I am sharing some of the experiences in solar financing faced recently over the last 2 months:
Recently many of the companies with PPA for a solar energy project are talking about an urgent need to close financing for their proposed solar power project. They expect equity and debt financing to be done in 1-2 months. Its very surprising when this comes from experienced CEOs and CFOs who have been involved in other industries for quite sometime now. The reason given is that with the commissioning deadline being 31st Dec 2011; they will need to close financing right away to complete the project on time.
Equity Financing in any industry takes few weeks (after interest from a potential investor) ranging from 8-12-16 (weeks) or more depending on the industry, the situation on ground and the process. Banks on the other hand, will also take 1.5-2 months (or more) to do due-diligence, prepare their report and work out the formalities.
So why are Indian solar companies expecting solar to be different? Do they expect that issuance of PPA makes the project a no-risk project; which will attract investors? Indian Solar projects, infact, should take more time for financing closure due to lack of sufficient data to assume returns and risks.
Another challenge is the high premium expectations from the promoters of solar companies. Can we calculate the returns from the project for investors after the premium being paid? I assume we all can do that; so why are Indian companies talking of 2-4 times premium?
And then we should ask the question as to why will any investor (HNI, PE, Institutional, etc) invest in an Indian solar project for a fixed return (low return accompanied with high risk due to a lot of uncertainty on ground) instead of any other sector in India which will surely give the investor better returns (also not to ignore the fact that most probably an investor will feel more comfortable with other sectors which are mature and well understood rather than solar which is still at infant stage in India and need to go through its teething problems). Yes investors when shown a potential scalable business model and a strong management team would be interested in putting money in the sector. But how many solar PPAs have gone to such strong companies. So in the end; we are all talking about project financing and equity financing for single project of the size of 1, 2, 5, 10MW.
The biggest risk after PPA issuance is the commissioning of the project on a high-quality basis with an experienced engineering team and a strong product support. Here also, many companies are looking to do the project commissioning on their own with little or no experience in the solar field.
We have already seen 1-2 projects passing their commissioning deadline in Gujarat and now trying to get an extension from the Government. Another news (not confirmed) is that the Government is not issuing any more PPAs based on the fact that hardly a few of the existing PPA holders have been able to achieve financial closure (not counting the Tatas, and Reliances).
We have a ready investor with an ability to invest equity and bring in debt from outside India @3.5%-4.5% in USD for a tenure of upto 15-18 years.
Contact: firstname.lastname@example.org / 0091-9820789895 (Mumbai)