Equity Financing for Solar Projects
Where it is getting difficult to get financing for a solar projects investors looking for raising equity shares for solar projects. It is important to structure a project in as such a way that the project structure becomes attractive to equity investors. Private equity investment is considered a high risk investment and the investors expect a high rate of return (usually over 20%). The private equity investment can be between 15%-49% depending on specific arrangement, such as Joint Venture Partnership or through investment through venture capital fund. Investment in solar projects have been allowed for an investors and the foreign institution investors (FIIs) can hold majority of equity stake in solar projects which gives them the controlling stake in the project.
Due to lack of visibility in policy and regulations most of the equity players are not aggressive to do investment because of relatively low rate of returns. However some specialize private equity funds have been focussed on renewable energy investment and solar has been the prime focus for investment.
The major incentives for private equity investors is to hold controlling over the stake and develop an alliance to spread technological expertise. The major criteria for private equity investors is to select a joint venture partner which has sufficient project execution cap and access to local bureaucracy for successful execution of project. Many times the private equity investment in solar projects come through solar panel manufacturers of PV module firms. Which like to promote their own technology and in return share a part of equity in the project. As the expected return on equity is much higher than the Debt the investors are tied up with Equity Investment Funds and leverage bilateral or multilateral financial support for investing in solar project. Private equity financing is also done by venture capital firms in development of early stage solar projects. In order a to keep a controlling stake in the project venture capital firms try to keep their stake in the project over 50% and typically generate about 30-40% return in the project. Venture capital investment are for a short term and offer early returns to the investors.