Alternative funding options for your solar project
Solar energy projects require significant investments, and while traditional funding options like debt and equity remain popular, alternative funding options are emerging as attractive alternatives for investors. In this article, we will explore alternative funding options available for solar projects and the exit opportunities they provide for private equity players.
Apart from traditional debt and equity financing, solar projects can be funded through various innovative mechanisms such as securitization, crowdfunding, green bonds, and asset-backed financing. Securitization allows the solar project owners to pool together and sell their project’s cash flows to investors in the form of securities. Crowdfunding platforms allow project owners to raise funds from small investors through online platforms. Green bonds are debt securities issued by companies or governments for financing environmental and climate projects like solar projects. Asset-backed financing involves the use of solar project assets as collateral to secure financing.
Special purpose vehicles (SPVs) are another popular funding option in solar projects. SPVs are legal entities created for a specific purpose, often to hold and operate a single solar project. SPVs allow the project owners to separate the risks associated with the project from other assets and provide investors with a focused investment opportunity.
When considering entry and exit options in solar projects, it is essential to have a clear understanding of the project’s timeline, risks, and expected returns. Solar projects typically have a long-term investment horizon, with returns realized over several years. Investors can choose to exit their investment through various mechanisms like IPOs, InvITs, and acquisitions by offshore Special Purpose Acquisition Company (SPAC) vehicles.
The changing sector dynamics have diversified exit opportunities for private equity players. The exit options have evolved from raising a larger round, followed by an exit through IPO, to setting-up an InvIT and exit through acquisitions by offshore SPAC vehicles. The increasing interest from SPAC sponsors in the US and Europe to acquire assets in India’s renewable energy space offers new exit opportunities for private equity investors.
In conclusion, while traditional funding options like debt and equity remain popular for solar projects, alternative funding options and innovative financing mechanisms are emerging as attractive alternatives for investors. Special purpose vehicles, securitization, crowdfunding, green bonds, and asset-backed financing are some of the alternative funding options available for solar projects. With the increasing interest from SPAC sponsors and other global corporates, diversified exit opportunities are emerging for private equity players in the renewable energy space.