After the successful completion of RDSS and LPS schemes, discoms and the power sector would be in a much better shape financially, says Parminder Chopra, CMD, Power Finance Corporation (PFC). This would enable entities in the sector to focus their attention and resources towards projects rela...
After the successful completion of RDSS and LPS schemes, discoms and the power sector would be in a much better shape financially, says Parminder Chopra, CMD, Power Finance Corporation (PFC). This would enable entities in the sector to focus their attention and resources towards projects related to energy security and energy transition.
What has been PFC鈥檚 role in the present round of power sector reforms? How are the reforms progressing?
PFC has always been a key partner of the Government of India for implementing various reform schemes in the power sector. Last year, we had successfully concluded the Integrated Power Development Scheme (IPDS) scheme, which has resulted in significant improvements in urban distribution infrastructure.
Presently, the Revamped Distribution Sector Scheme (RDSS) and the Late Payment Surcharge Rules (LPS) are under implementation, for which PFC group is designated as the nodal agency. Under RDSS, loss reduction projects worth Rs.1.4 trillion have been sanctioned, out of which tenders for 88 per cent have been floated and 70 per cent of the works are awarded. Remarkable progress has been made in smart metering, with about 200 million smart meters sanctioned and tenders for installation of about 90 million smart meters awarded. Financial assistance to Discoms under the scheme is linked to various reform linked parameters like adherence to agreed Aggregate Technical & Commercial (AT&C) loss trajectory, timely finalisation of accounts, payment of subsidies and electricity dues etc.
The impact of various reform measures is evident from the consistent improvement in all India level AT&C losses over the past two years - 16.42 per cent in FY 22,15.85 per cent in FY 23 (provisional) 鈥� compared to 21.5 per cent losses in FY 21. Other performance parameters like cash-adjusted revenue gap, receivable days, payment days etc. have also registered marked improvement from the levels seen two years ago. Significant improvement is also seen in the compliance culture of discoms, in the form of timely filing and issuance of tariff orders and submission of quarterly and annual accounts.
Equally noteworthy is the success of LPS Rules. The legacy dues payable by distribution utilities have come down to Rs.580 billion, down 58 per cent from their peak level of Rs.1.4 trillion. Current dues are also being monitored rigorously with the help of PRAAPTI portal, which is set up and maintained by our subsidiary, PFCCL. Power regulation is resorted to for discoms where outstanding dues are not paid by the trigger date. This has brought in much needed fiscal discipline in the sector, which is helping all the players across the power sector value chain.
After this set of reforms, where do you see the major growth in the power sector?
Once the RDSS and LPS schemes are successfully concluded, the discoms of the country and the power sector in general, would be in a much better shape financially. This would enable the entities in the sector to focus their attention and resources towards projects related to energy security and energy transition.
India鈥檚 power demand is growing at a healthy pace, with monthly peak demand consistently recording new all-time highs during this year. According to the National Electricity Plan, our installed generation capacity is likely to reach 866 GW by FY 31-32, more than doubling from the present levels. About 90 per cent of the projected capacity addition would be from renewable sources.
The investment required for RE capacity addition alone would be about Rs.21 trillion.
We also need to add more thermal capacity to cater to the increase in base load requirement, which is expected to be about 40 GW till FY 32, involving a capital outlay of about Rs.4 trillion.
In addition to capacity addition, investments are required for improvement in transmission and distribution, infrastructure and grid balancing measures, including energy storage projects like pumped storage (PSP) and battery energy storage systems (BESS). In the coming decade, we would also see a significant uptake in adoption of EVs, which would necessitate investments in strengthening charging infrastructure. The power sector is in the midst of a transformative shift, underpinned by healthy demand growth and strategic financial support from institutions like PFC. The future of the sector appears encouraging as we move towards a greener energy landscape.
How does PFC prioritise projects
and assess their financial viability and risk profile?
In the recent past, we have been focusing on Renewable Energy (RE) and strengthening of distribution sector, in line with the focus of Government of India. We have participated in various reform schemes in the distribution sector including IPDS, RDSS and LPS rules.
In terms of Renewable Energy, our RE assets have grown at a CAGR of over 30 per cent during the period and today we have the largest RE loan book in the country amounting to Rs.520 billion. Till date we have funded RE projects of over
54 GW with cumulative sanctioned loans of about聽聽Rs.2 trillion and cumulative disbursement of聽聽Rs.1 trillion.
The power sector is undergoing a major transformation, with energy transition as the key focus area. PFC is gearing up to meet the huge funding requirement for this transition. Going forward, energy transition funding along with reforms in the sector is going to be the thrust area for PFC.
Our appraisal process majorly involves technical and financial due diligence covering various aspects such as capability of the developer/ promoter, project inputs and contracts, regulatory compliances, environmental impact, implementation strategy, selling arrangements and projected financials. Bankability of the projects is ensured through various risk mitigation measures, protecting the interests of lenders.
What are the emerging trends that PFC anticipates will shape the future of power sector financing? How is PFC preparing to adapt to these trends and maintain its competitive edge?
Future of the energy sector is undoubtedly green. To achieve our net zero target, in addition RE capacity addition, new and emerging technologies such as green hydrogen and its derivatives, carbon capture systems, battery energy storage, small modular reactors, etc. need to be deployed in a large scale. We need to focus on making these technologies commercially viable by investing in R&D, creating new use cases and providing cheaper financing. Innovative financing solutions like blended finance, structured finance and credit enhancement mechanisms need to be put in place for reducing the cost of funds.
Finalisation of a Green Taxonomy, which is expected soon, would improve the attractiveness of India as a destination for climate mitigation funds. PFC is in the process of putting in place an ESG framework, which will enable us in tapping multilateral agencies and foreign developmental institutions to secure low-cost funding for energy transition projects.
What are the major challenges that PFC expects to face in the future, such as rising costs, regulatory changes, and technological disruptions?
Presently, the Indian power sector is seeing unprecedented technological transformation.
As the largest power sector financing group in India, the challenge right now lies in assessing these emerging technologies for funding
by PFC. Given these emerging technologies are still at the nascent stage and yet to achieve commercial viability, the lending decisions
we take today will determine our future
growth prospects.
To address this challenge, our dedicated project lending department is proactively engaged in learning about these emerging technologies. We are actively exploring opportunities to finance pilot projects in these innovative areas, leveraging our expertise to make informed decisions that align with our long-term goals.
Furthermore, the evolving regulatory landscape poses another substantial challenge. As we continue to grow, the regulatory oversight becomes more stringent. Operating within a regulated framework is integral to our business, and we are committed to complying with all regulatory norms.
What innovative financing solutions is PFC exploring to support the development of sustainable power projects, including renewable energy, energy storage, and grid modernisation?
We are always open to introduce new products based on the requirement and feedback of the industry players. In order to cater to the specific requirements of RE developers, we have recently introduced products like Project Specific Funding for RE Equipment Manufacturers, financial solutions for participating in tariff-based bidding and products for manufacturers of equipment for RE projects.
We are constantly exploring various avenues to providing lower cost funding to our borrowers. PFC is the first company from India to join the Asia Transition Finance Study Group (ATFSG), an initiative led by the Japanese Ministry of Economy, Trade and Industry (METI), for promoting sustainable transition finance in Asian countries. Under this, funding is directed for decarbonisation of carbon intensive industries. As part of this group, PFC not only represents India鈥檚 perspective but also actively collaborates to shape the global climate financing landscape.
How does PFC plan to collaborate with other stakeholders, such as government agencies, financial institutions, and technology providers, to shape the future of power sector financing?
PFC is the largest renewable energy financer in India supporting almost a fifth of India鈥檚 renewable energy capacity. We have been consistently supporting India鈥檚 renewable energy transition journey, when the solar and wind power technologies were at a nascent stage. Now, as the generation technologies have stabilised, the next frontier of innovation lies in improving the reliability of renewable power through storage technologies and implementing carbon reduction technologies in coal plants to lower emissions.
To make any of these technologies viable and suitable for commercial adoption, cost effective financing is the key. PFC鈥檚 strength lies in facilitating low-cost, long term funding to these emerging technologies. PFC will have a pivotal role in financing these innovations. In this direction, we have recently inked MoUs worth Rs.2.37 trillion with around 20 companies in clean energy space, with major focus on new and emerging technologies.
We are also actively collaborating with international and multilateral/bilateral institutions like KfW, JBIC, ADB, and EIB to ensure low-cost financing for India鈥檚 energy transition goals. We have also partnered with Japan Bank for International Cooperation (JBIC) for funding projects that effectively reduce greenhouse gas emissions and contribute to global environmental conservation. We are also the first company from India to join the Asia Transition Finance Study Group (ATFSG), an initiative led by the Japanese Ministry of Economy, Trade and Industry (METI), for promoting sustainable transition finance in Asian countries.
PFC is dedicated to leading India鈥檚 transitions toward cleaner and more sustainable energy, fostering innovation and responsible financing in the power sector.
What specific goals has PFC set for its power sector lending portfolio in the next 5-10 years?
The Government of India has kept a target of doubling India鈥檚 installed generation capacity by 2032, which includes addition of over 500 GW of RE capacity during the next 10 years. Along with this, commensurate evacuation infrastructure and equipment manufacturing facilities also need to come up. Then there are emerging technologies like Green Hydrogen and its derivatives, Carbon Capture Usage & Storage (CCUS) and advanced chemistry cells, which would scale up and become financially viable. We also see a great potential for the electric mobility ecosystem, including the electrification of public transportation and establishment of charging infrastructure.
PFC is presently the largest lender in the power sector, with about 20 per cent market share. Going forward, we would like to continue our role as a developmental financial institution in the power sector and maintain our current market share. We would be funding projects across various segments of the sector, including new and emerging technologies, as well as projects with forward and backward linkages with the sector.
- E Jayashree Kurup
