Debt Financing Options for C&I Rooftop Solar PV

Aspiration Cleantech Ventures

December 6, 2017
Mumbai
About Aspiration Cleantech Ventures

Aspiration Cleantech
Ventures
An Asset Development and Management platform in the Clean Energy
Sector.
Founded and Managed by highly successful entrepreneurs, global business
leaders and technocrats with rich experience working in marquee firms.

Renewable Energy Energy Efficiency Energy Storage

• Efficient Lighting • E-Mobility

• Solar PV
• Drives(VFDs) • Electricity and
• Solar Thermal
• HVAC (Heat Pumps, Thermal storage for
Chillers) Industries
Asset Base
Solar PV
• Total Portfolio size ~ 1 MW
• Rooftop systems and Carports
• Grid-Interactive and Off-grid
• RESCO/PPA and rental models
• Multiple states(Tamil Nadu,
Telangana, Maharashtra, etc)
Solar Thermal
• Less than 100 Deg C hot water
for industrial processes
• Evacuated Tube Collector(ETC)
Technology
• Thermal Energy Purchase
model
Energy Efficiency
• ESCO Model
• Technology – Heat Pumps
• Long term contracts for Heat
Delivery ; Cash Flow from
demonstrated energy savings
Agenda

1
• Rooftop Solar PV in India – An Overview

2
• Debt Funding Options for Solar Rooftop PV

3
• Bankability of a Solar Rooftop PV Project

4
• Typical Debt Terms and Covenants

5
• Takeaways
Agenda

1
• Rooftop Solar PV in India – An Overview

2
• Debt Funding Options for Solar Rooftop PV

3
• Bankability of a Solar Rooftop PV Project

4
• Typical Debt Terms and Covenants

5
• Takeaways
Rooftop SPV Target – Path to 40 GW

Solar PV Rooftop - Target Vs Actual Capacity

45,000
40,000
40,000

35,000 810 MW? 31,000

30,000

25,000 23,000

20,000
16,000
15,000
10,000 9,000
10,000 8,000
6,000 7,000
4,800 5,000 5,000
5,000
200200 810
-
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

Annual(MW) Cumulative Target Capacity (MW) Cumulative Actual Capacity (MW)

Source : MNRE, pib.nic.in Cumulative Actual Capacity as of 31 October 2017

What is the Actual Capacity?

Cumulative Rooftop Capacity(MW)

Bridge to India 1600

(As of 30 June 2017)

Mercom 1345
(As of 30 June 2017)

MNRE 810
(As of 30 June 2017)
0 200 400 600 800 1000 1200 1400 1600 1800

Take your pick!!

Investment requirement for 40 GW
Capital requirement(Rs. Crores)

112,000 , 70% Debt

48,000 , 30%
Equity

Assumptions
• Capital Cost per MW - Rs. 4 Crores
• Debt-Equity Ratio – 70 : 30
Business Models

OPEX Model OPEX Model

CAPEX Model Gross Metering Net-Metering
(Rooftop Leasing) (Power Purchase Agreement)

Source: www.pvrooftop.in
Enablers of Financing

• Public Sector Banks instructed to extend loan for Grid

Interactive Rooftop Solar PV Plants as home loan/
home improvement loan

• Priority Sector Lending(PSL) status for renewable

energy(upto Rs. 15 Crores) by RBI

• Special loan programmes by IREDA, SBI and PNB

Agenda

1
• Rooftop Solar PV in India – An Overview

2
• Debt Funding Options for Solar Rooftop PV

3
• Bankability of a Solar Rooftop PV Project

4
• Typical Debt Terms and Covenants

5
• Takeaways
Key Players

Government of India Enterprise –

A Pioneer in lending to Rooftop
Solar PV Projects

SBI - $625 million from World

Bank

Clean Energy Focused NBFCs

PNB - $500 million from ADB

 Comparison of some options
Sr.No Parameter SBI PNB IREDA
.
1 Eligibility Criteria Sole Proprietorship, Partnership Firm/ including LLP and Public and Private Sector
Company/ Special Purpose Vehicle (SPV)/NBFC Companies/ firms
2 Branches identified All Corporate Account Group Branches, Mid- All Large Corporate Branches/Mid
for handling this Corporate Group branches, and SME Branches Corporate Branches/Exceptionally
business Large Branches/identified branches
IREDA, New Delhi
3 Loan amount Upto 75% of project cost. Upto 70% of project cost Upto 75% of project cost.
4 Type of Facility i) Term Loan, ii) Working Capital against receivables (Need Based) iii) Non Fund Based
Term Loan
(Letter of Credit/Bank Guarantee) facility
5 Pricing One year Marginal Cost of Funds Based One Year MCLR upto a maximum Interest Rate - 10.05% to 10.90%
Lending Rate (MCLR) plus spread in the range of spread of 30 to 50 bps ; Additional 0.5% till the date of
20 bps to 50 bps commisioning the project
6 Fixed Asset Coverage Above 1.25
Ratio (FACR) in a year

7 Loan Repayment
Period Upto 15 years Upto 9 Years
(Maximum)
8 Moratorium
12 months from the date of COD of the project.

9 Primary Security Exclusive first charge on fixed assets (present as well as future ) relating to the project/ Equitable Mortgage of
program immovable properties
10 Guarantee
Personal Guarantee or Corporate Guarantee
Bank Guarantee
11 Debt Service Equivalent to 6 months principal and interest. Minimum of 3 months principal and
Reserve Account interest
(DSRA)
Modes and Models

Modes Models
• Program Mode • Capex
– Master Line of Credit/loan facility will – The borrower sets up rooftop solar
be sanctioned to the Borrower to project with the intent to reduce his
execute multiple rooftop solar own power costs.
projects.
– Debt servicing is dependent on the
– Master Line of Credit is proposed main business activity of the
since normally rooftop solar projects Borrower.
would be of small size and it would
be difficult for the Borrower to
approach for approval of all projects • Third Party
at one go. – RESCO/OPEX/PPA
• BOOT
• Project Mode • BOOM
– Single rooftop by a single borrower • Rooftop Rental
– AD Model

Source: SBI
Agenda

1
• Rooftop Solar PV in India – An Overview

2
• Debt Funding Options for Solar Rooftop PV

3
• Bankability of a Solar Rooftop PV Project

4
• Typical Debt Terms and Covenants

5
• Takeaways
Bankability

“Project or proposal that has sufficient collateral, future

cashflow, and high probability of success, to be acceptable to
institutional lenders for financing”

Source : www.businessdictionary.com
Bankability - Technical Factors
Direct Impact on Cashflows

• Shadows/Structural Integrity of Roof

Site • Irradiation

Design • Optimized for Lifecycle, not just for Capital Cost

• Quality of Materials
Material • Bankability of Suppliers

• Quality of Construction
Build • Very little need for refurbishment

• Very low downtimes

O&M • Ensure generation above estimates
Bankability - Financial Factors

• All generated power should get paid - Either net-metering

Dispatch or deemed generation(in case of RESCO model)

• Credit Rating of asset owner and off-taker, and the power

Off-take supplier

Debt-Service • Debt Service Coverage Ratio(DSCR) of about 1.3

Termination Values • In case of premature termination of contract

• Protection against downward revision of tariff for the

Tariff contract, in the future

Payment Security • A few months payment in the form of Bank Guarantee

Bankability - Regulatory Factors

Cross-Subsidy • Cross subsidy charges that might be imposed in

the future can reduce returns(IRRs)
Charges
• Very important for the viability of projects ,
especially in establishments which do not
Net-metering operate on weekends and no deemed-
generation provision

Changes in • Possibility of Electricity included in GST regime

Taxes
Bankability issues specific to RESCO model

• 25 Year PPAs – Business continuity risks

• Deemed Generation, in the absence of net-
metering
• Renegotiation of tariff a few years into the
contract
• Contract enforceability
• Termination and compensation
• Payment Security/Timely payments
• Access to site
Agenda

1
• Rooftop Solar PV in India – An Overview

2
• Debt Funding Options for Solar Rooftop PV

3
• Bankability of a Solar Rooftop PV Project

4
• Typical Debt Terms and Covenants

5
• Takeaways
Typical Debt Terms and Covenants
Security
Primary
• Exclusive first charge on all
fixed assets, receivables,
movable assets, and
current assets, lease hold
rights, and project related
accounts, current as well
as future relating to the
project
• Assignment of Project
documents.
• Hypothecation
Collateral
• Conditional Collateral
security if FACR falls below
a certain limit(eg. 1.25)
Guarantees Covenants(Examples)
• Personal Guarantee of • Total Debt/EBIDTA <= 2.5
proprietor/
partners/directors -in • Total Outstanding
case of Sole Liabilities/Total Net-worth
Proprietorship ratio <=2.0
/Partnership Firm/
Company • Minimum Debt Service
Coverage Ratio >= 1.10
• Corporate Guarantee of
sponsor - in case of
Special Purpose Vehicles
(SPVs)/Associates/
Subsidiaries
Agenda

1
• Rooftop Solar PV in India – An Overview

2
• Debt Funding Options for Solar Rooftop PV

3
• Bankability of a Solar Rooftop PV Project

4
• Typical Debt Terms and Covenants

5
• Takeaways
Takeaways

Rooftop PV Installation Target – 40 GW by 2022

Debt requirement ~ Rs. 1.12 Lakh Crores(~ US $ 25 Billion)

Dedicated Debt for rooftop Solar PV currently available – More than US

$1 Billion just between SBI and PNB

Focusing on key Technical, Financial and Contractual aspects will help

improve the bankability of the projects

Awareness of typical debt terms and covenants will help new players in the
space to secure debt quicker
Key Takeaway

With Millions of Dollars committed,

lack of Debt funds unlikely to be a
constraint for the right quality of
Rooftop Solar PV projects…

..but!!
Key Takeaway

… the Million Dollar question is

Will the cut-throat competition allow

the development of quality projects
worthy of debt funding?
Thank You!!
Madhavan Nampoothiri
Aspiration Cleantech Ventures
madhavan@aspcv.com
www.aspcv.com