Deepak Gupta, secretary at MNRE recently pointed out that they will cancel licenses for solar projects awarded to companies under its 1st auction if they do not obtain loans to build their solar power plants by July 9, 2011.
Companies were given 6 months from date of signing of PPA to line up financing for their projects.
So why have these companies not been able to arrange financing for their projects?:
1. MNRE’s reverse bidding has nearly killed the 1st phase of JNNSM. PPA rates of Rs.10.50-12.50 is certainly unviable. My personal estimation is less than 50% success rate by 9th July.
2. Mandatory use of Indian made modules. Unfortunately we have not yet reached scale to match international prices especially from China.
3. Solar projects with good tariff rates are not being easily funded by commercial banks in India. Surprisingly we expected them to finance projects with such low tariff rates. Not applicable for the Tata, Adani, Reliance, etc.
4. New Technology (for India) and New Industry with teething problems is scaring away financial investors and banks.
5. Most of all; an unprofessional behavior from the industry.
I recently had a discussion with Vineet (Panchbuta) on this and it looks like some Indian banks were ready to finance solar projects after a detailed understanding which was possible due to good preparation by the PPA holders. But most of the other PPA holders were busy in negotiating “valuations” rather than focusing on project completion.
Putting down some of the recent hair-raising discussions I have encountered; while working as buy-side consultant:
1. PPA holder wants non-recourse financing in 3 weeks because his EPC player will start project work from the 4th week.
Sir, it took my bank nearly 3 weeks to approve my car loan after I submitted my documents. And they nearly refused it because I told them I work in the solar industry.
2. We have PPA but no equity and no arrangement for debt. And we want a higher valuation (read: premium) for our PPA. And by the way; we do not know ABC of EPC but we will arrange it.
Lost for words.
3. We have PPA and will arrange debt. Investor just needs to bring in the balance sheet. And we want higher valuation and % for arranging debt.
I am sure the investor would have thrown me out of his office if I had taken this to him.
Some others are:
4. We are bringing government relationship to the table because of our PPA.
5. We want higher valuation for arranging EPC along with our PPA. We are bringing the best EPC player for this project.
6. We (read: PPA holder) want financial investors for only 7 years; after that we will manage the project.
7. We (read: PPA holder) are ready to do a Joint Venture. Joint Venture partner should give us loan (@5%) to invest as equity in the project.
I know others have also gone through such experiences.
On a serious note; I believe that the cancellation of PPAs will be a positive signal to the serious solar players. I hope the Gujarat Government also takes similar steps to weed out the non-serious players.