Renewable Energy Refinance Scheme: SBP enhances financing limit to Rs 2 billion

KARACHI: The State Bank of Pakistan (SBP) has enhanced the financing limit of Renewable Energy Refinance Scheme by 100 percent from Rs 1 billion to Rs 2 billion aimed at further promoting and increasing the use of renewable energy.

The SBP Financing Scheme for Renewable Energy was announced in June 2016 with an aim to help address the challenges of energy shortages and climate change in the country. Since the introduction of the scheme, total outstanding financing under the scheme has surged to Rs15.6 billion for 217 projects having potential of adding 292 MW of energy supply.

According to details issued by the SBP Wednesday, in the light of the feedback received from stakeholders has enhanced the scope of its Refinance Scheme for Renewable Energy. As per revised scheme the cumulative financing limit has also been increased from Rs.1 billion to Rs.2 billion. While, the size of the project established by vendor or energy sale company has been enhanced from 1 MW to 5 MW.

In addition, SBP has allowed financing under category III of the scheme to solar and wind based energy sale companies established specifically for the purpose of undertaking solar & wind based projects to sell electricity to ultimate owners/users. Such companies will not be required to be certified under Alternative Energy Development Board (AEDB) Certification Regulations.

However, the financing banks and DFIs will ensure that the vendors/suppliers contractors of an energy sale company are certified under AEDB Certification Regulations.

Banks and DFIs will also ensure that disbursements are not made to the energy sale company directly; instead payments are made to the manufacturers, suppliers or contractors in line with underlying contracts and construction milestones.

With some revision in this scheme SBP is expected to not only attract fresh local and foreign investment in the sector but also facilitate production of clean energy in the country, helping in managing climate change.

Initially, the scheme comprised of two categories. Category 1 allowed financing for setting up of renewable energy power projects with capacity ranging from 1 MW to 50 MW for own use or selling of electricity to the national grid or combination of both.

Category II allowed financing to domestic, agriculture, commercial and industrial borrowers for installation of renewable energy based projects/ solutions of up-to 1 MW to generate electricity for own use or selling to the grid/distribution company under net metering.

Later, in July 2019, SBP introduced a new Category III for facilitating financing to vendors/suppliers for installation of wind and solar systems/solutions of up to 1 MW. SBP also launched a Shariah complaint version of the scheme in August 2019.

Now some new features have also been added under Category III of the schemes and the cumulative financing limit of a vendor, supplier or energy sale company has been enhanced from Rs. 1 billion to Rs. 2 billion.

Maximum capacity of a single renewable energy project/solution, that a vendor, supplier or energy sale company may install, has been enhanced from 1 MW to 5 MW. A vendor may install more than one renewable energy source based projects of up-to 5 MW each for a single ultimate user with condition that any two or more of such projects for a single ultimate user must not be located contiguously.

A vendor, supplier or energy sale company may avail maximum grace period of 06 months in the loan repayment schedule from the date of first disbursement for installation of a renewable energy source-based project/solution of up-to 5 MW each for an ultimate user.

Banks and DFIs will clearly mention the "grace period" in the repayment schedule to be submitted to the concerned office of SBP-BSC (Bank) at the time of availing refinance. Principal amount of loans will be repayable in quarterly or half yearly installments after the prescribed grace period, if any.

Further, in addition to leasing of renewable energy equipment and selling of electricity, certified vendors or suppliers will also be allowed to install wind and solar projects on deferred payment sale or rental basis, with payment terms in the form of regular installments or regular rental payments from ultimate users.

In order to avail refinance in such sale or rental transaction arrangement, the financing bank and DFI will be required to submit a refinance request to the relevant SBP BSC office.

SBP has clarified that repayment schedule cannot go beyond the period of energy sale/lease/installments sale/rentals as per the agreement between a vendor and ultimate user.

In case of early completion or termination of agreement between vendor, supplier or energy sale company and ultimate user, the vendor is required to settle the full amount of financing it has availed in respect of that ultimate user, within three working days.

Copyright Business Recorder, 2020