How the alarming level of Non-performing Assets in the banks can derail India's renewable energy ambitions? Discuss while also explaining the high social costs in promotion of green energy.
Published: September 13, 2017
India has an ambitious target of 175 GW renewable power by 2022. However, finance is the major hurdle in the realization of the goal of clean energy. As per RBI’s latest report power sector, accounts for about 58% of the outstanding credit to infrastructure. Infrastructure projects in general and renewable energy projects, in particular, are facing problems like stalled projects, operational inefficiencies, and high outstanding debt, because of which there is the delay in bank payments leading to rising NPA of banks.
Also because of the drop in tariff, the profit margin of renewable energy projects has squeezed, therefore lenders are being more cautious in lending to renewable energy projects. Banks are worried because such companies might not be able to repay on time due to low profits.
Renewable energy projects also face the problem of delayed payment. The state owned discoms are the key customers of most of the renewable energy projects, however, the financial health of most of the state-owned discoms is weak, often leading to delays in payments. Since renewable energy project companies get delayed payment, there is a delay in bank repayment, which put pressure on banks.
Because of these factors, renewable energy projects are facing the problem of finance crunch. The Economic survey also highlighted that Investment in renewable energy should be done in the calculated manner as social costs are high in promoting green energy. Due to over emphasis on the renewable energy projects assets in conventional energy generation plants, for example, coal based plants are either idle or there is suboptimal utilization. Therefore, return recovery will not be possible even though the useful life of the plant is still not over. Stranded assets like coal are estimated as the lost revenues because of the shift to renewables. Such stranded assets can have an adverse impact on the banking system depending on their exposure to the sector. Therefore as per the economic survey, the social costs of renewables was around 3 times of coal.
The need of the hour is to ensure appropriate infrastructural facilities for renewable projects along with faster clearances. Also, there should be more emphasis on improving efficiency, so that idea of renewable energy remain sustainable.
Model Questions Category: 058 - Indian Economy Issues Relating to Planning