Mobilizing Financing for Solar Power Projects

By Don Purka Private Sector Operations Department Asian Development Bank Jodhpur Workshop on Solar Energy Development 13-15 September 2011

Setting the Scene

NSM Projects (Phase 1, Batch 1):
150 MW of PV Projects (5 MW each) 500 MW of CSP Projects (~50-100 MW) Aggressive tariff bidding Financial close deadline passed (soft or hard closing?) Commissioning deadline looms for PV projects

State-Level Project Development:

Numerous allocations (950 MW allocated in Gujarat alone) Some small projects commissioned how are they performing? Most under construction what is the progress? Hiccups? Trading of allocations or licenses? Is land available on schedule and within reasonable cost?

Assessing Solar Power for Finance:

Technology Risks:
Is the technology commercially proven? At scale? Will the technology produce the forecasted kwh? Will the warranties be sufficient? Will the provider have sufficient resources over the LT to backup the warranties?

Execution Risks:
Can this be done in India on time and on budget? Sponsors track record in India? in Solar? Module provider and EPCs track record?

Assessing Solar Power for Finance (2)

Offtaker Risks:
How do we manage payment risk for expensive power Will new technologies or lower cost modules lead the offtaker to renege on the PPA? How to manage? Payment security mechanisms

Regulatory Risks:
Will solar RPOs (and enforcement of penalties) stand up?

Evacuation Risks:
Will the state grid be available to evacuate my energy and strengthened to handle variability?

Financial Risks:
In addition to other risks, seasonality and uncertainty of solar resource = variability of project cash flow How to obtain finance / structuring:
Maximize leverage to meet investor expectations What is the optimal balance of debt to equity for both parties? What is debt servicing capacity of the tariff? Can you sculpt amortization to meet target DSCRs? Promoter to bring in equity up front? Share retention, cash sweeps, dividend blocks, other covenants

Guarantees from promoters or third-parties:

For cost and time overruns; plant performance; debt service (e.g., corporate finance)

Questions for Discussion

Report Card (2010-2011) -- Successes? Failures? What have been key hurdles for project due diligence cost, land, evacuation, grid availability, permits, etc? What are the key financing bottlenecks for local lenders? For ECB lenders? For others? Under what conditions is non- or limited-recourse possible?

Questions for Discussion (2)

What policy or regulatory steps are needed? Does the PPA / offtake structure (both NVVN and state level) need improvement to leverage additional and new sources of capital? Is the present cost of rupee funds a deal killer? Is there enough bank finance to scale up? What market innovations could the capital markets provide? PPP structures?