Finance your Solar Projects by this Ways!!

Solar Power has started gaining the momentum since last 4 to 5 years, due to its great results and government’s plan to shift towards the green energy. Nowadays government has also started promotion of it to make more and more public aware about it and participate into it. But the only thing that is left in mind is the options that are available for the financing of the same. When an individual looks at the usability of it and if the ticket size of the whole project is up to 2 lakhs then 30% of the people agrees to do it without looking after the financing options (as they can pay it in cash). But what if anyone is not able to do so, it’s an obvious thing. The remaining 70% will think before doing so, to look after the financing options. And if the project cost is above 2 lakhs or 5 lakhs, everyone will think “Is there any loan option available for this?” 

We will discuss about some of the financing options that are available for both the Residential and Industrial purposes. 

1). Residential Solar PV Financing

The Residential Solar Plants or Rooftops are getting traction because of the subsidy support given by the Government. The percentage of subsidy is different in different states (Some states are not providing subsidy on Residential Solar Rooftops). In the period of vertical development, when people are living in flats, they are not able to install the solar rooftops because of the common roof. They can install the rooftops for the electricity provision to Common Lighting of the Society, Lift related purposes, Water Pumping etc. Let’s discuss about the financing options that are possible to get the benefits of the same:-

a). By taking a personal loan : A person can take a personal loan on the basis of their own banking transactions that a bank provides on the banking nature of the person and the CIBIL score. It can range from 12-18%, as you don’t need to give anything in mortgage to the financial institution. This also depends on many other factors like profession of the person and the nature of the profession (Salaried or Businessman). 

b). By taking a home improvement loan : When a person want a comparatively low interest rate on the Solar Rooftop Financing i.e. 9-11%, they can opt for home improvement loan. But there are some differences when compared to the personal loan. All those details about the prospective borrower that is taken in personal loan is same in home improvement loan but additionally the person need to give his property in mortgage to get this much low interest rate. This process takes around 1-1.5 months for the loan sanctioning.

In cases of financing for the society common roof in flats, option of financing big project cost is not possible. But it can be made possible if the society is having its own PAN card and all the transactions are legalized. Many co-operative banks have started a society redevelopment financing scheme under which financing of solar projects is possible. Banks like Central Bank of India, Saraswat Bank etc. are funding for the same (redevelopment) up to an interest rate of 12%.

2). Industrial Solar PV Financing

The Industrial Solar PV Financing is not so complicated loan as it is the one that can be funded on the basis of the business transactions from any financial institution as a business loan. Government is not providing subsidy schemes to the commercial or industrial entity for the solar projects. But there are some financial institutions of Government that provide loans especially for the solar projects at very less interest rates of up to 10.7%. Let’s take a look on them:- 

1). Small Industries Development bank of India (SIDBI) : Sidbi Term-Loan Assistance For Solar PV Plants (STAR) : It includes all the costs including solar panels and accessories and installation cost.

Segment Coverage : 25 kW to 500 kW plants

Loan Amount : ₹ 10 lakhs to ₹250 lakhs

Promoter’s Contribution : Zero

Fixed Cash Deposit : 15% to 25% of the loan amount (Will be given back with interest after the completion of loan tenure)

Interest Rate : 9.10 % to 10.20 %

Repayment Tenure : 5 years (including 3 to 6 months moratorium)

For new customers to SIDBI track record will be considered of last 4 years and for the existing one it will be 2 years. And the company must be a profit making from the last two years from the date of application.

2). Indian Renewable Energy Dvelopment Agency (IREDA) : LOAN SCHEME FOR FINANCING ROOFTOP SOLAR PV GRID CONNECTED/INTERACTIVE POWER PROJECTS (INDUSTRIAL, COMMERCIAL AND INSTITUTIONAL)

Segment Coverage : 1 MW or more than that

Loan Amount : Not declared (As per Industry Standards)

Promoter’s Contribution : 25 – 30% of the total project cost (depending on the repayment capability of the promoter)

Fixed Cash Deposit : Zero

Interest Rate : 9.80 % to 10.70 %

Repayment Tenure : Maximum 9 years (including 12 months moratorium)

The applications are divided into direct and aggregator category:-

Direct Category : The direct category comes when someone want to get 1 MW or more capacity plant commissioned at just one place. The power will be consumed by the promoter only and the agreement will be held between the promoter and the Discom for an on-grid application.

 

Aggregator Category : The aggregator category comes when more than one promoters applies for  financing through an aggregator for solar project establishment at their locations. The agreement is held between the aggregator and the Discom. The promoters can be at different locations.

Limitations for the aggregator category:-

a). The minimum application for the solar project financing should be 1 MW or more than that. For e.g. 5 promoters are there, that have approached an aggregator for financing there solar project in IREDA are having there minimum power requirements as below :-

Promoter 1 : 200 KW

Promoter 2 : 150 KW

Promoter 3 : 450 KW

Promoter 4 : 50 KW

Promoter 5 : 50 KW

The total power requirement is 900 KW, with this the aggregator cannot apply for all of them as the minimum power requirement is 1 MW.

b). The minimum power provided at one location must be 20KW in aggregator category

Miscellaneous details related to Documents & Credit Ratings

A Power Purchase Agreement (PPA) is held between the power purchaser and the power producer. An Individual looking for the establishment of Solar projects but not having enough roof area can take roof at any other location on lease to get the total credit of the same so that individual act as an aggregator. When the Roof is taken up on lease the power production credits are given to the one on whose name, the lease agreement is made (or the aggregator).

Specific documents needed to provide for the same :-

a). Documents Pertaining to the Roof ownership rights.

b). Roof Lease Agreements for the free use of the roof for the project during the loan tenure of IREDA.

c). A Private PPA is formed between the multiple parties and for the Payment Security Mechanism attached with a Bank Guarantee and Revolving Letter of Credit.

d). Every single party applying through the aggregator should be profitable and it should reflect same in its balanced sheets. 

Credit Ratings :-

IREDA conducts a credit grading exercise to analyze the repayment capability and the interest rate needed to provide. IREDA categorizes them into 4 grades i.e. I, II, III, IV. The applicants need to conduct their credit ratings from the external rating agencies also i.e. ICRA, CRISIL etc.ADE I

Revenue Models

1). Through the captive power generation of the roof owner

In this the aggregator and roof owners (maybe promoters) shall enter into roof lease and O&M (Operation & Maintenance) agreement for guaranteed solar generation. Direct applicants shall be required to submit O&M agreement for loan tenor or performance guarantee.

2). Through selling power by net metering PPA to grid

In this roof owners enter into agreement with discom and aggregator as per net metering policy. Net Metering is the supply of the excess power produced by the Solar Plant after the fulfilment of the required power to the grid.

3). Through selling power by gross metering PPA to grid

In this aggregator enters into agreement with discom and roof owner as per gross metering policy. Gross metering is the total supply of the power produced by the Solar Plant to the grid. 

Sometimes for the completion of the project, Government (Distribution licensee, DISCOM or any other Govt. body) can appoint an aggregator for different locations.

All the above revenue models are viable for the project commissioning. If any other revenue model comes in the picture, it will be adapted on the basis of its viability.

The applications can be applied either directly or by an aggregator