Request you to kindly drop in all your mails/queries to or call us at
+91-120-6799125 (D); +91-120-6799100 (B)


User Name


Forgot Password?

Set as Default

A K Agarwal, Executive Director, Renewable Energy, PFC

20 Feb 2013

Power Finance Corporation has stepped into financing green energy projects, and has even formed a subsidiary for the purpose. Speaking with InfralinePlus, A K Agarwal, Executive Director, Renewable Energy at the company, shared PFC’s vision and concerns in RE financing.

What is the constitution of PFC’s renewable energy portfolio at present?
PFC’s RE portfolio consists of around 500 MW small hydro, 330 MW biomass, 170 MW Wind and around 55 MW of Solar PV Projects.
What is the total value of PFC’s Renewable Energy portfolio?
Our RE portfolio is about `3,000 crore, and out of that small hydro is the biggest component.
What are the parameters for determining viability of a project?
We assess the commercial and technical feasibility to determine the financial viability of the project. While looking at the commercial viability, we measure the risk profile of the project covering power sale arrangements, tariff admissible, tie-up of various inputs, clearances, permissions, contractual arrangements, land, etc. We prefer the module meets the IEC standards. Further, we also like to manufacture whose technology is proven, their modules are installed, and are under operation somewhere so as to have a performance record.
The US EXIM Bank has a de facto policy of funding only bigger operations, say 25 MW plants rather than 1-2 MW ones. Do you have a similar preference?
In solar we fund even 1 MW project, but for other RE Projects we are not funding below 5 MW. However, we understand that RE Projects are generally smaller in size and require quick financial closure. Considering this, PFC has formed a subsidiary for funding RE projects.
Do you think there is a degree of skepticism in lending to solar projects in India?
There are two basic issues in supporting solar projects. One is the reliability of insolation data. The second is the life of the solar panels in Indian conditions. When we finance a project, we need a reasonable amount of authenticity. As for the wind projects, Centre for Wind Energy Technology provides authentic wind profile and helps in computation of possible generation and revenue potential of any wind project. Now, it is understood that they have also been given the task by the ministry to do the insolation data studies. In the absence of such data, it is difficult to reliably establish the generation from a Solar Project. The financials from any project depend on the generation, which is why these are early days in the financing of solar projects.
Right now, are you relying on the third-party verification of insolation data?
There is more than one source available for insolation data, but all of them rely mainly on satellite data, however, wide variations are observed in these data. The data measured on actual site would only extend authenticity which is not available for most of the sites currently.
Do you think the wear-and-tear and the life-span of cells is an issue in India?
India is a tropical country with a lot of suspended dust particles in the atmosphere. The generation in this condition needs to be watched. The degradation of Solar Cells/ Modules is a major area of concern under Indian conditions during the entire project life. We will be in a position to know about this after a few years of operation of the Solar Plants being installed in India.
Does it make business sense for players with substantial equity to quote tariffs at very low rates?
It may not be prudent to fund the entire project cost through equity since equity is normally costlier than loan. It is more so when very low tariff is quoted for solar project. It may be alright to declare financial closure through equity so long as the requirement is to be met.
Do you see industry achieving the target of 1000 MW set under National Solar Mission by 2013?
Right now we do not see any such eventuality.
Three major issues project developers have with local financing are the cost of funds, short tenure, and a mandate for a debt-equity ratio vis-à-vis comparable foreign projects. What are your thoughts on it?
The area of concern in any solar project, as explained earlier, do not allow a loan tenure of more than 10-12 years, excluding the construction period and 6 months moratorium, DE ratio of more than 70:30. PFC considers a rebate of 25 bps in the interest rate of all RE projects including solar projects.
What about grid parity for solar generated power?
From various analysis carried out it is expected that the price of solar energy would gradually fall and grid parity can be expected sometime between 2015-17. Once grid parity is achieved, solar projects will really pick-up.
So, where do you see solar tariffs settling this year?
The tariff quoted for JNNSM Batch II projects, though on the lower side may be considered to be feasible by 2013.
Leaving out JNNSM projects, which states in your view are model states for financiers?
Our thinking is that we should fund solar projects currently in that State only where discoms are having cash profit.
You will be setting up a new company for disbursal of loans for renewable projects. What is the need for such an agency?
PFC is organised to fund large projects where loan size is also big. Renewable Projects are normally small loans. In order to take care of such requirement of RE Projects and also to have focused approach considering the ambitious plan of Government of India for RE Projects, PFC decided to have a separate subsidiary for funding RE Projects.
Is your focus shifting towards renewables?
PFC would continue to fund all projects in the power sector as it is doing now, and the subsidiary has been set up for funding RE Projects, where quick financial closure is required. Further, we also hope to get cheaper funds so as to extend our loan to RE Projects at competitive rates.
Going forward, would you gravitate towards funding bigger projects in solar too, instead of the 1-10 MW range?
Currently, we are appraising even 100 MW Solar Thermal Project and 25 MW Solar PV Project.
What do you think of the REC mechanism? Are lenders reluctant to fund projects taking this route?
Though REC is a good mechanism, lenders may not be in a position to accept it presently for funding purpose since it is untested and RPO is not enforceable.
How long do you think trading in RECs will pick up?
Trading under REC mechanism has started. The RPOs are still not mandatory. There are indications that the RPOs would become mandatory and would have stringent panel provisions thereby enhancing the marketability of RECs. Once this happens, trading would pick up.
Talking of the wind sector…government has suspended the subsidy support. How do you see the sector performing in the coming days?
Subsidy support has neither been confirmed nor withdrawn. Further, generation from wind is approaching grid parity. We see a good potential of capacity addition in wind.
Do you think India will generate a major amount of its energy from renewable in the near future?
We expect substantial amount of capacity addition through RE Projects in the 12th Five Year Plan.
Are you financing any major off-grid projects in solar?
Till now we have not funded any off grid projects in Solar. The major risk in funding of grid solar project is uncertainty in revenue stream.

(InfralineEnergy thanks A K Agarwal, Executive Director, Renewable Energy, PFC for sharing his valuable insights with our readers. The column 'In-Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)