Financing for Energy Access: Mechanism to improve …
Experiences of decentralized clean energy enterprises over the last decade have shown that the lack of a strong ecosystem for facilitating energy access is one of the main reasons for the relatively slower rate of dissemination of decentralized clean energy solutions. One of the key gaps in the ecosystem is linked to access to finance.
Drawing from the insights of enterprises in the sector and the experience of end users in accessing credit for renewable energy, certain factors usually identified as concerns are represented in the figure below. This includes concerns of grassroots entrepreneurs with no formal business training, as well as those with better educational qualifications and detailed business plans.
Figure 1: Challenges around financing for end users and entrepreneurs
In recent times, delays in the release of subsidy to banks for the solar home lighting systems under the National Solar Mission, resulted in hesitation amongst bankers to continue financing energy products and solutions. This has also affected financing for solar water pumps under the newest scheme.
In an attempt to address and re-instil confidence amongst bankers about the financial viability of lending for decentralized solar and other RE systems, SELCO Foundation and the Clean Energy Access Network (CLEAN) jointly organized two banker training workshops- the first one at the National level with Chairman, General managers and key representatives of various Nationalized and Regional Rural Banks with support from the Ministry of New and Renewable Energy (MNRE); the second at a regional level, in Bangalore, for Lead District Managers, AGMs and District Development Managers at the state level, with the support of the State Level Bankers’ Committee (SLBC)- Karnataka and the NABARD Regional office.
Figure 2: Structure of Organized Banking Industry (stockshastra.moneyworks4me)
Each of the workshops began with an overview of the technologies and business models of energy enterprises and were followed by more in-depth discussions around challenges such as Perception of Non Performing Assets (NPAs), reducing the risk of lending for bankers, as well as opportunities around the new types of products and solutions to be financed, highlighting the case of micro entrepreneurs keen to adopt DRE technologies, need for targets and monitoring.
The learnings from the meetings highlight the additional aspects that we, as a sector, need to pay attention to while working with the Institutional financing sector.
Cost comparisons and Business case:
While the intent to lend for socially relevant projects is high among Bankers from Regional Rural banks, the interest in ensuring financially viability and a strong business case that assures repayment is higher. To address this, it is essential to provide monetary comparisons between the current scenario and the alternate energy solution.
For example, Demonstrating that a basic solar home energy system with 2 lights and a mobile charging unit can, in fact, be economically viable, in comparison to kerosene which is the current alternative for completely un-electrified or unreliably electrified areas. This would include a simple cost comparison of the current monthly expenditure on kerosene for lighting alone (5-7 liters costing approximately Rs. 230) and mobile phone charging (Rs. 50-Rs. 75) to the Monthly installment on a bank loan for a basic solar energy system at 13.5% interest per annum over a 5 year period. The installment would work out to approximately Rs. 270 per month. This clearly demonstrates that even without a subsidy of any sort, households would be able to pay the loan installments by simply substituting the expenditure on kerosene and mobile charging. Dissemination of similar comparisons for solar water pumps, other household appliances or the business of micro energy entrepreneurs would be essential in convincing bankers of the financial viability.
Tools that facilitate repayment:
By equipping bankers with tools to facilitate repayment and reduce the risk of Non Performing Assets, the energy access sector can address banker hesitation to continue lending for energy solutions. For example:
A checklist of criteria for products and service providers for bankers to use while financing (that builds on the current MNRE- NABARD list to include criteria that assess capacity to service).Improving collections or repayments with hardware that can remotely cut off power in cases of non-payment, or facilitating partnerships with community mobilization agencies that can function as banking correspondents and undertake collections from remote communities.
Engaging with bilateral agencies and government funding sources to create a ‘Bank guarantee fund’ that can be extended as lump sums to banks to act as collateral for higher risk customers for energy access solutions.
Targets and Monitoring:
The motivation for ensuring advances to certain sectors and monitoring progress is often driven by the existence of targets. Creating targets under the RBI’s priority sector lending for RE and the NABARD linked- National Solar Mission at a State and further at district and bank levels can ensure that Energy Financing becomes a part of the loan product portfolio that is monitored at quarterly meetings of the State Level Bankers Committee and the Lead District Managers. These targets can be informed based on the potential demand identified by energy enterprises operating in each district. Through the analysis of targets and achievements over a 1-1.5 year period, the Energy Access sector would be in a better position to determine whether there are improvements in financing through banks or whether additional efforts need to be undertaken.