Yes. You can call me pessimist and am searching for optimistic hero. Though solar project development is simple as it seems but It’s not cakewalk. Today I want to tell you a true story of solar entrepreneur from Gujarat.
When two young IIT, MBA grade in their 20’s jumped in solar stint in 2010 after very successful business in medical equipment manufacturing with current turnover of 60 CR at that time, they thought they were looking at shining sun, a new era technology & make money by getting into an Energy sector, a future of INDIA’s 1 billion electricity starved people.
Come straight to 2015, today both are nearly bankrupt with entire of his personal and relative asset mortgaged with bank from where they took 70% of loan for the solar project they built. To just take care of his new baby solar project to keep up and running they sacrificed 60 CR turnover business. 5 star hotel stay on site visit turned into OYO rented rooms. Airport counter purchased Flight tickets turned into 3 tier AC railway coach birth. They lost too much and on the streak of fast losing money day in Day out. There is no escape window for them.
So what went wrong? One can say plenty of mistakes or me say opportunity selected badly with procrastination on decision making on some fronts.
Though Developer had best tariff FIT of Rs. 15/Kwh, following things went wrong with decision.
After successful PPA, they selected land from broker without verifying complete process, paper originality and possession rather looked at price offered. As many developers make this mistake, Compare to market price, Low-cost land is mostly deceiving. This Developer got stuck into land registry clearance due to issue in government process for nearly 8 months on top of broker-farmer land payment issue even after they had land deed registered on their name. Developer never thought Land title as first and foremost financial document requirement.
Before starting project Developer had mere 15% of their own fund without confirmation on financial closure he thought, will get it in 3-4 months. It was wrong number (PK!), bank even today don’t sanction loan just like that. It took nearly year for them to get sanction and funding took another as prior releasing the fund, bank requires clear title of the land on the name of developer.
Delayed financing payment from bank made first selected EPC ran away with quarter of project built forcing developer duo to select new EPC in hurry, who completed project finally but got into very complicate legal cases with first EPC.
To save money, developer kept changing consultants for every need like they had one PPA consultant, then hired another land consultant, EPC consultant a third one and commissioning done by forth. So, none of the consultant known to have complete understanding of entire project papers, that made commissioning delayed after COD date.
In nutshell delayed financing, land clearance issue due to government process delay, two EPC and three separate court cases had made entire investment unviable. Today this investor cum developer is getting interim low tariff payment from discomm and unable to maintain O &M at the plant making them driving into debt trap with everyday increasing interest burden on the solar project.
By the way this is not a story of single solar developer company, nearly 60 to 70% Gujarat project exists today in solar they are fighting one or two cases in court with one or other issue like Land, EPC, tariff, permissions etc.
One can have different view but from my glass some advice I think, could have saved them.
- Financing can wreck havoc. If you don’t own atleast 40% fund of total cost of project or 400% turnover balance sheet don’t enter into solar. As no bank will finance you with your condition/terms and you end up digging yourself into financial quicksand when financing delayed due to whatsoever reason.
- Understand when you come to solar industry, your COD date must be your goal not getting best technology or land or EPC. Passing COD date will change your tariff in all PPA of INDIA and thus financing of the project goes into jeopardy (I prefer plan that have COD target be at 2 months prior actual date).
- Decision! Decision! Decision. Don’t get yourself caught in circle of decisions. What is right? First to get finance or to start work with own money or select panel or select inverter or select land first or select EPC first. Your goal is to start building project which requires title clear land to be identified pronto and select sub-EPC right away. Though it matters but Waiting for best price, best location, best radiation, best evacuation connectivity, best road access can get you nowhere. Gujarat has two 5 MW project PPA I know (Foreign Investor, unfortunately one was my client from USA) got cancelled because they could not find right land parcel for 2 year.( Height, right? But this is reality)
- Financing can go altogether. Very importantly if you can’t get your first installment in hand within 2 months, start searching alternate route to get temporary fund that keep project implementation in progress. Be cautious when taking temp fund from market, interest can ruin you if you don’t have exact re-payment plan in place before taking.
- Finally don’t take commissioning of the project lightly. You need plenty of documentation, starting from day 1, including all permissions, legal affidavits, guarantee, warrantee documentation of the plant & machinery. Hence hire some expert who has very clear understanding of commissioning process and exact plan of each activity with timeline needed to be carried out for the commissioning of the project.
I don’t say above advise are complete list of what one should do but Coming to the end of my story,
So what in case you can’t complete project on time? Sorry I don’t have an answer. And I am looking for Optimistic hero to solve this puzzle. Do you have exit plan?
Till then understand It’s dengue time in entire INDIA now and beware mosquitoes not only bring Malaria but Dengue too.
Blog Courtesy : The above blog post was originally posted & written by Mr. Nilesh Patel at Click Here. We have reproduced the same.
Some Related Blog Posts You may like :
- SOLAR RESOURCE DATA (BUILDING BANKABLE !) and It’s relationship to FINANCING What the Lender wants & more !!!! – Click Here
Meanwhile till we meet next time with more updates…Enjoy this winter with the same dialogue from friends & family that “This is the coldest winter in the history of India (Iss baar thand har saal se zyada hai bhai) 😀
Solar Project Consultant – India
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