Event ReportsPublished on Sep 08, 2011
Observer Research Foundation, in collaboration with BRIDGE TO INDIA and Solar Energy Society of India, organized a round-table discussion on "Financing the Solar Projects under JNNSM" on 9th Aug, 2011.
Financing Solar Projects Under JNNSM

Observer Research Foundation, in collaboration with BRIDGE TO INDIA and Solar Energy Society of India, organized a round-table discussion on "Financing the Solar Projects under JNNSM" on 9th Aug, 2011.

The key message: The National Solar Mission is a departure from the past, as India starts to mainstream climate considerations in energy planning, and allocates a large public subsidy of Rs. 36,000 Crores, for promotion of solar energy. The critical success factor for projects under the Jawaharlal Nehru National Solar Mission is the underlying economic rationale.

The discussion straddled several anomalies of Solar financing under the JNNSM for both Grid connected and off applications. Issues surrounding the bankability of the solar projects, research and development policies, payment security concerns, technology incubation and resource data availability were highlighted. The deliberations transcended the focus on financial parts to a wider and a more holistic perspective of the solar projects.

Not much has happened in the past 20 yrs in the field and even the advent of the National Solar Mission have failed to provide solar projects priority in the financial world. Mr. R.P Rudy, Member of Parliament, touched upon the ’notion’ of progress in the field of solar power in India. The various strands of the resistances faced in funding solar projects were teased out by Mr. A.K Shrivastava, President SESI. The inadequate calculations reducing the bankability of the projects, availability of the funds, high cost of production etc. were concluded to be the some of the problem areas. To add to this, Dheeraj Sharma. L&T Infrastructure Finance Company Ltd, gave a practical insight of the situation. Capital cost of the solar project has increased in the past quarters to an extent that equity IRR is almost equivalent to debt cost of the capital; therefore, if promoter lacks equity funding then it is almost impossible to get equity funding from other sources. These constraints were further detailed out by Mr. K.S Popli, Technical Director, IREDA who explained the funding process flow and pattern. He mentioned the various incentive and subsidy schemes developed by IREDA and MNRE for grid and off grid solar projects to facilitate private participation in the solar mission.

In the policy context, Dr Ashwini Kumar, Director MNRE, advocated setting up of centers of excellence in research and education for technology validation and promoted international collaboration for technology incubation support. The payment security concerns, like he said, can be dealt by extending General Budget support by Government of India. Further, the Technology Demonstration Projects has the potential to address issues related to optimization, variability and storage constraints. He said that indigenous manufacturing capabilities need to be developed for triggering the progress of the solar projects.

Besides the general incentives and subsidies available by the government, other market mechanisms like Renewable Energy Certificates (REC) have been introduced recently. Mr. Rakesh Mediratta from Indian Energy spoke about the merits and demerits of the system. According to him, the most critical part of the REC scheme is the eligibility criteria for issuance of the RECs. Also, the market design in terms of minimum guaranteed price, liquidity of the RECs and long term visibility of this mechanism are some of the fall-outs, he mentioned. The effectiveness and workability of the REC mechanism is yet to be reviewed.

The other parameters which gained attention during the conference were the assessment of solar resource, plant efficiency and the electricity output. Mr.Lavleen Singhal, Director Acira Solar Pvt Ltd stressed on conducting intensive due-diligence and risk assessment for the solar projects. The current procedure of solar resource assessment is based on the satellite estimations which might be inadequate making funding solar projects difficult. Probabilistic assessment, contract evaluation and choice of efficient technology were some of the recommendations he made.

Taking of the technology Dr. Charles Pownall, Inventor of the current Wavicle™ Series of photovoltaic cells, suggested shifting the focus from solar farms to financing the entire infrastructure strongly based on research and development. To achieve the grid parity, it is imperative to improve the technologies and increase the output. His nano silicon PV cells, with the output capacity of 108% formed a rather convincing argument.

During the open discussion held after the presentations, issues of the legal framework and institutionalizing the Renewable Purchase Obligation (RPO) were raised. In response, it was suggested that a little margin should be given to the RPO or REC mechanisms before reaching any judgment since it is still in its first financial year. It was reaffirmed that the elemental parts of the solar project - the output efficiency, technology selection and risk assessment are the most important parameters that need to be worked on to increase the bankability of the solar projects.

The discussion, chaired by Mr. A.K Shrivastava, President Solar Energy Society of India, was attended by Government Officials, IREDA representatives, energy consultants, activists, legal advisors, and other finance experts besides ORF faculty.

(This report is prepared by Sonali Mittra, Research Assistant, Observer Research Foundation)

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.