Low Cost Financing Options for solar projects
While there is a remarkable achievement in the first phase of JNNSM for achieving close 10 the 1GW target of solar power, the investors are exploring the ways and means to achieve low cost power generation from solar. The high upfront cost of solar projects leads to almost 70% cost component in terms of financing cost in the overall cost of electricity generation through solar. The investors in solar projects have typically four options for financing.
a. Non recourse financing
b. balance sheet financing
c. EXIM Bank Financing
d. Low cost foreighn funding
While it is easy to get financing for the projects which have signed PPAs for long terms at a fixed price, it is equally difficult to get financing for the projects adopting the projects under the REC route due to non predictability of project cash flows. While it is easy large corporates it is easy to get financing on its balance sheet, the small investors in solar find it difficult to get financing in the absence of a strong balance sheet. Non recourse financing is done for the projects created under the SPV (Special Purpose Vehicle) and banks have to depend on the cash flow of the project. The Banks also demand a collateral security, guaranteed performance, insurance for energy yield, etc.
Many project developers are opting for EXIM bank financing which is available if the project developer is importing at least 70% of the project cost components from the country of origin of the respective EXIM bank. For example if you are buying the Solar panels from First Solar of USA, they help in arranging the EXIM bank low cost financing from EXIM Bank of USA.
Many international banks also finance the solar projects. For example ADB (Asian Development Bank) finances the solar projects which are of the capacity range of 25 MW and above. They do financing of the projects of 10 MW and above through the local banks rather than financing themselves.
While the low cost financing is available from foreign banks and financing institutions, they finance in Dollars and the project developer needs to go for currency hedging. The typical rates of financing from international banks is determined based on Libor + 2%, which becomes about 5-6%. Additionally the hedging cost is of the order of 3-4%, and the net interest cost to the project developer is about 9-10%. This is still cheaper than the local banks which charge the interest in the range of 12.5%-13.5%.
Firstgreen COnsulting is supporting many projects developers to secure financing from national and international banks and have expertise to avail cheaper financing from EXIM bank as well as from ADB. We provide entire project management services ranging from project conceptualization, land procurement, technology selection, achieving financial closure, and project implementation. Firstgreen also works as lender’s engineer for many financing institutions and also support its clients as Owner’s engineer. We are currently working on about 65 MW of solar PV projects.