Financing of Solar Projects in India

Financing of Solar Power Projects in India:

Solar project developers have come out of the challenges of technology and ground work. Financing of Solar Power Projects still remain as a challenge in Indian scenario. Financiers usually look for project performance operational data for 4-12 months. Since Solar is more a subjective generation of power varying with Sun-Radiation during four seasons in a year, its very difficult to benchmark a particular season. So financiers have to wait for minimum completion of 12 months to take a study of average generation during all four seasons.

Financial closure for Solar projects within the required time frame / dead line, as suggested by authorities, has been a major challenge for the country like India. Where regular debt funding by bankers is at much higher rate of interest and solar power projects are not having special class of interest bearing debt.

Only faster financing mechanism would enable developers to complete the projects within the specified time frame. MNRE has already set stringent deadlines for JNNSM projects. Currently securing the required funding takes more than 9 months, which in meantime reduces timeframe of installation of the project.

The first set of solar projects are models of innovative financing rather than efficient technology. Most of the developed solar projects in India have scouted for arranging overseas funding, exim bank funding, PE funds, VC funds and there remain the survival, due to lowest cost of interest. Inbuilt condition of exim funding / overseas funding is to purchase major equipments, panels, fitting etc. from financier’s origin country, which inturn boost their local industrial development.

Govt. of India is allocating solar project capacities thru JNNSM phase-I and phase-II, state govt. also allocating solar project capacities thru various state PPA schemes. During demand of funding by Solar PV projects, banks have adopted a wait-and-watch policy to learn from the experience of other financiers. The government should try to incentivise investments in the sector and shall determine to implement a large number of projects for green and clean energy generation in India. Reluctancy of bankers to fund solar power project is due to their wide exposure as per RBI prescribed exposure of 15% for infrastructure projects and 40% to power sector lending.

Despite all these challenges the Solar Power Generation industry in India is poised for significant growth in the near future. The high insolation levels will ensure consistent generation and encouraging financiers to enter the segment. So far, their experience has been mixed, but there still exists a major financing opportunity in the solar power sector.

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CA Yogesh
Director
BWPM Co.

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