REC, which has been bestowed with the SKOCH ESG Award 2024 in the ‘Renewable Energy Financing’ category, has been mandated with deepening India’s infrastructure investments pipeline. As a significant player in India's clean energy transition, it anticipates a substantial expansion in its renewable energy portfolio with projections indicating growth to 10 times its present value and reaching over Rs 3 trillion by 2030. To learn how many green energy (solar, wind, green ammonia, green hydrogen, etc) projects have been financed to date, whether there is a need to give transmission the same benefits as green finance and gain an insight into which industry segments will see maximum growth in 2024, R SRINIVASAN spoke to Vivek Kumar Dewangan, Chairman and Managing Director (CMD), REC. Excerpts: You have received many accolades, including awards for the Most Sustainable Maharatna Leader and Most Promising Business Leaders of Asia. What course correction has REC undertaken since you took over? After joining REC in May 2022, the focus was on a new business strategy of a shift towards renewable energy (RE). REC's commitment to renewables is evident in the massive 533 per cent year-on-year growth in sanctions of FY24 for RE projects. We are investing across various renewable energy segments like large hydro, pump storage, solar, green hydrogen, wind and hybrid projects. The Government of India’s Ministry of Power allowed us to diversify into financing of non-power infrastructure and logistics sectors and permitted us to sanction up to 1/3rd of our loan portfolio to the infrastructure and logistics sectors to contribute to the accelerated development of our nation. In FY24, REC sanctioned Rs.405.69 billion to non-power infrastructure sectors like roads and expressways, metro rail, airports, IT communication, social and commercial infrastructure (educational institutions, hospitals), ports and electromechanical (E&M) works with respect to the steel and refinery sectors, etc. We are however selective in choosing non-power infrastructure projects and the book will be built up gradually over time. We have given topmost priority to the resolution of NPAs while at the same time ensuring no fresh NPAs are created. No new NPA has been added during the past nine consecutive quarters and the net NPA has come down to the 0.86 percent level in March 2024 from 1.45 per cent in March 2022. By 2025, we expect to be a zero net NPA company. Last but not the least, REC's focus has been on lowering the cost of funds for us, for which we have enhanced our foreign currency borrowings and used innovative cross-currency hedging instruments to lower costs on a fully hedged basis. In FY2024 alone, we were able to reduce the overall cost of funds by 15 bps with this strategy. This has enabled REC to add to profit margins. REC has signed an MoU with the National Investment and Infrastructure Fund (NIIFL) to collaborate on funding solutions for RE projects as well as large-scale infrastructure projects in India. What projects have been planned pan India and what risk-sharing mechanisms are in place for such large-scale projects? After the approval of the Ministry of Power for financing the burgeoning non-power infrastructure and logistics (I&L) sectors, REC has executed MoUs with various institutions including NIIFL to reach out to the key players in the infrastructure space. We are following the harmonised list of infrastructure sectors issued by the Ministry of Finance for this purpose. Risk assessment is crucial for such projects – we are effectively using the services of sector experts and agencies to appraise such projects besides having a focused team for such appraisals. Apart from government funding, which is one of the biggest sources of funding for infrastructure finance, discussions are going on for blended finance. What are the pros and cons of such assistance in funding infrastructure projects in India? REC is accessing both domestic and international markets to raise funds with the best possible cost and maturity profile. We are also hedging our foreign currency borrowings fully and providing competitive loans to projects. Further, we are raising funds from various multilateral development banks and institutions. We are exploring some blended finance facilities, too, which are likely to be slightly lower in cost for us. Currently, we are lending only in INR. Recently, REC has obtained RBI’s approval to set up a subsidiary in GIFT City, which will further enable REC to diversify its funding source and lend in foreign currency. India has had an unhappy experience with infrastructure financing institutions. IDBI and IFCI that began for this purpose ended up funding only industrial projects. IDFC also didn't make much progress. Even NIIF started with a bang and now has a truncated mandate. Can one hope that, with REC, India has finally cracked the infrastructure financing conundrum? Infrastructure project financing modalities have evolved significantly over the years with the development of various new models of PPP and concession models, resulting in better project development and execution. The risk at the execution level has been diversified among the project executioner and awarding agency, which has led to timely project completion. Further, for projects where revenue uncertainty was felt, the Government had come up with the hybrid annuity model (HAM) that protects the executioner from volatility of revenue, as in NHAI road projects. So, we are carefully picking up projects where revenue streams are certain and the awarding agencies are actively backing them. We are targeting good asset quality and entities with better ratings while the revenue cash flow should be sufficient to meet our repayment obligations. Can you elaborate upon criteria used to evaluate financial viability and long-term sustainability of renewable projects before providing financing? All renewable projects are evaluated on three main criteria: First, all proposals for renewable projects should fit in the Panchamrit plans of the Government of India pertaining to energy transition goals to be achieved by 2030. Second, we assess the reliability, efficiency and cost-effectiveness of the RE technology and equipment being used in the project. This includes evaluating the track record of the technology provider, potential for technological advancements and equipment warranties. Third, we conduct a comprehensive financial analysis, including cost-benefit analysis, to determine the project's economic feasibility. This involves assessing the total project cost, potential revenue streams (electricity sales, renewable energy credits), operating expenses and expected returns on investment. How many green energy projects have been financed to date and what is the outlook? REC currently has a renewables loan portfolio of Rs.389.71 billion as on 31 March 2024, which is about 8 percent of our total loan book. It is among the leading financiers of renewables. And in line with the country’s energy transition goals, we have embarked on a thrust in this sector and plan to be a significant player with a green energy finance loan portfolio of about 30 per cent of the total loan book (about Rs.3 trillion) by FY2030. In FY2024, REC sanctioned Rs.1,365.16 billion worth of loans to renewable projects, achieving a 533 per cent y-o-y growth against an aggregate overall sanction growth of 34 per cent y-o-y, which speaks of the priority we accord to green energy financing. During FY2024, we approved a variety of green energy projects, including solar capacity of 4,423 mw; wind capacity of 917 mw; pumped storage capacity of 5,450 mw, about 5,750 e-buses; and 900 mtpd of green hydrogen. We have also approved projects that are hybrids and provide firm and despatchable RE power. All these projects are generating green energy and thus helping to reduce the carbon footprint. REC signed a Euro 200-million loan with German bank KfW to propel distribution sector reforms to help discoms improve their operational efficiencies and financial sustainability. Is there a need to allow the transmission sector more finance and give it the same benefits as green finance? Upgrading transmission lines is essential to integrate RE sources with variable generation patterns. Investment in the transmission sector can optimise efficiency and reduce AT&C losses, leading to a future-ready transmission system that is essential to integrate large-scale RE into the grid. In FY24, we have also sanctioned Rs.196.90 billion in the transmission sector. In view of REC issuing the largest-ever Euro-Yen issuance in South and Southeast Asia and its 11th venture into the international bond market, how have green bonds been performing here? Also, what should be done to attract more investors into the bond markets? The market is experiencing significant growth. Several green bond issuances have garnered international attention, showcasing confidence in the market. Developing clear green bond issuance standards and robust reporting frameworks, including ESG norms, will increase investor confidence. Incentives, such as tax breaks or subsidies, can make green bonds more attractive compared to traditional bonds. Raising awareness about green bonds and their environmental benefits is crucial to attract retail investors in India. Ensuring green bond-financed projects with a tangible positive environmental impact will appeal to environmentally conscious investors. We need to evolve a broad-based green taxonomy to attract more investors from abroad. REC received the Scope Excellence Award, underscoring its commitment to digitalisation of the workplace and promotion of best practices in establishing a paperless office. What latest technologies has it adopted? At REC, technology serves as an enabler of efficiency, transparency and accountability. REC has implemented electronic offices in all its offices across India and its subsidiaries, making it one of the first public-sector corporations to go paperless. IT-based platforms launched by REC and its subsidiaries enable tracking of the implementation and impact of the schemes of the Government of India. ERP is being revamped particularly, on a par with industry practice. As REC’s loan book exceeds Rs.500 billion, which industry sectors will see maximum growth in FY2025 and going forward? The business segments in conventional power generation transmission and distribution are witnessing decent traction owing to the energy demand in a growing economy. With the fast pace of addition of renewable capacity in the country and the target to have 500 gw installed capacity from non-fossil sources by 2030, REC aspires to become a significant lender to renewables in the country. In FY24, as mentioned, our renewable sanctions increased by 533 per cent to Rs 1,365.16 billion. In FY25, we are set to surpass the previous year. With a robust pipeline in renewables, our disbursements to the segment are set to grow much faster. By 2030, we expect our loans to double to over `10 trillion with a renewables portfolio of 30 per cent (Rs.3 trillion). Core infrastructure loans may be around 10-20 per cent and the balance in the conventional power sector, covering the entire value chain of generation, transmission and distribution. Congratulations!Great!Fixed!