Solar Financing faces new hurdle

India’s ambitious solar power mission is facing problems from unexpected quarters:  with bankers hestitating to lend to solar projects. Public sector banks and financial institutions dedicated to the power sector say that they have no way to assess the commercial viability of these projects and would tread warily.

According to the bankers the cost of solar project is nearly 4 times that of conventional power projects, with unsurety on performance of plants and the PPA structure which does not give recourse for lenders in case of termination of PPA by NVVN.

An effort, to allay these fears, is required from the government’s side.

I had a discussion regarding this with bankers from Oriental Bank of Commerce and Yes Bank and bankers from both the institutions confirmed the fears.  Ofcourse projects that have PPA and are backed by a big company should not have problems in solar farm debt but it will be interesting to know how many banks are willing to look at vanilla project financing in solar and how many banks would prefer to take comfort in the company’s current business balance sheet.

For projects in the range of 1MW-2MW with PPA signed, we can assist in debt funding through convertible debt that can be converted into equity after 2-3 years. The remaining debt portion is lesser than other comparable projects in the market; hence finding favor with bankers.

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