Solar projects Faces Financing Challenges due to uncertainity in the REC pricing

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Renewable Energy Certificates (REC) route is the yet another route available to the solar project developers apart from the reverse bidding route adopted in the JNNSM as well as in the state bidding for award of solar power projects. As on date if MW class solar project is to be initiated by a solar project developer, the only option available to the solar project developer is the REC route in which the PPA is signed by the project developer at APPC (Average Pooled Power Cost) and the green component of the power can be sold in the market in the form of REC for which the base price is about 9.30 Rs/kWh. The uncertainty in the REC scheme beyond 2016 makes much more difficult to the project developer  to access financing for the project and achieve the financial closure. That is the reason hardly 15 MW of projects have so far come up under the REC route.

Our discussions with the some of the project developers as well as with the financing institutions  suggest that the uncertainty in the REC demand in the event of available cheaper solar power through the direct PPAs, and poor enforcement pf RPO on the distribution licensees as well as on captive generators makes it difficult to develop a wider acceptance among the financing institutions to see a secure cash flow in the project activity.

In India apart from the REC benefits, the accelerated depreciation benefits are yet another benefits which are now available to the solar project developer. Recently the accelerated depreciation benefits have been withdrawn in the wind power projects and hence there is a great interest of project developers to put their investments in the solar projects. THe current option is only the REC route, for which there is difficulty in securing financial closure, and hence we will see that in near term government can see a slow down in the solar project development activities.


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