Bankability of Solar Projects-Issues and Concerns
While conventional power projects are facing the fuel availability challanges and fuel price uncertainity, investors are looking renewables as prefered options to remain in power sector. Specially solar PV projects are much more apealing to the investors due to their scalability and flexibility in nature. While Indian Government has withdrawn the accelerated depreciation from wind projects, solar provides a yet another tax aversion tool to the investors. The cash flow of solar present a much more stable and risk free cash flow as compared to the conventional power projects where you can not predict the fuel prices. The commissioning of a utility scale solar plant can be done in six month duration as compared to typical five to six years commissioning time in case of a conventional power project. The solar power plants can be placed relatively close to points of consumption, leveraging substations with excess capacity. Locating power generation close to the load results in lower losses due to transmission and distribution.
However appealing solar investment is, the financers are concerned on the risk associated with the solar projects due to high capital cost requirements in these projects. The financing institutions in India do not have enough experience oin these technologies and always concerned about the following issues:
Is the yield assessment reliable?
Are there any power evacuation risks?
How about degradation?
How about performance in the Indian dusty and high temperature conditions?
What about skilled labour for maintenance?
How about the reliability of the PPAs signed with the state utilities which are already under financial crunch?
Are there any generation guarentee available?
How about future policy framework?
Is the technology proven?
Has the EPC demonstrated the ability to deliver the projecton-time and on-budget?
What is the anticipated ROI?
How quickly can the project start generating a return?
Most of the solar projects face delays due to the reason of the financial closure and hence bankability of a solar project is a major issue. The degree of bankability is dependent on the reliability technology supplier, reliability of EPC contractor, Reliability of the yeild assessment, and the financial health of the promoter company.
Some of the factors such as site selection, design optimisation, technology selection, EPC contractor selection can have a significant impsct on the project’s risk and associated return.