It has been reported and analysed many times how access to cheap finance from outside India could make a big difference to the overall cost of solar power (now, whether SunEdison’s Rs 4.63/kWh is owing to cheap finance is a relevant question here!)

But outside, of some select companies, it appears that very few others are able to raise money from international sources at rates of 7-8% (hedging costs included). Or at least this is the implication of this news item

“There are very limited options for raising debt financing from abroad (for solar power developers in India). Typical sources include multi or bilateral agencies such as IFC, ADB, US Exim, KFW, OPIC and others. But all these agencies have long and costly credit assessment processes and that’s why such financing is usually viable only for large projects of over 100 MW,” Vinay Rustagi, Managing Director at consultancy firm Bridge To India.

Of the above, I am not sure if US EXIM exists anymoe – I heard they were closing shop?

On the others mentioned, I think only a select few will be able to get it from IFC and ADB. KFW and OPIC might work for a relatively larger segment of developers, but honestly, I have heard very few of even the large developers getting financed from the international sources mentioned above.

Essentially, to a very large extent, financing even for medium and large solar projects in India are happening from Indian financial sector, and the rates of course are not very appealing – the lowest I have heard is 11% from some of the large IPPs.

Now, while developers might find it unfair that the banking system is not supporting them whole-heartedly, the banking system has its own story to tell.

I recall a meeting with the head of a nationalised bank in Hyderabad a week back. I was sitting in front of him with my client who was seeking a loan for a 2 MW solar power plant.

Some of the concerns put forward by the bank honcho were the following:

  1. Off-taker risk
  2. Technology risk – both uncertainty of generation with trackers and
  3. Policy risk – he related how governments’ unstable and volatile decision-making could jeopardise the confidence of the investors. A case he mentioned was a Maharashtra road project, whose revenues were to come from tolls collected. However, the MNS in the state apparently has forced the operator not to collect toll from vehicles with Maharashtra licence plates, effectively decreasing the revenues to a fraction of what they were projected.

However, the rather challenging times for the Indian solar sector in the context of financing might have just started changing for the better. The following are the reasons:

  • The central government has been really pushing banks heavily to make lending for solar a big priority.
  • Interest rates have come down thanks to recent announcements from the RBI on the overall lending rates
  • Banks are getting far more familiar with the solar sector. Some banks I have dealt with have already loaned money to solar in the recent past, so they are far more comfortable with lending the next time – call it the Precedent Advantage.