Options for financing solar power projects
Solar PV has seen a significant growth in recent years, the major reason was government offering good tariff and availability of profitable incentives, accelerated depreciation and tax holidays. There are various agencies which have been active in financing solar projects as balance sheet financing, some of these agencies include the government agencies such as Indian Renewable Energy Development Agency (IREDA), Rural Electrification Corporation (REC) and Power Finance Corporation (PFC). Apart from these various public sector and private sector banks State Bank of India (SBI), Bank of Baroda, and Andhra Bank have been active in financing solar projects. Some of the large projects have been successful in securing Exim BANK and ADB financing.
Over the period the changing policies have made it difficult to avail the balance sheet financing as the financing institutions realized that the following struck tariff in PPA route and unreliable cash flow in REC route makes solar project high risk and low return business. Some of the REC based projects have been successful in achieving financial closure through asset based financing and paid high returns and secured finance. Due to lack of financing not many IPPs could establish solar projects has most of the domestic Banks were not considering financing of solar projects on non-recourse basis.
Financing institutions were comfortable to extend non-recourse projects under NVVN route. However financing institution were not comfortable with non-recourse financing due to credit risk of state utilities. For example recently Gujarat has asked developer to renegotiate the PPAs. Similarly many state utilities financial position is in RED and project developers especially in case wind projects in Tamil Nadu facing payment delays for almost 6 months which significantly affect the credit worthiness.
Considering GOI plans for installing solar projects of the order of 5000MW by 2017 it becomes evident that these ambitious targets can only be achieved until financing of this projects are facilitated through supporting policies.
Most of the power generation companies tried to raise capital through IPO route, however recent economy slowdown has led to failure of most of the renewable IPOs.
Dr Sanjay Vashishtha & Rishikesh Muthyal