Know all about solar energy loans: pros and cons

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Earlier in July this year, the Reserve Bank of India (RBI) had finally decided to act on the recommendation of a committee, which allowed giving loans to individuals to set up off-grid solar and other renewable energy solutions for households as a priority sector loans. This decision could enable small solar power generation in villages which, according to some estimates, is already catching popular attention.

As of this year, among other fund providers, Aryavrat Grameen Bank, a Regional Rural Bank sponsored by Bank of India, provided finance for 52,000 Solar Home Systems in Uttar Pradesh, while Selco has provided 135,000 solar home systems in Bengaluru and other areas.

But even behind all this goodwill, there lies some hard facts which are hampering the overall set-up. The priority sector lending has not been managed very well, if data about recoveries is anything to go by. As against recovery of over 96 per cent for most housing finance companies, recoveries in respect of direct agricultural advances stood at only 76 per cent in 2008, and they continue to fall.

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These black marks can be blamed on government’s own policies, which has often taught honest rural borrowers to become dishonest and not to repay the amounts borrowed. Schemes like loan melas and loan waivers actually contribute significantly to the growing profligacy among agricultural borrowers and most of them are not marginal income borrowers.

There is another problem with the manner in which loans for solar and other renewable energy are being processed. And it has to do with policy formation. Solar power is a great idea for a sun-soaked country like India. But it works only when the sun is up and shining. When the sun hides behind clouds, solar power generation becomes poor. At night time solar power generation is not possible, and the only way households can harness solar power is by storing it in batteries.

Unfortunately, batteries are expensive, and are made from materials that are environmentally toxic. The government’s decision to levy a 30 per cent import duty on batteries only protects domestic producers and encourages the manufacture of environmentally toxic batteries in the country. It also pushes up solar power storage costs. It is not the best way of offering cheaper loans on inflated project costs.

Aadeetya  S

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