Funding conundrum dogs solar industry

Article By : Sufia Tippu

A developer would require $1 billion/GW from private and public sources to achieve 175GW by 2022--or $25 billion every year from now until 2022. But where will the money come from?

« Previously: India’s solar reality

The Indian solar sector is bogged down with the high cost of financing, burgeoning infrastructure issues and challenges faced by Indian manufacturers of solar cells and modules. Industry watchers believe the 100GW by 2022 target to be a bit too ambitious. But even if 75% of this target is achieved despite all the prevailing odds, it is good for India, they say. Especially when this scenario is marred by the fallout of SunEdison’s India plans.

Where’s the money?

According to Raj Prabhu, CEO and co-Founder of Mercom Capital Group, a global solar consultancy, private sector lenders in India are wary about financing solar projects in India due to the low tariffs, which are seen as being prone to cost risks. “The SunEdison bankruptcy is likely to exacerbate this cautious approach. Company financials, especially when bidding for large projects or at very low tariffs, may come under more scrutiny. This will generally be a big wake-up call for solar companies loaded with debt,” Prabhu added.

Undoubtedly, the industry is handicapped in several other ways as well. In cases like Sun Edison and a few others, when the financial closure is not done in time by the developer and they lose the project. The situation becomes more complicated in some cases where there are multiple partners and when one developer completes the project on time while others do not.

In the latest Mercom India’s Solar Quarterly Market Update, “Too Much Too Fast? Falling Tariffs Causing Concern in The Indian Solar Market,” released in May 2016, developers say that most of them are not bidding at the current low levels but are waiting for the market to stabilize. According to them, many projects are coming up for sale; the auctions are extremely competitive and winning bidders are finding it tough to get funding.

“There are a number of delays in the auction process, starting from the initial announcement to signing PPAs, making on-time execution a challenge. Although the government tries to push projects in the solar parks, they are highly expensive at ~$51,471-58,824/MW and are delayed in many cases. The Uttar Pradesh solar park, for example, is not complete and has no roads. We don’t understand why auctions are announced in solar parks that are not complete. We would rather have the government provide land to us because the high costs of solar parks are making project economics tougher,” says an IPP developer who didn’t want to be named.

According to yet another IPP developer, there is a wide disconnect between banks when it comes to solar project costs—the banks are out of touch when it comes to realities on the ground. “There is some concern over Viability Gap Funding (VGF) projects as they are taxable and open up our books to scrutiny. Also, there is worry that if a new government takes office, that they may not honour the current payment structure. There is a consensus that Central Electricity Regulatory Commission (CERC) benchmarking is not viable and should be done by states (like the wind sector) instead of one tariff for the whole country. This would give states better guidance,” he noted.

Although Japan's Softbank Corp, Taiwan's Foxconn and our own Bharti Enterprises have pledged an investment of about ₹1.34 lakh crore (~$20 billion) in India's renewable sector and global solar giants, like First Solar Inc., Trina Solar Ltd and Fortum, are expanding their presence, this is just not enough to achieve the 100GW target.

According to a German report titled, The Role of the Private Sector to Scale Up Climate Finance in India, about ₹2.28 lakh crore (~$34 billion) was mobilised till 2015 to attract private financing to the sector, but this is still small compared with the amount and scale required to meet 175GW of renewable energy generation and transport by 2022 and 350GW by 2030.

A developer requires $1 billion/GW from private and public sources to achieve 175GW by 2022. This translates into mobilisation of $25 billion every year from now until 2022. The budget of the Ministry of New and Renewable Energy (MNRE) for 2016-17 is pegged at $2.1 billion which includes $746 million from the National Clean Environment Fund (NCEF) and the rest from a direct increase in outlays.

“The land acquisition and payment security needs to be seriously addressed to attract foreign investors,” said Mercom’s Prabhu. “With low bids and razor thin margins, it is imperative for the government to address payment security and strict timelines. In addition, curtailment and evacuation issues need to be factored in the PPAs, without which Internal Rate of Return (IRR) calculations will be meaningless,” he added.

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