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Solar power projects could trip as poor prospects keep financers away

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.

Solar power projects could trip as poor prospects keep financers away

 Financers are finding the tariff for solar power projects under the central policy unattractive as aggressive biddings by the developers have resulted in lower returns on the investments, officials said.

This is true for a lot of projects have bid pretty low. Bankers that Panchabuta spoke to have told us that this is applicable to about 60% of the projects that have made aggressive bids with discounts above 550 paisa.

Further, there are some very well-known developers like Azure Power, SunEdison, Mahindra Solar One, that are  in that category of bidders.

Financial institutions’ cautious scrutiny of the projects has created concerns among the investors. In Gujarat alone, at least 450 MW of projects are expected to miss the deadlines as developers have failed to achieve financial closure despite the attractive tariff of 15 per unit for the first 12 years and 5 per unit from 13th to 25th year for solar power units based on PV technology.

…..”We do not have historical data available on the solar radiation and the information from various research agencies are not proven yet. Also, financers’ experience with wind power project developers in the initial few years was not encouraging. Hence, it is difficult for the institutions to fund the solar projects,” said SBI Capital Markets senior vice president Rajat Misra. He added that SBI Cap is studying proposals for 70-80 MW of projects carefully.

Developers that Panchabuta spoke to, that have either secured financing or are close to it for their projects, have mentioned the bigger issues for projects in Gujarat has been land, technical and project related issues. Further, bankers have told us that most projects do not have bankable DPRs. They have further told us that some of the financials seem rather ambitious with very high CUFs which the bankers are not comfortable with and want to be cautious about, something that Panchabuta can understand. The choice of EPC contractors in a lot of projects is not up to the bankers expectations.

On Monday, members of Solar Energy Association of Gujarat (SEAG) invited representatives of financial institutions and government officials in Gandhinagar to establish dialogues for fund raising. SEAG chairman Pranav Mehta stated that financial institutions should process loan applications from the solar project developers at the earliest to ensure that renewable energy projects do not get derailed. It is learnt that developers for less than 200 MW of projects have managed to get funds for their projects.

Project developers in Gujarat plan to pump in over Rs 15,000 crore to commission 950 MW of solar power generation capacity. They will require close to Rs 10,000 crore of loans from the financial institutions in next couple of months.

The principal secretary for energy and petrochemicals of government of Gujarat, DJ Pandian said: “Out of total 950 MW of proposed solar projects, we are certain about 300 MW of capacity creation by end of 2011 while developers for 200 MW need push from the financial institutions and the government machinery. We are concerned about developers who will miss the deadline for 450 MW of projects.”

Financial institutions will also need to educated about solar projects and the risks associated . Efforts in this area must continue. Most recently, the Global Solar Investment Summit  was one such initiative which had an over whelming response from the community.

 Mr. Pandian has given a great summary of what to expect and we believe that about 300-400MW will come up by the end of this year.

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