R-Power offers 250MW renewable capacity in lieu of US bank loan

Reliance Power Ltd (R-Power), the power generation company of the Reliance- Anil Dhirubhai Ambani Group (R-Adag), has committed to the Export-Import Bank of the US (Ex-Im Bank) that it will build 250MW of renewable power generation capacity in exchange for receiving preliminary approval from the bank for a $600 million (Rs2,802 crore) loan guarantee for its ultra-mega power project at Sasan, Madhya Pradesh.A press release issued in Washington by the Ex-Im Bank on Wednesday stated that the bank's board "approved proceeding to a full financial, technical and environmental review of an application for financing of US exports to India's Sasan coal-fired power plant after R-Power entered into a memorandum of understanding (MoU) with it to build a renewable energy facility and agreed to cap the carbon emission from the Sasan project at 850g of carbon dioxide per kWh, the statement said.

The application is still subject to final review and approval, it added. An R-Power spokesperson confirmed the signing of the MoU.

A person close to the development at R-Adag, who spoke on condition of anonymity, said that the renewable portfolio was likely to consist of wind and solar power.The person also mentioned that the wind and solar power facilities were likely to come up in Maharashtra and Gujarat.

Though R-Power did not disclose any investment figures, industry experts state that the approximate investment per MW of wind power is Rs7 crore, and Rs14-16 crore per MW of solar power, depending upon the technology used.

The loan guarantee was considered by the Ex-Im Bank as it supports R-Power's purchase of coal mining equipment worth $310 million from Bucyrus International Inc., a Wisconsin, US-based company.

On 24 June, the US federal-government agency that provides financing to make American exports more competitive, had decided against lending to R-Power based on emission concerns raised by environmental groups. They said that by doing so, the lender would contradict its own policy, which required the Ex-Im Bank's board to assess the potential carbon footprint of projects it considered for loans.

Soon after the board's earlier decision, PTI had quoted Tim Sullivan, chief executive officer of Bucyrus, as saying that the decision was equivalent to throwing "1,000 jobs in the ditch". This was followed by Democratic lawmakers in Wisconsin appealing against the rejection to protect jobs in their state.

The bank's statement added that it considered the information it received about the effects of Ex-Im financing on US energy exports and related employment.

"We are pleased that Reliance is making this commitment to renewable energy, which allows us to sustain US jobs and promote both conventional and renewable energy exports," said Fred P. Hochberg, chairman and president of Ex-Im Bank.

The person familiar with the development at R-Adag cited earlier, also said that the US Ex-Im Bank loan would be beneficial for the company as it would bear an interest rate that was 4-5% lower than the market rate.

"Though R-Power has achieved financial closure for its Sasan project, it may not have drawn all the money for it. The company could utilize cheaper funds from Ex-Im Bank to substitute some of its other high-cost borrowing," said a power sector analyst with a domestic brokerage firm, who did not want to be named.

R-Power was awarded the project by the Indian government in 2007 to build a 3,960MW thermal power plant at an estimated investment of Rs20,000 crore.