Bhutan has ambitious goals in the renewable energy sector, aiming to generate 20,000 megawatts of hydro and solar energy by 2040. However, securing the necessary financing for these targets is an increasing challenge. Bhutan has primarily relied on India for funding, but rising lending costs from Indian commercial banks are proving to be a barrier. This issue was highlighted at the recent Bhutan-India Renewable Energy Roundtable meeting.
The Druk Green Power Corporation (DGPC) said that, independently, it could achieve a AAA rating, which would facilitate access to finance at lower interest rates.
However, Indian commercial banks currently assign DGPC a BBB rating, indicating that they consider lending to DGPC relatively risky.
As a result, even if loans are secured, DGPC faces slightly higher interest rates than higher-rated companies.
Initially, Bhutan funded its hydropower projects through grants from the Asian Development Bank and the Indian government.
However, with Bhutan now investing heavily in various renewable energy projects, access to finance has become critical.
In 2015, the State Bank of India provided two and a half billion rupees for the construction of the Nikachhu Hydropower Project.
Recently, DGPC signed another loan agreement with the same bank for 14 billion rupees, at an interest rate exceeding 10 per cent.
According to DGPC, lower interest rates would not only benefit the corporation but also reduce energy tariffs for consumers in both Bhutan and India.
Ugyen Namgyal, Director of Corporate Services at Druk Green Power Corporation said “Currently, for the purpose of the credit rating that we get from India, DGPC is triple B rated. So, there is a difference of, in the interest rate, anywhere between the ranges of 300 to 400 basis points.”
At the roundtable meeting, DGPC suggested that it should receive a higher credit rating, comparable to Indian companies.
Ugyen Namgyal said “And the other thing was related to tenure. So, infrastructure financing normally, if you look at the project, hydropower project, construction period anywhere ranges from 4 to 10 years. So, then the loan tenure is, commercial loans are slightly shorter. It is up to 15 years. So, the loan repayment period then becomes very aggressive and very short.”
As Bhutan aims to position itself as a leader in sustainable energy, addressing these financing challenges will be crucial to unlocking the potential of its abundant renewable resources.
Samten Dolkar
Edited by Sherub Dorji
