Accordingly, letters (LOUs) received from three state-owned non-banking financial institutions - Power Finance Corporation, REC and IREDA can be used as bank guarantees in renewable tenders.
New Delhi (Natural Energy News): As a major relief for the renewable energy sector in Covid's time, the Center has exempted project developers from depositing earnest money (EMD) contracts with government agencies.
Accordingly, the Letter of Undertaking (LOU) obtained from the three state-owned non-banking financial institutions - Power Finance Corporation, REC and IREDA - can be used as a bank guarantee in renewable tenders. LOUs can be secured against securities.
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The Ministry of New and Renewable Energy is thinking of an option to reduce the financial pressure presented by the earnest deposit (EMD) and performance guarantee (PBGs) developers. The changed course is considered the best suit.
The Ministry has given time to the implementing agencies like SECI, NTPC, NHPC to give their views on its proposal before the new system comes into force.
Sources said that the Ministry of Power has written to these implementing agencies suggesting that they may accept EMDs as bank guarantees or write 'orders on payment' for renewable tenders.
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'Payment on Order' means an undertaking made by these financial institutions (PFC, REC and IREDA), which will pay in the event of default of a renewable energy generator in fulfilling tender conditions or power purchase agreement.
Thus, the new instrument would operate in the same way as a bank guarantee but would eliminate the need for developers to prove their credit to banks before obtaining a bank guarantee.
Changes have been made with the aim of ensuring ease of doing business in the renewable sector as developers will now have another option to meet the tender requirements.
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