Renewable, T&D assets dominate PFC & REC loan books as thermal loses steam

Stress in conventional power generation space and no new private investment in the sector see the two lenders gradually shift to newer areas

Two leading power sector financiers in the country — Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) — are witnessing a marked shift in their lending portfolio. This is owing to stress in the thermal power generation segment, along with lack of any new private investment in this space. 

Renewable energy and transmission & distribution (T&D) segments have witnessed record growth in lending from these two institutions. 

PFC’s lending to the T&D segment has grown by 387 per cent in the past five years, while for REC, the increase is by 43.12 per cent. In comparison, growth in loan assets in thermal power generation has been 16.56 per cent and 67 per cent for PFC and REC, respectively, during the same period.

For REC, which started lending to the renewable segment before PFC, the growth of renewable assets in four years was 582 per cent in 2015. PFC ventured into the renewable energy segment with separate lending schemes in 2017. 

With an aim to attract an array of projects, the lending agency also decreased its rates in the range of 9.5-11 per cent for renewable projects. While the growth is slow, PFC’s loan basket of renewable energy assets, at Rs 37,005 crore, is larger than REC’s. 

The shift by the two lenders comes at a time when the renewable energy segment is scouting for domestic funds. Executives said a lot of renewable project developers are looking at these two lenders for refinancing their assets.

Cumulative PFC and REC lending to the renewable segment was at Rs 53,713 crore during 2019-20 (FY20). It is higher than the sanctioned loan amount by the Indian Renewable Energy Development Agency (IREDA) — a dedicated financing body for the segment. 

IREDA disbursed Rs 11,191 crore during 2018-19 (FY19). The FY20 data has yet not been made public by the company.

“Considering that new lending opportunities would be limited in view of the Covid-19 situation, the Rs 90,000 crore discom credit package is a good business opportunity for PFC to maintain its loan asset growth. In addition to this, our focus would continue to be on the renewable business,” the PFC management said in its investor concall for FY20.

Last year, the Ministry of New and Renewable Energy (MNRE) had urged PFC and REC to design specialised lending schemes for the renewable segment. REC, in its latest investor presentation, said it is a major player in the renewable energy segment and the “creation of India’s Green Energy Corridor” — which is a dedicated transmission network for renewable energy projects. 

For the two lenders, the gradual shift towards new areas makes sense, as it continues to bear the brunt of non-performing assets (NPAs) in the conventional power generation space. At the same time, private investment in thermal power is on the decline as no new projects are in the pipeline.  “In renewable, most of the funding is to private borrowers. In conventional generation, it is a mix, but majority to the government sector only,” said the PFC management in the concall. 

State-owned NTPC has 20 gigawatt of coal-based power generation projects at various stages of development.

“Renewable is a good opportunity. We are getting a lot of renewable re-financing proposals. Of course, discoms and transmission are there. Then, we are diversifying into smart cities and e-vehicles,” said the PFC management in the June investor meet.

PFC, in March 2019, acquired the central government’s 52.63 per cent paid-up share capital in REC, along with managerial control. The total acquisition cost was about Rs 14,500 crore. With this merger, the Centre met its disinvestment target of Rs 85,000 crore for FY19.