Interview with Vivek Kumar Dewangan: “REC looks forward to financing the entire renewable value chain”

Formed in 1969, REC Limited’s role has transformed significantly from a provider of agricultural pump sets for optimised irrigation to a provider of financial assistance to the power sector across the generation, transmission and distribution segments. Within the generation sector, its focus on the renewable energy space has been increasing. In an interview with Renewable Watch, Vivek Kumar Dewangan, Chairman and Managing Director, REC, shares his views on the investment scenario in the Indian renewable energy space, REC’s exposure to the sector and its future plans. Edited excerpts…

How has investment in the renewable energy space evolved over the past few years?

In line with the prime minister’s announcement at COP26, 179.32 GW of non-fossil fuel capacity has been installed in the country as of April 30, 2023. This includes 125.69 GW of renewables, 46.85 GW of large hydro and 6.78 GW of nuclear power capacity. The renewable energy share stands at 41.4 per cent of the total installed generation capacity, which is 416.59 GW as of April 30, 2023. Currently, India ranks fourth, globally, in installed capacity of renewables (including large hydro), as well as wind power capacity and solar power capacity.

In terms of investment, India has attracted substantial funds into the renewable energy sector. Investment in renewables touched a record $14.5 billion in financial year 2021-22, an inc­re­ase of 125 per cent over financial year 2020-21 and 72 per cent more than the pre-pandemic financial year 2019-20. This represents a substantial increase from previous years, and de­monstrates the growing confidence of inves­to­rs in India’s renewable energy market. The in­vestments have come from both domestic and international so­urces, including private eq­uity firms, venture ca­pital funds and multinational corporations.

To achieve India’s ambitious target of 500 GW of renewables by 2030, the country needs to add 25 GW of renewable capacity annually for the next eight years. This will require an investment of around Rs 1,250 billion, or $15-16 billion, on an annual basis.

Several factors have contributed to the inc­re­a­sed investment in India’s renewable energy sector. These include, primarily, favourable policy in­­ter­ventions, initiatives to drive clean en­ergy, and incentives such as tax benefits, subsidies and low-cost financing options. The governme­nt’s target of achieving 500 GW of renewable en­­ergy capacity by 2030 has also played a significant role in attracting investment.

Technological advancements and cost reductions have further propelled investment in India’s renewable space. The falling prices of solar pa­nels, wind turbines and energy storage systems have made such projects more economically vi­a­ble. This has attracted a diverse range of in­ves­to­rs, who see the sector as a financially attractive opportunity. Furthermore, the Indian government has actively encouraged foreign investment in the sector. It has implemented measures such as 100 per cent foreign direct investment (FDI) in re­newable energy generation, and allowed FDI in the form of debt instruments such as bonds. The­se steps have facilitated greater participation of foreign investors in India’s clean energy market. The cou­ntry’s proactive policies, technological advancements and cost reductions have attracted substantial funds from do­mestic and internati­onal investors. The FDI in India’s renewable energy sector sto­od at $2.5 billion in financial year 2022-23, a 56 per cent increase year on year.

What are the most popular sources of financing in India in the renewable energy space?

In India’s renewable energy space, the sources of financing that have been commonly utilised by project developers and investors include:

  • Commercial banks: They provide project loans, working capital loans and debt financing options to developers. These loans often come with favourable interest rates, longer tenures and flexible repayment terms.
  • Non-banking financial companies: The­se institutions specialise in providing loa­ns and financial services to various sec­to­rs, including renewable energy. They offer project financing, refinancing, brid­ge loans, construction financing, equipment financing, project-specific funding facilities, letters of comfort/undertaking, etc., to support the de­velopment and im­plementation of clean energy projects.
  • International financial institutions (IFIs): IFIs such as the World Bank, Asian De­ve­­lopment Bank, KfW, JICA and the In­ter­na­tional Finance Corporation have been actively involved in providing financial su­pport in the form of soft loans, grants and technical assistance, to promote cl­ean energy development and ad­dress cli­mate change concerns as well as ca­pacity building.
  • Private equity and venture capital funds: These entities invest in renewable energy companies and projects, providing capital for their development and ex­pan­sion. They often bring expertise and industry knowledge along with their financial investments.
  • Infrastructure debt funds (IDFs): IDFs are specialised funds that provide long-term debt financing for infrastructure projects, including renewable energy. They offer project loans, refinancing op­tio­ns and structured debt products to support the financing needs of clean energy projects.
  • Green bonds: They have gained popularity as a source of financing for re­ne­wable energy projects in India. These bon­ds are specifically issued to fund enviro­n­mentally friendly projects, and attract investors who prioritise sustainability.

It is worth noting that these sources of fin­ancing often complement each other, and a combination of multiple funding options is often utilised to meet the financial re­q­uirements of renewable projects in India.

What is REC’s level of exposure in renewable en­ergy financing? What are REC’s existing and upcoming schemes in this space?

REC’s loan book in the renewable space has grown from Rs 75.06 billion, or 3 per ce­nt of its total loan book of Rs 2,390 bi­­llion in financial year 2017-18, to Rs 290.73 billion, which is 7 per cent of its total loan book of 4,350 billion in fi­nancial year 2022-23. REC aims to inc­re­ase its re­newable portfolio to Rs 3,000 billion by 2030. REC looks forward to financing the entire renewable value chain.

Aggressive efforts in this direction will reduce the cost as well as the demand for fossil fuels to create a sustainable and th­riving planet for future generations.

What is the company planning in rural electrification financing, especially with regard to renewables?

REC has played a pivotal role in achieving the Government of India’s target of electrifying unelectrified villages and universal household electrification, as a nodal agency for the Deen Dayal Upad­h­y­aya Gram Jyoti Yojana and the Pra­dhan Mantri Sahaj Bijli Har Ghar Yojana-Sau­bha­gya scheme.

REC is also providing counterpart funding to the various rural electrification sche­mes being implemented by state power utilities, and actively supporting the efforts of the Government of India to provide electricity in every corner of country.

Under these schemes, off-grid connectivity through renewable-based energy sour­ces, mostly solar, were provided in places whe­re grid connectivity is not feasible or cost-effective. REC has sanctioned projects under PM-KUSUM for the solarisation of agricultural pump sets in rural areas.

What are some of the emerging opportunities that you and the organisation are keen on from a financing perspective?

Apart from conventional renewable projects such as solar and wind, REC has ventured into financing of hybrid projects, pumped storage projects, energy storage projects, e-vehicle projects, manufacturing of solar modules, C&I projects, etc.

REC has sanctioned financial assistance to hybrid projects and is keen on financing more such projects. In addition, REC has sanctioned pumped storage projects and shall focus on capturing them. Inter-state transmission projects for procuring power from green energy corridors supplementing energy transition would be another focus. Moreover, REC has been one of the first movers in providing financial assistance to e-bus projects.

With the introduction of basic customs duty for import of solar cells/modules, do­mestic manufacturing of solar cells/modules is expected to experience a quantum jump. This scenario presents a huge op­portunity for REC to explore financing op­portunities in the solar module manufacturing sector. REC is already providing fin­ancial assistance to GW-scale manufacturing projects. REC is aggressively ex­plo­ring the financing of sunrise sectors such as green hy­drogen, green ammonia, RTC power projects involving the bu­n­dling of renewable projects with thermal power, and other opportunities such as ethanol manufacturing projects.

What are the company’s long-term plans in the renewable energy investment space?

REC is aiming for a Rs 10,000 billion loan book by 2030 with an emphasis on renewable energy, which is expected to contribute 25-30 per cent of it. REC is poised to expand its loan book under the renewable energy portfolio to Rs 2,400 billion-Rs 3,000 billion by 2030.