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Financing the
Solar Photovoltaic

• Rooftop solar PV is expected to play a prominent role in meeting the
ambitious target with an installed capacity of 40 GW by 2022, and
addressing energy demands across segments.
• It has already achieved grid parity for commercial and industrial consumers,
and is fast becoming attractive for residential consumers as well. As a result,
multiple state governments have taken necessary steps to kick-start
implementation of rooftop solar PV projects.
• However, there are still various challenges to scale-up rooftop solar energy
• The aim of this Presentation is to highlight interesting business and financial
models currently in operation across the world, and their applicability to the
Indian context. Engaging with key stakeholders through face-to-face

• Sun’s energy is free but setting up a MW Solar plant is capital-intensive.
Financing options is one of the biggest hurdles faced by MW solar plant
• It is critical to select a solar financing option that suits your company. The
usual cost of setting up a plant comes to around Rs 4.50 to Rs 5.00
• 30% of this is met by equity and the rest through debt financing. Equity is
just a fancy word for having to fund from your own resources or from other
• Debt financing is usually available with recourse.
• Debt financing without recourse is an option only for big players with large
scale solar installations and with a good track record. MW solar plants, in
India, are financed by a debt-equity mix.
Financing Structure
Domestic Financing (mainly from banks): As of 2015, Indian banks are lending at
interest rates in the range 11-13%, NBFCs could be lending at slightly higher rates. IREDA
(the Indian government’s renewable energy lending arm) lends at lower rates (10.2-
11.4%). Collaterals required for eligibility could vary all the way from 20% for entities
such as IREDA to the full 100% for many banks. Domestic loans are usually for a period
of 7-10 years, though many Indian banks are now comfortable to lend until 15 year

International Financing: The final interest rate here for loans from
international sources usually is between 8-10%, after factoring in all costs,
including the cost of hedging for exchange risks. But here the time to
process the loan would take a long time, around nine months and this could
impact the project start time. Although interest rates are generally lower in
the case of foreign financing, it is necessary to take into consideration the
cost of hedging against currency fluctuations. Foreign debt is available for a
tenure of 16-18 years.
There are certain criteria that the investor has to meet in order to be
eligible for a sanction of loan.

• Positive cash flow from operations in the company/ Project.

• DSCR (Debt Service Coverage Ratio) of the company should be greater than
1.5 though some banks/ FIs accept DSCR at 1.37-1.40.
• Debt: Equity at 70%:30%.
• Profile of the off taker. (External Credit Rating, Group Profile, Business Profile,
Nature of Industry, Nos of year in business, Electricity consumption
requirement etc.)
What are the steps for financing and funding a solar project

The following documents are to be produced by the investor while
applying for the loan:

• Appraisal of Promoters & Developers.

• PPA Agreement/ Letter of Intent.
• Feasibility study
• O&M contract.
• Evacuation Permission/ arrangement.
• Contracts for supply of components.
• List of permissions and compliance acquired/to be acquired.
• Financial Assessment of off taker (submission of Audited Balance Sheet
last three years, Credit rating, Profile of Directors/ Promoters).

The other commercial banks and financial institutions actively involved

in RE financing are given below.

Yes Bank

• Non-banking financial companies Infrastructure funds - SBI Macquarie,
IL&FS and Taurus Infrastructure Fund.
• Dedicated power sector financing - Power Finance Corporation (PFC) and
Rural Electrification Corporation (REC)
• Investment banks – L&T Finance, SBI CAPITAL MARKETS, Bank of America,
Barclays Capital, BNP Paribas, Lazzard and Credit Suisse.
• Export credit agencies/Investment insurance agencies :- US EXIM Bank,
Euler Hermes Kreditversicherungs-AG (Germany), China Export & Credit
Insurance Corporation (China), Nippon Export and Investment Insurance
• Development finance institutions:- Asian Development Bank (ADB), the
International Finance Corporation (IFC), Overseas Private Investment
Corporation (OPIC), Germany’s KfW & DEG and the Indian Renewable
Energy Development Agency (IREDA)

Prominent rooftop solar

Accelerated Depreciation
Capital Subsidies
Renewable Energy Certificates
Net Metering incentives

Project Cost in Lakhs 450.00
PPA Rate/Rs unit 5.50
Annual Generation in Lakhs Units 15.00
Annual revenues Lakhs 82.50
Resale Value 0.00
Equity Contribution 30.00%
Debt 70.00%
Interst Rate on Debt 11.00%

Project IRR
Year 1 2 3 4 5 6 7 8 9 10
Project Cost -450.00
Revenues 82.50 82.50 82.50 82.50 82.50 82.50 82.50 82.50 82.50 82.50
Salvage Value 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total Cash Flow -450.00 82.50 82.50 82.50 82.50 82.50 82.50 82.50 82.50 82.50 82.50

Equity Draw Down 135.00 1 2 3 4 5 6 7 8 9 10

Interest +Principal 49.95 49.95 49.95 49.95 49.95 49.95 49.95 49.95 49.95 49.95
Cash Flow to Equity Holder -135.00 32.55 32.55 32.55 32.55 32.55 32.55 32.55 32.55 32.55 32.55
Equity IRR 20.32%

• India is running one of the largest renewable energy capacity expansion
programs in the world, with solar energy being the core focus and
expected to generate 100 GW by 2022. Solar power installed capacity has
increased from only 3.7 MW in 2005 to about 4060 MW in 2015, with a
CAGR of more than 100% over the decade.
• Dozens of rooftop solar energy start-ups in India are looking to raise equity
funding at a time when the sector needs to speed up capacity expansion
to achieve the target of 40 gigawatt (GW) of installed capacity by 2022.

MNRE liaising for Low Cost Funds
• The World Bank had in June-2016 has invested $625 million in India’s
rooftop solar sector, while the ADB plans to provide $500 million in
financing to the sector.
• The World Bank project is being implemented by the State Bank of India,
which will lend funds to developers of commercial and industrial rooftop
photovoltaic (PV) systems. ADB’s financing will be through Punjab National

Home Improvement Loan Finance
• The Department of Financial Services, Ministry of Finance has issued
following advisory to all Public Sector Banks:

“All banks are advised to encourage the home loan/ home improvement loan
seekers to install rooftop solar PVs and include the cost of such equipment in
their home loan proposals just like non solar lighting, wiring and other such

In compliance, so far, eight Public Sector Banks namely Bank of India,

Syndicate Bank, State Bank of India, Dena Bank, Central Bank of India, Punjab
National Bank, Allahabad Bank and Indian Overseas Bank have taken actions
and issued the necessary instructions for their branches.

Active Venture Funds In India
1. Kalaari Capital 21. Mayfield Fund 41. NewPath Ventures 61. 50K Ventures

2. Sequoia Capital 22. SAIF Partners 42. Lightbox Ventures 62. Rebright Partners

3. Nexus Venture Partners 23. Matrix Partners India 43. Ankur Capital 63. FAO Ventures

4. Venture East 24. Unilazer Ventures 44. Artiman Ventures 64. Bertelsmann India Investments (BII)

5. Seedfund 25. Saama Capital 45. Qualcomm Ventures 65. Ideaspring Capital

6. Blume Ventures 26. IndoUS Venture Partners 46. Zodius Capital 66. Maverick Capital

7. Kae Capital 27. New Enterprise Associates (NEA) 47. Steadview Capital 67. Tessellate Ventures

8. Inventus Capital Partners 28. Epiphany Ventures 48. Eight Roads 68. AdvantEdge Partners

9. Accel Partners 29. ORIOS Venture Partners 49. Unitus Seed Fund 69. Greenoaks Capital

10. IDG Ventures India 30. NORWEST Venture Partners 50. Ojas Venture Partners 70. Prime Venture Partners

11. Intel Capital 31. One97 Mobility Fund 51. Gray Ghost Ventures 71. Canaan Partners

12. Nirvana Venture Advisors 32. India Quotient 52. March Capital Partners 72. Battery Ventures

13. Indian Angel Network 33. DFJ Venture 53. Gray Matters Capital 73. Axon Partners Group

14. Jungle Ventures 34. India Internet Fund 54. Aspada 74. Forum Synergies

15. Peesh Venture Capital 35. Lok Capital 55. DST Global 75. Basil Partners

16. Naspers 36. Katabole Technology Venture 56. Exfinity Venture Partners 76. Tano Capital

17. Tiger Global Management 37. IvyCap Ventures 57. BEENEXT 77. Broadbean Capital

18. Bessemer Venture Partners 38. Utthishta 58. StartupXseed Ventures 78. Pix Vine Capital

19. Catamaran Ventures 39. Trifecta Capital Partners 59. RB Investments 79. Bitkemy Ventures

20. Lightspeed Venture Partners 40. SIDBI Venture Capital 60. Axilor Ventures 80. Omnivore Partners