Money & Banking

NBFC crisis hits clean-energy firms

Twesh Mishra New Delhi | Updated on May 23, 2019 Published on May 23, 2019

Liquidity squeeze may drive up costs and delay projects

Renewable energy companies are now feeling the pinch of the ongoing crisis in the NBFC sector, with the latter shying away from infrastructure financing in the private sector.

The problem is acute, especially given the fact that it was only NBFCs that were funding infrastructure projects till 2017-18-end in the wake of the banking sector tightening lending on account of NPA woes. From March last year, things started getting bad for NBFCs; the situation was further exacerbated by the blowout of IL&FS.

Clean-energy industry representatives said the NBFC crisis has hit renewable energy companies, which are now facing higher borrowing costs for their greenfield projects. There is an evident liquidity crunch in the NBFC lending ecosystem, and this may push ahead the deadlines for financial closure for some recently-awarded renewable projects, they said.

“Nearly ₹3-lakh crore of liquidity in the NBFC space has been held up due to the crisis in IL&FS and DHFL, among others. This is pushing up borrowing costs for greenfield projects as banks have anyway not been lending to them,” an official at a private power transmission company told BusinessLine.

“Recently, L&T Finance had issued redeemable non-convertible debentures at an effective yield of 9.05 per cent.

“This is at least 50-75 basis points higher than the usual cost of raising funds,” said the Chief Financial Officer with a roof-top solar player.

Worst-hit are the solar projects that were awarded contracts after competitive bids were held from October.

“The deadline for financial closure ranges between nine and 12 months from the award of bids. The cost of borrowing to large greenfield projects has risen from 9.75 to 10.75 per cent. A 1 per cent higher cost of borrowing results in solar power-generation costs rising by 10 to 15 paise per unit,” said an official at a utility scale solar power project developer.

“The success of solar power projects now depends largely on how efficiently they are financed. Unlike conventional power where there are recurring costs related to fuel procurement built into billed tariffs, solar tariffs are largely focussed on recovering project installation costs. So, any minor increase in financing costs majorly affects the project viabilities,” the official added.

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Published on May 23, 2019
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