With its focus on promoting renewable energy projects through its business activities, REC provides financial assistance for setting up power generation projects for harnessing renewable energy sources such as solar, biogas, small hydro, wind, etc.
Norms laid down by the REC for financing renewable energy projects
1. How much would be the moratorium period?
Moratorium Period, also known as EMI holiday period is a waiting period after taking a loan during which the borrower is not required to pay any EMI’s.
In case a promoter is expecting to avail any form of financial support from REC for developing a renewable power generation project, the moratorium period for the principal repayment would be 6 months from the commercial operation date (COD). In addition to this, for principal repayment there would also be different maximum durations from the date of the first disbursement for different projects which are as follows:
- For solar PV and wind energy projects: 1.5 years
- For solar thermal energy projects: 4 years
- For biomass energy projects: 2.5 years
- For small hydro energy projects: 6 years
2. Minimum equity contribution & contribution of the core promoters
The debt-to-equity ratio is a company’s total liabilities divided by its total shareholders’ equity. As proposed by REC, the debt-to-equity ratio would be 70:30 for private-sector borrowers. However, REC will proceed with the lead financial institution’s (FI) debt-equity ratio, subject to a maximum ratio of 3:1, when the lead FI is funding on the basis of a different debt-equity ratio. And, in case the lead FI is REC, 70:30 will be the debt-equity ratio.
Simultaneously, it is also to be noted that the minimum share of the core promoters undertaking the RE project should at least be 10% of the total project cost.
3. What would be the extent of the funding?
REC has predefined certain guidelines which bring complete clarity on the extent of the funding. These norms are approved by the board of REC from time to time.
The extent of funding for a private project, in case of sole lending, is subject to a maximum exposure of 70 crores by REC. However, for the following projects REC may take exposure of up to 100% of the debt component:
- Solar (PV/thermal) projects: Up to 10 MW of installed capacity.
- Biomass or small hydro projects: Up to 10 MW of installed capacity.
- Wind projects: Up to 15 MW of installed capacity.
Note: The list provided above could be reviewed biannually.
The maximum exposure has been set to be up to 50% of the project cost for any other type of private projects apart from the above-mentioned ones.
4. Fees applicable
a. Application and processing fee: The application and processing fee applicable is 0.1% of the amount of loan applied which can exceed up to a maximum of Rs 10 lakh. Half of the above-mentioned fee will be taken at the time when the loan application is received and the other half is to be paid before the sanction letter is issued. If there is a difference between the amount of loan applied and that sanctioned by REC, then the application fee payable shall be determined by considering the approved loan amount.
b. Upfront and lead fees: After the loan has been sanctioned but before its documentation, the borrower is entitled to pay an amount equivalent to 0.1% of the loan sanctioned as an upfront fee to REC. This fee amount is subject to a limit of minimum 2 lakh and maximum 10 lakh. However as per REC norms, in case of projects above 100 MW, the processing/upfront fee may be regulated in accordance with the norms applicable for conventional private sector power projects.
An additional “Lead Fees” of an amount equal to 0.25% of the total sanctioned loan, subject to a minimum of 5 lakh and maximum 25 lakhs will also be charged by REC where it is acting as the lead financial institution (FI). The lead fee is to be paid at the same time as the upfront fees.
5. Commitment charges applicable
Commitment fee/charge is a fee charged by the moneylender to compensate its commitment for lending the loan amount.
As per REC norms, the commitment charges are to be paid consequently when there is a delayed drawdown beyond the period of 6 months. That means, in case REC is paying commitment charges on the funds; the borrower also has to pay the same at the same rate to cover the bilateral funding conditions and this shall be paid before the disbursement of the delayed drawdown.”
6. How the amount of upfront equity will be determined?
While seeking financial assistance, borrowers have to pay the upfront equity amount as specified by them or as applicable to them according to their grade, whichever is higher. It is paid as a percentage of the total equity amount. The table below shows the grade-wise norms applicable to borrowers:
|1||At least 33%|
|2||At least 45%|
|3||At least 50%|
|4||At least 75%|
Upfront equity of 100% shall be applicable for renewable energy projects of up to 5 MW.
Note: However, the above-mentioned condition is subject to be reviewed and revised on a biennial basis.
7. In the case of consortium finance, the rate of interest is applicable as per REC’s prevailing loan policy.
8. Pledging of security amount
Apart from 100% of the project and pledging 51% of shares, the scope of the security to be given by the borrower shall either be defined by the borrower or determined as per the grade of the borrower, whichever is higher. Borrower’s grade is directly associated with borrower appraisal. It is deduced as a percentage of total loan amount sought from REC. The table below shows the grade-wise norms:
|Grade as per REC||Value of security offered (other than related to the project)
(Total loan amount sought from REC) (%)
|Grade 1||At least 20%|
|Grade 2||At least 25%|
|Grade 3||At least 30%|
|Grade 4||At least 35%|
|Grade 5||At least 40%|
Based on the company’s financial soundness, techno-economical soundness of the scheme and the promoters’ creditworthiness, the actual extent of security mix shall comprise the following:
- Guarantee provided by the state government
- Guarantee from scheduled banks as per RBI act
- Mortgaging immovables by depositing their title deeds
- Guarantee provided by All India Public Financial Institutions possessing “AAA” or equivalent rating
- With the copy of title deeds and undertaking of non-disposal of assets, personal guarantee by promoters and/or promoter directors which is backed by assets
- Guarantee by a corporate body
- Hypothecation of existing as well as future movable assets, subject to prior charges of banks on specified current assets
- Any other collateral security acceptable to REC
9. Payment of interests
The interest on the loan sanctioned is to be paid as per the loan policy of REC or any other competent authority along with applicable taxes, duties, cess, etc. by the borrower.
10. Loan repayment period and instalment frequency
The loan amount is payable in quarterly instalments with the maximum loan repayment period being 12 years from the moratorium period. Any kind of premature repayment will be considered as per the policy of REC.
11. Norms for disbursements
a. First disbursement:
i. For any project under consideration in case of first disbursement, the loan instalments would be released by REC only after the promoter/ borrower has paid the amount of upfront equity as per the applicable norms. The decision of REC shall be final and binding for the promoter/borrower in this regard.
ii. Once REC is completely satisfied with the project’s fund needs including the release of advance to the project suppliers, it reserves the right to release the amount of first disbursement as per the corporation’s norms, subject to a maximum of 30% of the sanctioned loan amount the REC. The first disbursement will be released only after assuring that the promoter/borrower has fulfilled the pre-disbursement conditions.
b. Further disbursements:
i. In case of further disbursements for power-generation projects, disbursements will depend on various factors such as the physical execution of work, debt to equity ratio, the actual expenditure incurred which must have been certified by a chartered accountant and other specified terms and conditions.
ii. These disbursements are generally made on a reimbursement basis or as decided in the engineering, procurement, construction (EPC) clause of the contract and any other contract (if executed).
iii. The reimbursement/disbursement shall be based on the drawdown schedule if an agreed drawdown schedule has been prepared.
Note: The loan policy circular(s) for other provisions/clauses shall remain unchanged.
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Here’s all you need to know about REC’s financing scheme for renewable energy projects have 1560 words, post on economictimes.indiatimes.com at March 17, 2020. This is cached page on Talk Vietnam. If you want remove this page, please contact us.