India is witnessing massive growth in its energy infrastructure to meet the demands of its rapidly growing economy. Large scale projects involving renewable energy such as solar and wind farms as well as traditional energy sources like coal and natural gas require heavy investments in construction equipment.
Financing the purchase or using a loan to lease of the necessary machinery is a key component for companies undertaking these capital intensive projects. This blog post explores the energy project equipment finance options available for construction machinery needed for India's booming energy sector.
Loans for Energy Construction Equipment
Undertaking large energy projects like building renewable energy farms or pipelines requires heavy machinery like excavators, dump trucks, bulldozers, road rollers, cranes, etc. The cost of purchasing this specialised equipment runs into crores of rupees. Taking on loans for energy construction equipment is often the most viable way to acquire the needed machinery without draining your working capital.
Financial institutions provide attractive financing schemes that may cover up to 70-80% of the cost of machinery. The tenure of loans for energy construction equipment can range from 2 to 7 years or more, with interest rates typically starting from 10% per annum for well-established infrastructure and energy companies. These loans for energy construction equipment allow your capital to be invested in the project itself rather than tying it down in equipment.
Loans for energy construction equipment are secured through a collateral agreement. This gives the financial institution rights over the equipment in case of payment default. However, you retain ownership and possession as long as regular repayments are made as per schedule. Higher loan-to-value ratios i.e. financing 80% or more of the equipment cost, is usually provided for essential assets like generators, earth moving machinery, material handling equipment, etc.
Key Benefits of Loans for Energy Construction Equipment
- Own machinery without large upfront payments
- Conserve working capital for other operational needs
- Fixed EMIs and tenure brings stability
- Can be availed along with business loans for the project
Lease Equipment with Machinery Finance for Energy Infrastructure
When it comes to energy infrastructure projects, purchasing machinery outright can be costly and may not always be the best long-term solution. Instead, leasing construction equipment with a short-term energy project equipment finance or loan can offer a flexible and cost-effective alternative.
Leasing allows you to avoid the risks associated with owning ageing equipment, which can become obsolete as technology advances. New machinery with better fuel efficiency and enhanced capabilities are constantly entering the market, and leasing ensures that you can always access the latest models without being burdened by outdated equipment.
Leasing through energy sector equipment financing is especially beneficial for short-term projects, where you only need the equipment for a specific period, typically under 3 years. With an operating lease, you pay a fixed monthly rental and return the machinery at the end of the lease term. This option eliminates the need for maintenance and repair costs, as the equipment owner handles those responsibilities.
For longer-term projects, lease agreements may extend from 3 to 7 years. During this period, the majority of the machinery’s value is covered by your lease payments. At the end of the term, you might even have the option to purchase the equipment at a reduced price, giving you the flexibility to decide if you want to continue using the machinery or upgrade to newer models.
By choosing machinery finance for energy infrastructure, you can focus on your energy infrastructure projects without the financial strain and risks associated with owning expensive equipment. This approach ensures that your operations remain efficient and up-to-date while saving on upfront costs.
Key Benefits of Leasing Construction Equipment
- No large down payment
- Fixed manageable monthly rentals
- No risk of equipment becoming outdated
- The owner handles maintenance and insurance
- Flexibility to return and swap assets
- No hassle of selling used equipment
Conclusion
India aims to rapidly increase its non-fossil fuel power capacity significantly by 2030. To achieve this clean energy target, estimated investments of billions would be needed. This presents massive opportunities for companies providing construction and related services to the energy industry.
Heavy investments in equipment fleets will be essential to deliver the government’s renewable energy and oil & gas infrastructure expansion plans. While self-financing is an option, loans for energy construction equipment and lease facilities can optimise your capital outflow. Choose the ideal financing route based on factors like tenure, cash flow cycles, tax benefits and balance sheet considerations. Partnering with specialist financial institutions helps acquire the necessary machinery without excessive impact on working capital.
A well-structured energy sector equipment financing can help channel your capital to where it matters most - swiftly and efficiently executing energy infrastructure projects. This, in turn, powers the long-term growth of your construction business.
