 300 tons of biomass being produced currently;
hardly 3% is being exploited, over 50% burnt in the open
environment. The future lies in harnessing energy from renewable
sources to meet the growing demand supply gaps.
What are the barriers to growth of renewable energy (RE) in
the country?
The major factor hindering the growth of RE in India is
the high cost of power generation. For example, the cost of
one unit of electricity generated through solar power was `21
till a couple of years back. Now it is approximately `16, while
the cost of power being distributed through grid is around
`4-5 per unit. In fact, more than 75% of the PV generation
panels manufactured in India is exported to Germany and
other European countries and with the economic slowdown in
Europe, the demand is substantially slowing down there forcing
a downward price spiral in the domestic market. It is estimated
that the cost of solar power will equal that of grid power by
2022 and thermal power only by 2030 at current growth
projections. The reasons of high costs are low production
volumes, low technology maturity levels, intermittent nature
of energy generation from wind and high cost of storage of
electricity generated. The same is the case with wind power as
well. From the user perspective, however, the cost of alternate
energy source like burning of kerosene, use of diesel, etc,
SMS your Comment & Feedback to (+91)9867366111
are costly with one liter of kerosene outside the PDS costing
over `30.
The existing tariff structure does not factor in the socio
economic costs related to different sources of energy, especially
hydrocarbon sources, and hence highly biased in favor of non-
renewable energy sources and a disincentive to RE. The high level
of hidden and overt subsidy for petroleum products, the losses of
power generating and distribution, especially in the government
sector, all add up to encourage non-renewable sources of energy
in the country. The national grid system has very high cost of
distribution, including transmission losses over long distances.
Where is Off-grid Power more suitable?
In a vast country like ours, a
national grid cannot reach out to
Ramachandran
remote areas, but the emphasis
feels there is a
noticeable change had so far been to hinder localized
in the last decade generation and distribution of
when banks have power using mini grid and off-grid
shown willingness (stand alone) power generation. The
to fund power power generation and distribution
generation itself had been the monopoly of the
through wind state till recently and private players
and solar are being allowed in this sector during
the last decade or so. RE is the most suited
for decentralized power generation and local
distribution. There are inaccessible areas where the grid
power cannot reach and in such areas RE is the most suited
power generation mode.
How have been the financing models to RE sector?
The higher investment, an unfavorable policy environment
and higher cost of generation compared to non-renewable
sources, has resulted in the normal financing channels like banks
being reluctant lenders to this sector. There is a noticeable change
in the last decade or so when banks have shown willingness to
fund power generation through wind and solar. The technology
in the RE sector is also not highly progressed. R&D in this
crucial sector is nearly non-existent in India. The technology for
conversion of agri wastes is still not well developed to make it a
commercially acceptable model.
There has never been a national policy to actively promote
RE generation and distribution in the country. The launching of
Jawaharlal Nehru National Solar Mission is a beginning in this
direction. There had only sporadic attempts to extend subsidies
to power generation through wind power, for solar energy devises,
etc – mainly through the state RE promotion agencies without any
linkages with financing agencies like banks. While subsidies are
extended to power generated and supplied to grid through RE, there
is no stipulation of a minimum level of purchase of such energy
for the grid administrators as in many developed countries (Even a
10% statutory blending of ethanol with petroleum products is not
being enforced). An entrepreneur venturing into the RE generation
BANKING FRONTIERS DECEMBER 2010 39
sector needs an assured market and growth potential with a Simply accord priority sector lending status for renewables.
pricing which takes into consideration the social cost benefits. There is a need for consortium financing. Create a Technology
This stipulation also helps the tariff structure to align with the Development Fund from contributions from various FIs,
cost of generation of RE. The government should shift its focus banks, government and various technology suppliers from
to decentralized power generation through Energy Panchayats, which grants or soft term financial assistance to promoters
etc, with start up subsidies to off-set the higher costs during the of renewable energy projects may be provided. Establish cess
initial years. The possibility of replacing free electricity to rural on the users of conventional energy sources, which can be
consumers to only those generating RE could be another way collected and used of the development of renewable energy
of promoting RE. projects. Establish rural energy cooperatives / enterprises
There had been interesting financing models, other than involving the retailers and manufacturers of renewable energy
the normal commercial bank loans, tried out in other countries systems for micro level lending operations. Rural cooperatives
which could be adapted with suitable modifications. Some of should be established with active participation of the village
the innovative financing models are: panchayats and extended with the help of RRBs to take up the
Clean Development Mechanism (CDM): CDM allows activities linked to renewable energy. Corporate finance can
emission reduction projects that assist in creating sustainable be raised using Zero Interest Bonds, Equity Warrants, Secured
development in developing countries to generate Certified Premium Notes, Deep Discount Bond, etc. There should be
Emission Reductions (CER) for use by the investor. inter-corporate lending/ borrowings and issue of government
Dealer-Credit Model: Grameen Shakti example in bonds. A number of green banks or green funds area are
Bangladesh, where International Finance Corporation also emerging, which target the growth of renewable energy
provided loan to the dealer, Grameen Shakti, under their projects. Community based solar charging units will not only
SME program. Grameen Shakti, in turn, extended credit to promote RE, but also help a few entrepreneurs to come up.
customers to purchase RE system.
Consumer Credit Model: Sarvodaya Model in Sri Lanka. How far does land plays a role in RE sector?
In this mechanism, local finance institutions provide loans An important constraint in exploiting the RE is the non-
to users to buy the RE system. The RE enterprise in this case availability of suitable land for erecting power generation
transacts on commercial basis with the users. structures like the wind mills, solar panels for community
Supplier Credit Model: A RE enterprise provides a short power generation. While household power generation through
term (3-12 month) credit to the end user to purchase the RE roof top solar panels are easily implementable, community
equipment/system. and cooperative power generation on common land is a
Energy Service Company Model / Fee-for-Service Model: In serious constraint for such power generation.
this, the customers pay for the energy service that is provided
to them by an energy service company (ESCO). It makes What are the other factors that should be considered while
the energy affordable and minimizes the long-term risks promoting RE?
for the customers as the ownership and maintenance of the Since RE generation, especially through off-grid and mini
equipment lies with the energy service company. The World grid, is decentralized, it is essential to have necessary servicing
Bank used this model in Argentina, Benin, Togo, Dominican of the devises at the village level. This is another challenge
Republic and Cape Verde. while promoting RE. One of the major factors for the failure of
Global Environment Facility (GEF): This is being used by the biogas financing program had been the frequent failure in
India to fund RE projects through IREDA, etc. power generation and the delays in getting the systems repaired
locally. It is partially a fault of underdeveloped technology,
What are your suggestions to facilitate higher investment flow but there is also a need to develop skilled service network at
into RE sector? reasonable cost for all RE structures. Though technology like
the solar PV systems are simple and do
This is Our Life Rajneesh Kapoor not require regular servicing, factors
like rodents spoiling the connection
between the panels and the batteries
and the distribution, theft of the
panels and batteries (especially for
systems in open areas like irrigation
pump sets) need technical solutions to
make them attractive.

mehul@bankingfrontiers.com

40 BANKING FRONTIERS DECEMBER 2010