Solar Projects in India | Financing Cloud & Commonly Encountered Challenges !

A lot of us are hearing now a days this one liner – “No one is earning any profits in the Solar business in India : be it a EPC player or a Project Developer” –  Well Partly True / Partly False

When I say Partly False : is because there are Project Developers (Reputed & Big Business Houses) I know who are happy with the way they have ventured and positioned themselves in the Solar arena and with their concrete and planned project execution methodology, Financial modelling and management skills they have shown, they are very much safe as far as the profitability of their solar projects is concerned.

When I say Partly True : There are also project developers and EPC players (Small / Inexperienced & Unplanned Developers & Players blindly entering the solar sector just by thinking of earning easy money & that ‘Solar would be a baby game for them which they would easily be able to tackle) in India who don’t know what they are getting into and in a process down the line they create such a mess for themselves that makes it extremely difficult for them to earn profits not only for themselves but for their vendors, contractors etc. and all the stake holders involved in the entire project. And at the end after paying heavy fines due to missing deadlines and having fed up not being able to successfully handle the project, the PD comes out in the market to sell his project / Transfer ownership is permissible or spreading humors about non viability of solar projects in India market.

While as I mentioned there are many reputed and big business houses in India, almost all of them and think of any major name that comes in to your mind (Tata, Mahindra, Reliance, Birla etc..) & you find that they are all into Solar Sector in India, whether by entering as EPC player / as a PV Module Manufacturer / as an Independent Power Producers (IPP)…All these reputed corporate houses are either investing heavily or have big future investment plans in the India Solar Power Sector.

They have all the capability and resources to take the sector to the new heights and would certainly play a major role in India’s Solar Mission. But why they are or have the chances to getting successful – simply because of their resources like in-house technical expertise, easy technology access, their well capable liaison department & above all their strong balance sheets ! Also easy and increased availability of finance, especially from PE funds makes the solar sector a compelling opportunity for big corporate houses.

But overall there are certainly many challenges and hurdles that all stakeholders especially developers in solar sector have faced or are facing currently….. One of them is certainly FINANCE ! everyone knows this, so how exactly are solar projects affected with Finance side ?!

CHALLENGES IN PROJECT FINANCE FOR SOLAR PROJECTS IN INDIA :

Image

Photo for general presentation purpose only

A real roadblock that solar power developers face is the availability of long-term project finance. All most all the state and national level policies envisages that seventy per cent of the fund requirement will come or can be raised through debt. This number is very far from actual realization !! Also Non-recourse funding is a challenge and investors at the end are forced to furnish corporate guarantee of their existing companies.

Indian financiers are still not comfortable with financing solar projects and as a result most projects were funded on a balance sheet rather than project finance basis. Below is the over view of the Project Finance Scenario in India :

PROJECT FINANCE OVERVIEW

Apart from above the following points also plays a major role in handling funding viability for solar projects :

  • Regulatory risks & Unsustainable FiTs through unfavourable Reverse bidding
  • Unstructured Payment Mechanisms & weak paying capacity of State Discoms and payment security
  • Technologies are at a nascent stage
  • Inexperienced developers & EPC Companies
  • Power Purchase Agreements not bankable
  • Rapid devaluation of assets
  • Evacuation and interconnection risks etc. & more..

Hence one of the major challenges in financing is that Lenders are reluctant to finance small transactions and in cases where finance is available, transaction costs are much higher & lesser access to the availability of Non-recourse funding which directly affects India’s vision of achieving grid parity through solar power.

SOLAR RESOURCE – NON AVAILABILITY OF ACCURATE DATA

In one of my previous blog also I mentioned the importance the importance of Solar Resource Assessment & its relationship to financing of solar project.  To find proper & accurate Insolation data is very much and again one of the most most essential part of the solar projects. Many of the PD’s do initiate and develop their solar plant without going into details of whether analysis and solar radiation data analysis. The result is quite visible then – i.e. Lack of generation then actually predicted at the time of initiating the project which directly & adversely affects the revenue of the projects.

Photo from one of my previous blog regarding "Solar resource assessment and its relation to financing"

Photo from one of my previous blog regarding “Solar resource assessment and its relation to financing”


POLICY & REGULATORY ISSUES 

  • There are series of permissions / permits and management approvals required to successfully execute & commission a SPP. A lot of Commissioning approvals and process are involved which are extremely time consuming in order to commission the project within stipulated time frame. A single window clearances would certainly help the developers to a great extent.
  • Also Procedure to avail duty exemption is also very lengthy. The Excise duty exemption though available to the project developer, it is not available to the manufacturer on the raw material purchased by them and hence ultimately the manufacturer factors the burden in the cost calculations which is transferred back to the developer down the line with a nearly net zero benefit to the project.

ADVERSE EFFECT OF THE INEXPERIENCED EPC PLAYERS :

Solar Projects that work and succeed in India needs good people and Best of the Best EPC Companies.

Being a Solar Project Consultant in Gujarat, I regularly and frequently get calls from people & various companies who identify themselves as Turnkey EPC Solution provider which is worry some not only for me but for the project developers also.

They hardly have very little or no experience in project execution which they claim they have & that too very confidently. Having done a small sub-contracting job on the DC / AC side they try and market themselves as the ‘best turnkey solution provider’ in the sector.

Above all in order to anyhow get the projects they give very absurd quotations which are simply unrealistic. Surprisingly PDs do award them their projects which they think will last for 25 years of lifetime !!

So, not only do they harm the project by using inferior quality material & by their immature project execution skills but also negatively affect the bankability of the project too !!!!

EPC activities at project site_Photo for general presentation purpose only

EPC activities at project site_Photo for general presentation purpose only

Experienced, Technically & Financially strong EPC Player are very important and will only strengthen the viability & bankability of the Solar Projects.

Further, now as the Indian solar sector has grown 3 years old & after many pleasant and unpleasant experiences the developers have started acting smartly and sensibly.

Meanwhile a lot of things are happening over & around the Solar landscape of India these days and over past one month viz.:

  • The total installed solar capacity of India now reaching around 1200 MW of which  more than 820+ MW of Solar Projects installed only in Gujarat under Gujarat Solar Policy Phase I and Phase II)
  • Tamil Nadu (Tangedco) proposing a so called “workable tariff” of Rs.6.48/kWh !!!! Lets see if this works !
  • Rajasthan (RRECL) now finally opening its financial bid with for 100 MW solar projects with the lowest bid of around Rs. 6.45/kWh for a 10 MW proposed solar plant !!!!
  • The announcement of the new solar projects under the National Solar Mission (JNNSM) for Phase II getting indefinitely delayed due to funding issues !!!
  • The officially launch of the 10,000 Roof-Top Solar PV programme in Kerala
  • The United States’ complaining against India in the World Trade Organisation (WTO) over the Indian government’s so-called ‘domestic content requirement’ — for solar modules used in the projects awarded under the Jawaharlal Nehru National Solar Mission & more…………

Amidst all this happenings & come what may the outcome, anticipating that we will see around 600+ MW of solar projects more by the end of 2013 in India.

Till then….Cheers !

Timeline_Cover_doNotRename71asd

www.urvishdave.com

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About Urvish Dave

Urvish Dave is working as a Project Consultant in the Renewable Energy Arena with an expertise and keen focus on Solar Energy Sector viz. Rural Electrification, Off-Grid Solar Projects, Grid connected, Captive power plants, Renewable Energy Certificates (REC) Mechanism etc. for various Renewable Projects in India along with market intelligence pertaining to renewable energy sector. He holds the distinction of executing numerous Solar projects during the career path including EPC projects for Rural Electrification, Solar Grid Connected Projects, Off-Grid Projects etc. For Consultation and Turnkey Solutions in Renewable Energy Projects and energy efficient product's, visit www.urvishdave.com or write him at info@urvishdave.com
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One Response to Solar Projects in India | Financing Cloud & Commonly Encountered Challenges !

  1. Pingback: CHARANKA SOLAR PARK OVERVIEW – PV MODULES & INVERTER TECHNOLOGY DETAILS OF GUJARAT SOLAR PARK PROJECTS ! | urvishdave

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