In this article, Mohammed G A, pursuing M.A, in Business Law from NUJS, Kolkata discusses How to finance a Solar Power project.
India is the fifth biggest power generator on the planet and is projected to be the third biggest by the year 2030. In 2010 India represented 5.78% of the world’s overall carbon emission and by 2030 it is anticipated that would double.  Renewable energy has begun having noticeable effect in the Indian energy sector by adding to around 12% in the national electric installed capacity. 
Solar and Wind Energy sectors are extremely dynamic in India. Over the traverse of three years more than 16,000 solar home systems have been financed through 2,000 bank branches, especially in rural territories of South India.  Launched in 2003, the Indian Solar Loan Program was a four-year association between United Nations Environment Programme (UNEP), the UNEP Risoe Centre, and two of India’s largest banks, the Syndicate Bank and the Canara Bank.  On 11th January 2010, our former Prime Minister, Dr. Manmohan Singh launched Jawaharlal Nehru National Solar Mission (JNNSM) under the National Action Plan on Climate Change. Through this plan it proposed to produce 1,000 MW of energy by 2013 and up to 20,000 MW grid-based solar power; 2,000 MW of off-grid solar power and covers 20 million square meters with collectors before the finish of the last phase of the mission in 2021-22.  and . Further, Government of India has increased the target of Grid Connected Solar Power Projects from 20,000 MW by the year 2021-22 to 100,000 MW by the year 2021-22 under the JNNSM and it was approved by Cabinet on 17th June 2015.  This target will be achieved by the government in three phases.
The Targets of JNNSM are briefly represented underneath:
Table 1: JNNSM capacity Addition Targets :
|Application Segment||Target for Phase I (2010-13)||Target for Phase2
|Target for Phase 3
|Utility Grid Power including roof top||1,000-2,000 MW||4,000-10,000 MW||20,000 MW revised to 100,000 MW in 2015|
|Off-grid solar applications||200 MW||1000 MW||2000 MW|
|Solar thermal collectors (e.g. SWHs, solar cooking/cooling, industrial process heat applications)||7 million sq. meters||15 million sq. meters||20 million sq. meters|
The aggregate investment in setting up 100,000 MW will associate with Rs. 6 lakh crores. In the 1st phase, the Government of India is giving Rs. 15,050 crores as capital subsidy to advance solar capacity expansion in the nation. This capital subsidy will be given for Rooftop Solar projects in different towns and cities, for Viability Gap Funding (VGF) based activities to be created through the Solar Energy Corporation of India (SECI) and for decentralized era through smaller projects. The Ministry of New and Renewable Energy (MNRE) plans to accomplish the objective of 100,000 MW with focuses under the three plans of 19,200 MW.
Apart from this, solar power projects with investment of about Rs. 90,000 crore would be developed using Bundling mechanism with thermal power. Further investment will come from large Public Sector Undertakings and Independent Power Producers (IPPs). State Governments have also come out with State specific solar policies to promote solar capacity addition. Aside from this, solar power projects with funding of about Rs. 90,000 crores would be produced utilizing Bundling mechanism with thermal power. Facilitate funding’s will originate from Independent Power Producers (IPPs) and large Public Sector Undertakings. State Governments have additionally turned out with State specific sunlight solar policies to promote the addition of solar capacity.
The Government of India may likewise approach international and bilateral donors as additionally the Green Climate Fund for accomplishing this target. Solar power can add to the long-haul energy security of India, and lessen reliance on petroleum products that put a strain on foreign reserves and the environment as well.
The scope of this article pertains to reviewing the various options for financing of solar projects in India along with the financers / financing institutions involved in it, which are vital to achieve the objects Government of India’s Mission as laid down under JNNSM scheme. A reference shall also be made to the procedural aspects to be followed for availing finance for a solar project along with brief reference to practical examples in the current scenario. In this regard the article seeks to answer the following main research questions:
- What are the modes of financing of solar power projects in India and the financing institutions involved in it?
- What is the procedure to be followed for availing finance for solar power projects?
Modes of Solar Financing in India
Solar energy is free however setting up a MW Solar plant requires huge amount of capital. Financing alternatives is one of the greatest obstacles confronted by MW solar plant investors. It is crucial to select a solar financing choice that suits your organization. The standard cost of setting up a plant comes to around 6 Crores per MW. 30% of this is met by equity and the rest through debt financing. Equity is only a favor word for funding from your own assets or from other investors. Debt financing is typically accessible with recourse, i.e., the investor should present a collateral security against the loan he wants to take. Debt financing without recourse is a choice only for big players with extensive scale solar installations and with a decent reputation. MW solar power plants, in India, are financed by an equity-debt mix. The flowchart underneath gives a comprehension of the solar financing choices for a MW solar power plant in India:
In order to get loans (debt financing), the contractor can opt for either domestic or international financing arrangements.
Each of these financing modes is discussed below:
Domestic Financing (Essentially From Banks)
As of 2015, Indian banks are giving loan at interest rates in the range 11-13%, Non-banking financial Corporation (NBFCs) could be lending at marginally higher rates. IREDA (the Indian government’s renewable energy lending arm) lends at lower rates (10.2-11.4%). Collaterals required for qualification could fluctuate from 20% for entities such as IREDA to the full 100% for several banks. Domestic loans are generally given for the period of 7-10 years; however numerous Indian banks are currently agreeable to lend the money 15 year tenures. In Mar 2016, New and Renewable Energy Minister Mr. Piyush Goyal said in parliament that, 24 Public Sector and 8 Private Sector Banks and 4 Public Sector and 2 Private Sector NBFCs have obliged for financing renewable energy projects of 76,352 MW capacity with an expense of Rs 3.82 lakh crore over 5 years through green commitment certificates. Some of the prominent domestic financers / financial institutions are discussed below
Several public and private sector banks like, State Bank of India (SBI), ICICI, Yes Bank, Axis Bank etc. have provided financing for various types of solar projects. In Mar 2016, Indian government in public release said that among public sector banks, SBI will be financing the biggest capacities of 15,000 MW with a cost of Rs.75, 000 crore, trailed by IDBI bank (3,000 MW). The 24 public sector banks will be financing plans of 31,649 MW. Further, Indian government through an RBI notification has clarified that that under Priority Sector Lending (PSL). that a borrower for individual households/residential buildings can avail a solar loans upto Rs. 10 lacs from the banks whereas borrowers for purposes like solar based power generator or one industrial / commercial buildings can avail solar loan upto 15 Crores from the bank.  This implies banks can meet their PSL targets by offering loan to rooftop solar projects. Accordingly, it is evident that loans shall be given to rooftop solar projects at interest rates of 9.5% to 10.5% per annum.
For e.g., In the year 2011, SBI has given a 14-year loan to a solar based plant being worked by Spain’s Grupo T-Solar Global SA and Astonfield Renewable resources company, which develops sun solar powered and biomass plants in India. On June 2, 2017 State Bank of India announced that they had financed 100 MW grid connected roof top solar projects worth Rs. 400 crores with the private developers in India under a World Bank Program.  Further Mr. Sarnam Sekar, Deputy Managing Director; SBI said that that SBI has on Jun 2017 has provided Rs 30,000 crore funding to the clean energy projects which would in the long run touch Rs 75,000 crore mark by 2022. Similarly, in Feb 2015, YES Bank, India’s fourth biggest private bank, obliged to provide give a Green Energy Commitment (GEC) of financing 5,000 renewal energy projects for the next 5 years i.e. by 2019.
Non-banking financial companies (NBFCs) 
Some of the prominent NBFCs involved in debt financing of solar projects include:
- Infrastructure funds – Infrastructure Leasing & Financial Services Limited (IL&FS), SBI Macquarie, and Taurus Infrastructure Fund.
- Dedicated power sector financing – Rural Electrification Corporation (REC) and Power Finance Corporation (PFC)
- Investment banks – Larsen & toubro finances, SBI Capital Markets, BNP Paribas
Indian Renewable Energy Development Agency (IREDA)
IREDA is a Non-Banking Financial Institution under administrative control of Ministry of New and Renewable Energy (MNRE) for giving term loan for renewal energy and thermal energy efficiency projects. IREDA provides finance upto 75% of the cost of the solar project venture. IREDA conducts credit rating for all grid associated projects and provides grading in a band of 4 grades (I, II, III & IV) in light of the risk assessment. The interest rates are connected with the grades. The interest rates are set by a “Committee for fixing interest rates” from time to time in view of economic situations. The current pertinent interest rates are as are as given beneath (w.e.f 01.04.2017): 
Table 2: Interest Rate matrix for Sectors w.e.f. 01-04-2017 onward: 
|S. No.||BORROWER / SECTOR||Grade I||Grade II||Grade III||Grade IV|
|1||Schedule A,’AAA’ Rated PSUs||9.75 %|
|2||State Sector Borrowers||9.75%||10.05%||10.35%||10.60%|
|3||LoC for Refinance||Cost of Domestic Borrowing + 0.8% to 1.75% (Spread)|
|4||Roof top Solar||9.80%||10.15%||10.45%||10.75%|
|5||Wind Energy, and Grid Connected Solar PV||9.80 %||10.55 %||10.70%||11.00 %|
|6||Cogeneration, Hydro CSP, Energy Efficiency , Energy Conservation & Solar Thermal /Solar PV Off-Grid, Biomass Power and other sector||10.35%||10.85%||11.25%||11.50%|
|7||Manufacturing (All sectors)||Existing units – 11.25%||Green Field – 11.50%|
To obtain loan from IREDA, application forms available at the IREDA site need to be filled and submitted along with the list of documents mentioned in the application forms. IREDA gives fund to every single Renewable projects regardless of the innovation involved with a minimum debt prerequisite of Rs 50 lakhs, in light of their techno-business practicality. IREDA provides loan to the projects in light of their techno-business viability after taking into account the subsidy/stipends accessible from the Government of India, assuming any.
The interest rates to finance a solar power project from global sources in generally between 8-10%, in the wake of calculating in all expenses, including the cost of hedging for exchange risks. In any case, the time to process the loan through this route would take a long time, around nine months and this could affect the project start time. In spite of the fact that interest rates are by and large lower in case of international financing, it is important to take into account the hedging cost against currency locations. Foreign loans are accessible for a period of 16-18 years.
Some of the international financers for solar projects in India include: International Finance Corporation (IFC), the financing arm of the World Bank is occupied with financing of solar power projects in India. US based EXIM Bank is additionally a decent choice for loans of solar power projects. The Asian Development Bank (ADB) has likewise risen as a prominent moneylender to advance solar power projects in India. European Investment Bank (EIB) is additionally intrigued by financing solar parks in India. Aside from these foundations, many green energy funds are giving equity funding at a less expensive rate for solar power projects.
International Finance Corporation (IFC)
It is the financing division of the World Bank is involved with the financing of solar power undertakings in India. IFC is a universal monetary organization that offers consultative, investment, and asset management services to support the development of private sector in developing nations. The IFC is the financing arm of the World Bank Group and is headquartered in Washington, DC. IFC was set up in 1956 as the private sector arm of the World Bank group, and is maintained by 184 member nations, a gaggle that jointly decides its policies. Its board of directors and board of governors, elected by the member nations, direct IFC’s projects and activities. IFC is the sole multilateral wellspring of equity and debt financing for the private division with worldwide reach. IFC’s bonds offer a high-quality investment, even in unstable money related economic situations. 
IFC has invested over $15 billion in India since its first venture in 1958. India is considered as IFC’s top nation, exposure, globally. IFC’s conferred portfolio in India is over $5 billion as of June 30, 2016. In financial year 2016, IFC conferred $1.1 billion in new investments in the nation. In addition to building up of local capital markets in India, IFC is centered around boosting financing in infrastructure and logistics, advancing money related incorporation, making conditions to draw in expanded private capital, and organizing public-private partnerships. IFC is a key associate in creating and developing India’s capital markets through offshore rupee-connected and onshore rupee bond programs. IFC’s offshore Green Masala Bond concentrated on climate change. Beginning in 2009, IFC was one of the first global financers of solar and wind activities in India. IFC is a one stop-solution for equity debt and organized fund for private companies searching for opportunities in wind, solar and other types of renewable energy. IFC’s advisory engagement in India comprises of Odisha Street-Lighting Program, Gujarat Rooftop Solar PPP, Bihar G2P Payments and Jharkhand Diagnostics PPP. 
Some of the solar projects in which IFC has provided financial and advisory services include :
- IFC is one of the earliest investors in Azure Power, now a main player in the grid-connected solar-power sector. After starting financing in 2010, IFC made numerous rounds of equity and debt and investments to support Azure’s development. Azure’s portfolio of solar plants now extends across several states and is on track to achieve 500 MW of operational capacity in the year 2016
- IFC additionally financed Sembcorp Green Infra Limited, which built up more than 200 MW of wind and solar plants in four Indian states.
- IFC also funded Applied Solar Technologies Company, which supplies off-grid solar power to telecom towers in remote areas of Uttar Pradesh and Bihar that generally depend on diesel for their power requirements.
- Recently IFC, funded Acme Solar for their upcoming 25 MW solar power project the aggregate investment is projected to be US$50 million, of which financing looked for is of the request of US$36 million. MP Power Management Co. will buy and use the plant under a 25-year power purchase.
- On the consultative side, IFC’s Lighting Asia/India program promotes, safe, economical and present day off-grid lighting for three million individuals in rural India. IFC supported the Gujarat Government to design a first-of-its-kind pilot grid-connected solar rooftop power project through a private-public partnership. As of late, IFC banded together with the Madhya Pradesh government to set up the 750-MW Rewa ultra-mega solar-power project. This is the biggest single site solar-power power project across the globe. As the lead PPP transaction counselor, IFC is extending its worldwide skill to structure and actualize the transaction to draw in about $750 million in private investment.
Other international financers
The World Bank-Clean Technology Fund (CTF) advance will bolster various solar photovoltaic (PV) technologies, to expand the reach of rooftop solar systems to an assortment of client gatherings. On Mar 31, 2017, The European Investment Bank (EIB) announced a long-term loan of euro 200 million (Rs. 1,400 crore) to SBI to fund mega solar power projects in the nation. This loan will bolster an aggregate investment of euro 650 million in five diverse large scale PV solar power ventures for India’s National Solar Mission. Four plans, with a generation capacity of 530 MW have been identified for this objective. Since 1993, the EIB owned by 28 member states of the European Union has financed projects totaling 1.7 billion euros (around Rs. 11,900 crore). 
EXIM Bank is the first foreign financing foundation to sanction solar power projects under India’s JNNSM and one of the first to support financings under the solar power policy of the Gujarat State.  Ex-Im Bank has provided a long-term loan of $16 million to fund First Solar’s exports to Azure Power to assemble a five-megawatt solar PV plant in Rajasthan. Other US financial service providers to the venture incorporate General Cable Corp and SMA Solar Technology. EXIM has so far financed about $ 350 million to solar project in India. 
ADB has risen as the primary loan provider to advance solar power projects in India. ADB has likewise helped the Gujarat government in the financing of the transmission line for clearing the power generates from their Charanka Solar Park. Anil Ambani group Company Reliance Power has tied up funds for its 40 MW solar power project, with finances worth Rs 5.25 billion ($109.3 million) originating from the Asian Development Bank and the US Exim Bank. Apart from these foundations, many green friendly funds are also available which can give equity at a less expensive rate and back off the cost of financing for these solar projects.
Procedural aspects in Financing of Solar Power Project
A. What are the various criteria to be met by Borrower for Sanction of Loan?
There are specific criteria that the borrower needs to meet to be qualified for sanction of loan. A couple of them are listed underneath:
- Positive cash flow out of operations in the organization
- Company debt ought to be below 40% of its total assets.
- DSCR (Debt Service Coverage Ratio) of the organization ought to be more than 1.5
B. What are the Documents required to apply for Solar Financing?
The accompanying documents are to be delivered by the borrower while applying for the loan:
- Power purchase agreement (PPA)
- Feasibility study
- Prime Cost contract
- Quality and safety standards followed
- Operation and maintenance contract
- Contracts for supply of parts
- List of authorizations and compliance gained/to be gained
C. What are the steps for Financing a Solar Project?
The various steps involved in the financing of solar project include
This step involves due-diligence of aspects related to promoter’s background, financial statements to validate promoters net worth and capacity to contribute equity to the project
This step comprises of Solar Radiation Verification, Technology Assessment and assessment of detailed project report
This step includes due-diligence of funding and financial details related to Project Cost, means of financing, Cash flow & profitability projections, Risk assessment, Financing structure (Debt & equity), foreign exchange risk
INDUSTRY SPECIFIC APPRAISAL
This step includes, due-diligence of Industry specific factors like market trends and costs, creditworthiness of Off-taker, market attractiveness risk guarantees, long term demand, market drivers, regulatory & policy scenario etc
It involves Due-diligence of the associated environmental by conducting environmental impact assessment study
Ensuring that the project developer has obtained adequate insurance to cover the project risks
This includes due-diligence of various contractual agreements including the power purchase agreement, Purchase orders, land agreement and contracts, Engineering, procurement and construction (EPC) contracts, and Performance Guarantee etc.
Approval of loan by the financial institution based on the analysis of Project Developers capacity.
D. Is it possible to procure low interest loan for MW Solar Project? If yes, what are the terms and conditions?
- One situation where this is conceivable is if the financing is gotten from outside sources, particularly if the parts utilized are likewise imported from the lending nation. Hence DCR (Domestic Content Requirement) projects will ordinarily not be qualified. On the off chance that the project is financed globally, the loan fees are probably going to be 8-10% including hedging.
However, financing will just cover some portion of the project cost, typically panels. Financing for the rest of the project will in any case should be raised. Additionally, time to process the loan application is in the range of 6-9 months, which can affect monetary conclusion/project start time. Due diligence cost can be high, making it feasible only for plants of higher capacity (more than 10 MW). In addition, reimbursement is exposed to foreign exchange rate fluctuation. Hedging is vital, but will add to the cost (as much as 6% to loan interest rate). Extra terms might be imposed, for example, utilization of transportation lines from the lending nation, which can additionally add to the cost.
- Some NBFCs, for example, IREDA give loan at lower interest rates for financing solar power projects in India. For instance, grid connected solar PV projects can avail interest rates of 10.2 – 11.4% depending upon the grading (Grade I, Grade II, Grade III or Grade IV) of the project. One of the alluring aspects of IREDA financing is that the collateral to be given for the purpose securing the loan is just 10-33% of the loan repayment amount which is significantly low in contrast with what a bank provides. It ought to be noticed that IREDA gives financing to any project with a minimum debt requirement of Rs 50 Lakhs, in light of their techno-commercial suitability.
The global environmental scene has changed fiercely over the last century. The changing scenario demands a greater concern and action-oriented enabling policy framework for the use of sustainable and renewable energy. The Government of India has taken necessary cognizance of the global developments and has initiated several green and environment-friendly policy measures under the National Action Plan on Climate Change. One of the initiatives taken by the government is the Jawaharlal Nehru National Solar Mission (JNNSM).
The worldwide natural scene has changed furiously over the last century. The changing situation requests a more noteworthy concern and action-oriented enabling policy framework for the utilization of renewable and sustainable energy. The Government of India has taken necessary cognizance of the worldwide developments and has started a several green and green and environment friendly policy measures under the National Action Plan on Climate Change. One of the activities taken by the legislature is the Jawaharlal Nehru National Solar Mission (JNNSM). Through this mission government target to produce 1,000 MW of energy by 2013 and up to 100,000 MW grid-based solar power; 2,000 MW of off-grid solar power and covers 20 million square meters.
From the above analysis it is evident that by the help of various national and international financing agents, India is marching ahead in solar energy mission. India has augmented its solar power generation capacity by nearly 5 times from 2,650 MW on 26 May 2014 to 12,288.83 MW on 31 March 2017. This infers that the present solar power financing agent and policies of government would help India to achieve JNNSM mission and make India a world leader in green energy generators and user.
- The National Action Plan on Climate Change (NAPCC)
PRESS NOTES, NOTIFICATIONS ETC.
- RBI Notification on “Priority Sector Lending-Targets and Classification” [RBI/2014-15/573] dated 23rd April 2015, available at: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9688&Mode=0
- Press Information Bureau Release on “Revision of cumulative targets under National Solar Mission from 20,000 MW by 2021-22 to 1,00,000 MW” dated 17 Jun 2015 available at: http://pib.nic.in/newsite/PrintRelease.aspx?relid=122566
- Sethi, Nitin (November 18, 2009). “India targets 1,000mw solar power in 2013”. Times of India
- http://seci.gov.in/content/innerinitiative/jnnsm.php (Accessed on 25 Jun 2017)
- http://astonfield.com/press/pr/Astonfield-TSolar-Bloomberg-June2011.pdf http://www.worldbank.org/en/news/press-release/2017/06/02/state-bank-of-india-approves-100mw-grid-connected-rooftop-solar-projects-under-word-bank-program http://economictimes.indiatimes.com/articleshow/58964427.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst https://www.yesbank.in/media/press-releases/fy-2014-15/yes-bank-commits-to-financing-5-gw-of-renewable-energy-projects-by-2019
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 The Confederation of Danish Industry Report available at: http://di.dk/SiteCollectionDocuments/DIBD/The%20Indian%20Cleantech%20Industry%202012.pdf (Accessed on 20 Jun 2017)
 http://mnre.gov.in/file-manager/annual-report/2011-2012/EN/Chapter%201/chapter_1.htm (Accessed on 25 Jun 2017)
 Consumer financing program for solar home systems in southern India
 UNEP wins Energy Globe award
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