Solar mission has been put in serious jeopardy by bankers
New Delhi: India’s ambitious solar power mission which envisages investments of about Rs 3 lakh crore by 2022 and is a key component of the national action plan on climate change, has been put in serious jeopardy by bankers loath to lend to solar projects. Public sector banks and financial institutions dedicated to the power sector told FE that they have no way to assess the commercial viability of these projects and would tread warily.
Concerned that lack of funding might derail the programme, the government is meeting bankers and solar power developers on Tuesday to discuss ways to finance solar projects.
The cost of setting up solar power projects in India works out to Rs 17 crore per mw, four times that of conventional projects. Bankers are also unsure about the performance of these plants. They are also apprehensive about the way the model power purchase agreement (PPA) has been structured.
Bankers want to know who will compensate for the shortfall if these plants fail to achieve minimum load factor of 20% as mentioned in the PPA. They feel the payment security mechanism is far below expectations.
“Our technical people want assurance on plant load factor, either from equipment supplier or the NTPC Vidyut Vyapar Nigam (NVVN)” said HD Khunteta, finance director, Rural Electrification Corporation.
A Oriental Bank of Commerce official said: “The cost of a solar project is almost four times that of a thermal power plant. Therefore, debt-servicing for solar projects is tough… If the government gives subsidy in the form of higher tariffs, then these projects could become a little easier to finance.”
A senior executive from another PSB said: “There is no provision for assigning PPA in favour of lenders as is the normal practice for conventional power projects. Further, there is no recourse for lenders in case of termination of PPA by NVVN,” “These issues were raised by bankers in a recent meeting with NVVN. However, NVVN said it would not be possible to accommodate bankers’ concerns,” the executive said.
India Infrastructure Finance Company CMD SK Goel said: “Generally, solar projects which have entered into a PPA are easier to finance. If there is no PPA, then there is a risk and financiers would usually not want to lend to such projects.” He, however, added that IIFCL was “positive” on solar projects, even though “price remains a concern”.