There has been a lot of noise around the financing of solar projects in the last couple of days. We have analyzed each of these stories in detail and will continue to do so.
According to the latest Indian Solar Compass, India’s solar industry has got off to a successful start this year, with a large number of power purchase agreements (PPAs) having been signed. However, bankability continues to be an issue.
This is definitely an issue at this stage more so for projects under the National Solar Mission than those under the Gujarat policy with fixed tariffs.
…..While there is enormous potential to install solar in India, the authors of the April edition of the Indian Solar Compass state that bankability is an issue for the majority of the projects with signed PPAs.
“Project developers are finding it difficult to attain financial closure for projects under the NSM as well as the Gujarat Solar Policy. Especially difficult is obtaining non-recourse debt financing,” states the report.
It adds that project financing is difficult due to the perceived level of risk by lenders. The report continues: “With a lack of reliable irradiation data, it is difficult to calculate the generated output and therefore, the return on investment. There are so far only a few projects in the country that provide actual generation data as a reference.
“In addition, the majority of developers are new entrants with no track-record to prove their ability to build and operate solar power plants. Indian commercial banks are unsure about the generation capacities of power plants and hesitant to extend debt to projects.”
What is interesting to note is that bankers and financial institutions that we have spoken to have clearly indicated that from a tariff and PPA perspective, all projects signed under the Gujarat policy are bankable.
However, financial closure continues to be a challenge for about 60% of the projects that have bid pretty low with discounts above 550 paisa in the solar pv bidding under Jawaharlal Nehru National Solar Mission.
Bankers and financial institutions have told us that non-recourse financing is possible for projects under the Gujarat solar policy and at least about 10-15% of the projects in the National Solar Mission with the higher tariff structures.
The bigger challenge in financial closure seems to be that of bankable detailed project reports and the inexperience of the developers in the solar area. However with the emergence of a number of good bankable EPC companies the inexperience and the lack of track record of the developers isnt as much of a challenge anymore. The developers however want to go with the cheapest option and not the most bankable option which is currently a very big challenge to financial closure.
As Mr. K S Popli, director, Indian Renewable Energy Development Agency (IREDA) said recently, “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.”