With the deadline for financial closure for projects under the Solar Mission fast approaching, there have been a number of stories in the media in the last couple of days talking about challenges in financing for projects both in the Jawaharlal Nehru National Solar Mission and the Gujarat state mission.
Based on the request from our community we will analyze each of these reports in details and provide our reading of the situation as we see it on the ground in our numerous interactions with various stakeholders in the ecosystem.
Most of the companies planning to set up solar power projects in Gujarat seems to have been struggling hard to get adequate finance from the lenders for their projects. Inexperience in executing solar power plants and improper due diligence of the project have led the bankers to remain passive in giving finances to these companies.
…..Issues like lack of documentation, absence of EPC contractors, suppliers of equipment and unavailability of land were some of the key issues discussed at the seminar.
Inexperience in the solar area is a problem definitely. However with the emergence of a number of good bankable EPC companies it is not a challenge anymore with the right EPC . The developers however want to go with the cheapest option and not the most bankable option.
While EPC and equipment are not a challenge anymore, land does remain a concern. Gujarat has offered land in Solar park which addresses that issue.
“Bank finance is extremely required for setting up a solar power plant. The installation of a solar unit with capacity of one megawatt involves an investment of around Rs 12-13 crore. This is quite huge for a small entrepreneur, who has just ventured into solar power business. Banks do provide finance, but that is mostly considering the company strength and not taking into account the project strength. This means if the company is strong enough in other businesses, they will lend money for solar project. But for the beginners it is very difficult,” said a solar power projects consultant from Mumbai.
However, bankers maintained that the financing was not an issue as long as the companies comply to the required documentation. “There are issues pertaining to due diligence of the project, lack of track record, no tie-up with the EPC contractor to execute the project and supplier of the equipment. Else, the finances are available for those meet the desired requirements of the lenders,” said K S Popli, director, Indian Renewable Energy Development Agency (IREDA).
While it is true that non-recourse project funding is a challenge, it is much easier for projects in the Gujarat policy given the fixed tariff structure.
Panchabuta is aware of at least two developers who have told us that they are very close to obtaining non-recourse project financing, both from Indian financial institutions. Further, we tend to agree with Mr. Popli’s assessment above.