Mercom India hosted a webinar on key trends shaping the Indian solar market based on its recently released India Solar Market Update report for the first quarter of 2020. The session focused on the current situation of the industry, especially in the light of the ongoing pandemic and the unprecedented challenges faced by the stakeholders.
The presenters and participants discussed the current financing issues in the Indian solar rooftop market, the government’s plans to implement direct benefit transfer (DBT), liquidity issues for lenders, and other hot topics in the Indian renewable energy sector.
Renewable Funding Issues:
Speaking about lending to renewable projects, Gupta said that IREDA has plans to lend around ₹1 billion (~$1.3 billion) to the solar and wind sectors. He added that these funds were mainly meant for power generators. Of this amount, the IREDA said it had disbursed only about ₹12 billion ($159 million), citing challenges due to the ongoing coronavirus crisis.
“Things have considerably slowed down both for assets and liabilities after COVID-19. The liquidity is completely dried up on the non-banking financial companies (NBFCs) side. On the one hand, you have the moratorium because there are genuine cash flow problems on the project level, and on the other, NBFCs have to continue servicing their labilities,” said Sinha.
“This has made things extremely difficult for NBFCs. Banks are flushed with liquidity, but not NBFCs. So, funding post-COVID will be restrained, and it will depend on how the liquidity scenario eases out going forward,” he added.
Renewable project development has also been hit hard by the ongoing crisis. The nationwide lockdown to curb the spread of the Coronavirus has disrupted supply chains, operations, and construction activity. Projects are being delayed, and there is no end in sight.
As a result, indirect costs are building up, and there are no mechanisms where developers can get them reimbursed aside from filing a petition with the Central Electricity Regulatory Commission (CERC), said Sinha.
He noted that the government could help by making a provision to adjust tariffs which would help lenders to continue supporting these projects. If projects are delayed for too long, they become unviable, and lenders will also block the flow of funds, further delaying them, he explained.
The moratorium may have given developers some breathing room, but if lenders start demanding unpaid dues as soon as it ends, the project may not survive.
“With infrastructure projects, the cash flow is matched with lending repayments. So, you have to amortize it over the period of the loan cycle. You can’t just get back unpaid dues within a month or a quarter,” Sinha explained.
Rooftop Solar Market:
On the Indian rooftop solar sector, both speakers agreed that it is currently not a very attractive market for lenders and financial institutions because of the smaller scale of the projects.
Banks and NBFCs do not find these projects feasible because they would cost as much as larger capacity ground-mounted projects to service the loans and are not as economically feasible.
L&T’s Sinha explained that rooftop financing is not an NBFC’s or banker’s product. Because of the scale, these don’t fit into the cost structure of NBFCs. They have to carry out the same assessments for ground-mounted and rooftop projects, and the scale of rooftop projects just can’t sustain the costs involved.
IREDA’s Gupta suggested that a viable model that developers could adopt would be to pool smaller rooftops projects together to increase the overall cumulative capacity of the projects. Lenders would be much more confident funding larger projects with higher guaranteed returns. Alternatively, they could open up a medium-term line of credit and get costs reimbursed after project completion.
Sinha also noted that another major challenge finance agencies face while funding rooftop projects is the lack of long-term weather data and monitoring solutions for these projects throughout the duration of the loan tenure.
Gupta agreed that the industry needs more weather monitoring and resource assessment stations. The available data currently is not as accurate as it could be. By focusing on setting up more data assessment stations, lenders would also be able to gauge the generation potential of projects, making them more open to disburse funds.