Parliament Panel Wants Renewable Finance Obligation Prescribed for Banks
The Committee asks the government to explore innovative financing mechanisms for renewables.
Parliament’s Standing Committee on Energy has asked the government to explore the possibility of prescribing Renewable Finance Obligations along the lines of Renewable Purchase Obligations for banks and financial institutions to make them invest a specific percentage of their investment in the Indian renewable energy sector.
In its latest report, ‘Financial Constraints in Renewable Energy Sector,’ the Committee said the Ministry of New and Renewable Energy (MNRE) should look at setting up a green bank system to address the persisting finance-related challenges faced by the renewable energy sector in India.
It noted that Green banks had emerged as an innovative tool for accelerating global clean energy financing.
The Committee made these recommendations in light of the government’s assessment that an investment of about ₹17 trillion (~$207.45 billion) would be required to realize India’s long-term commitments in the power sector. This would necessitate an annual investment of up to ₹2 trillion (~$24.41 billion) in the renewable energy sector, against which the investments over the last few years have only been in the range of ₹750 billion (~$9.15 billion).
The committee said it would be a “gargantuan task” to fill the huge financing gap. Besides green banks, it said MNRE should work proactively to make available innovative financing mechanisms and alternative funding avenues like Infrastructure Development Funds (IDF), Infrastructure Investment Trusts, Alternate Investment Funds, Green/Masala Bonds, and crowdfunding for the renewable energy sector.
In its reply, MNRE said it had requested the Reserve Bank of India (RBI) to consider defining a new ‘RE Sector” distinct from the power sector. The central bank had clarified that it had neither prescribed the sectors across which the exposures need to be categorized nor any sector-specific exposure limits. If, in a bank’s assessment, exposure to renewable energy can be differentiated from other exposures to the power sector from a risk management perspective, it was free to do so.
Subsequently, MNRE requested that banks treat renewable energy as a separate category for Sector Credit Allocation. Some banks had confirmed that a separate exposure ceiling was already carved out for renewables. Also, RBI had included small renewable projects costing up to ₹300 million (~$3.66 million), which was earlier ₹150 million (~$1.83 million), under Priority Sector Lending Norms.
In February this year, the government completed the sale of ₹160 billion (~$1.9 billion) worth of sovereign green bonds in two equal tranches.
The Economic Survey 2022-23 tabled in Parliament on the eve of the Budget said India would require tens of trillions of U.S. dollars in investments for it to achieve net-zero emissions by 2070.