Capital crunch in the energy sector is the biggest challenge before the country, said the Niti Aayog, in the draft national energy policy that was issued on Wednesday.
“This (capital requirement) is aggravated by high interest rates as compared to developed economies. A near $150 billion capital investment is needed in energy sector on an annual basis until 2040. This has to be met without impacting availability of capital in other sectors,” it added.
With India’s infrastructure poised for all-round growth, according to Niti Aayog, funds will be allocated to the sector that minimises risk for the given return. “Because we have not allowed various segments of the supply chain (such as distribution sector) to operate on commercial basis, private investors have been hesitant to enter them,” the government think tank said.
Niti Aayog has discussed various ways of dealing with this capital crunch. “The role of external commercial borrowing (ECB) is well recognised, for which suitable hedging mechanisms will be conceived. Deployment of overseas equity in financially viable, long duration infra projects may be an answer to the high hedging costs. Moreover, a number of financial tools exist to enhance returns to investors. The government will encourage adoption of imaginative tools such as extended debt tenure, VGF (viability gap funding), tolling, and dollar denominated returns to attract private capital to the energy infrastructure sector,” it said.
As many as 17 under-construction thermal power projects, aggregating to a capacity of 18,420 MW, are stalled due to financial issues, while another 17 gas-based power projects, aggregating to a capacity of 11154.38 MW, are categorised as ‘stressed’, according to government data till end-February.
In addition, a total of 20 hydro electric projects, aggregating to a capacity of 6329 MW, are struggling due to financial issues. Adding to the problem is the fact that the plant load factors (PLF) for private sector projects remains weak at around 55 per cent, with merchant tariffs remaining depressed at Rs 2.5 per unit (kWh). Options on the table include converting the stressed assets to national assets and seeking the assistance of state-run NTPC Ltd to operate these plants once they are taken over by banks.
The Aayog is planning to undertake a study for determining the sector-wise capital requirements to deliver the targeted energy supply by 2040, and recommend the strategy to attract the required capital. As per the draft energy policy, Ministry of Finance would lead the initiative to promote the investment opportunities and attract investors, both in India and abroad.