DFCC’s pioneering role in development of renewable power in Sri Lanka
July 8, 2013
DFCC bank is one of the oldest development finance institutions in the world and ranks as one of Sri Lanka’s top banks with sustained profits and consistent growth. Set up by an act of Parliament in 1955, the Bank has pioneered many innovations in Sri Lanka’s financial sector, and has been the financier of trail blazing Lankan entrepreneurs. DFCC Bank and it almost wholly owned retail banking subsidiary, DFCC Vardhana Bank, together functions as an effectively integrated entity in the financial services sector offering the full range of business and personal banking services seamlessly through a unified distribution channel. The following is an interview with Kapila Subasinghe, Vice president, Corporate Banking of DFCC on developing the Renewable energy industry.
Q – DFCC Bank is well known for developing the renewable energy sector in Sri Lanka. How did it start?
The Government of Sri Lanka opened up the energy sector to private investments under BOO or BOT basis in 1990’s after recognizing the role the private sector can play to reduce the deficit between demand and supply. During this period, DFCC identified the potential of the industry to support the growth in the country’s electrification, and took the initiative to support the first small scale grid connected hydro project- 0.96 MW Hydrotech Dikoya. Although the regulatory and environmental framework was not fully in place for such investments, DFCC supported this venture with debt as well as equity. The project faced many initial difficulties including cost and time overruns. DFCC stood by the promoters of the company and funded cost overruns in two occasions as well as infused additional equity to ensure that this pioneering venture was a success. This eventually paved the way for an industry which is now recognized internationally.
Q – DFCC Bank was the Apex Agency for several credit lines to develop sustainable energy. How did you fair?
Sri Lanka’s electrification rate today is over 90%. In 1996, it stood at only 42%. It is during this time, that the World Bank and the Global Environment Facility extended a line of credit to Sri Lanka named Energy Services Delivery (ESD) Project to promote private sector driven sustainable energy development initiatives. Main areas of focus were grid connected power projects such as mini-hydros and electrification of off-grid households and communities using renewable energy technologies. Considering DFCC’s track record, including the commitment to make Dikoya a success and the in-house capabilities of its staff to manage a Project of this nature, DFCC Bank was selected to implement this line of credit, which was the first of its kind extended to Sri Lanka. This was followed by the Renewable Energy for rural Economic Development (RERED) Project.
Both ESD and RERED Projects were managed through an Administrative Unit (AU) set-up within DFCC Bank which channeled funds and grants through participating banks to a large number of sub-projects implemented countrywide. These two lines of credit went on to fund 74 mini-hydro, biomass and wind projects with a cumulative installed capacity of 216.3MW. In addition, 131,528 households received electricity from Solar Home Systems, and a further 7,952 households through community based electrification schemes such as village hydros. As a result, today the small scale renewable energy industry is very well established, and more than 330MW of installed capacity is feeding the national grid. In 2012, 6.2% of the electricity fed to the national grid originated from such projects.
Q – What are some of the other benefits of these credit schemes?
There are very many benefits, but if I’m to highlight one aspect, it is the international recognition received for the development of the renewable energy industry in Sri Lanka. The ESD and RERED Projects themselves are now recognized as model projects for private sector driven renewable energy resource development in other emerging economies.
DFCC has conducted several “Study Tours” in Sri Lanka for countries such as Uganda, Ghana, Nepal, Philippines and Cambodia in order to share our experience and expertise in renewable energy development. Contacts and partnerships developed during such tours have been mutually beneficial for downstream business development. Several of the pioneering mini hydro developers have successfully exported their technology in the form of consultants and contractors resulting in foreign currency earnings to Sri Lanka. One local turbine manufacturer is exporting locally manufactured hydropower machinery to overseas projects demonstrating the technological development Sri Lankan mini hydro sector has witnessed.
Further, the rural electrification element of ESD and RERED Projects had a direct impact on the living standards of the households and the communities who benefitted from the Project. The availability of off-grid electricity lead to the replacement of a common household hazard – the kerosene wick lamp – with clean, safe and brighter electrical bulbs.
Q – Do you have plans to assist individual connectivity for renewable energy generation such as solar?
The Net Metering concept is gathering momentum and there are several service providers offering the necessary technical solutions for such installations in homes. Our retail banking subsidiary, DFCC Vardhana Bank, offers financial assistance for such solutions through home improvement loans. DFCC Bank will provide the technical advice and guidance.
Q – What are your future strategies for continuous assistance in developing this sector?
The development of indigenous renewable energy sources has lead to many benefits both socially and economically. The country has benefitted by way of development of local technical skills, employment creation, technology transfer, saving of foreign exchange and protection from fossil fuel price volatility to name a few. It is a sector which needs continuous support in terms of long term funds and guidance of experts.
We are now looking beyond electrification and more towards the energy efficiency aspect. Most commercial establishments are now carrying out energy audits to identify areas of improvements. Being energy efficient will directly add to the bottom line of any organization, and help to increase their competitiveness in both local and overseas markets. Exporters will especially benefit from energy efficiency initiatives both by passing on the saving to the customers, as well as improving their corporate image by reducing the Carbon Footprint. With the concurrence of the Government we are discussing with a multi-lateral agency to secure a line of credit to fund energy efficiency solutions to businesses. When this is in place, DFCC will be able to support enterprises to implement solutions to reduce energy consumption or shift to renewable resource based electricity generation.