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At Least Half of 620 MW of Solar Power Capacity under JNNSM to Miss Financial Closure Deadline,Will Lose License as Irrational Non Serious Auction Winners to lose Bank Guarantees

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Financing of Solar Energy Projects in India under JNNSM is proving to be a huge problem for the winners of Phase 1 auction under the federal subsidy scheme.Solar Energy in India has huge potential and attracted a number of companies to the first phase of the government tender under the 2020 plan to install 20 GW of solar energy.Note 620 MW of projects in the 5 MW and above category were awarded to 37 solar companies.Many of these firms had no background and had bid irrationally low to win these projects.With little experience and no established financial infrastructure it was an accident waiting to happen.MNRE offical has revealed that 18 of the companies have failed to achieve financial closure and would probably lose their license by the July 9 deadline.Note most of these bids were irrationally low and would not have made profits.Indian Banks and power financing institutions have refused to lend quite prudently.Note these companies are not putting collateral using their parent company’s assets which means that they too doubt the feasibility of their projects.Only huge penalties will deter future non serious participants as at least half of the solar power capacity won’t get installed in JNNSM Phase 1.It remains to be seen how this affects the future of the Indian Solar Mission.

Only 2 out of the 7 Solar Thermal Project Winners have achieved closure

The Solar Project Bidding was  extremely competitive with discounts of  more than 30% being offered to the base price of RS 15.31 for Solar Thermal generated Electricity.Note Rs 15.31 was determined to be a decent price on which a Solar Thermal Plant Developer could get decent returns just a year ago.Reliance Power,Lanco and KSK Energy has won 100 MW Projects while 4 others have gotten approval for small plants.The smaller winners are Godavari Power,Aurum Renewables,Corporate Ispat and Megha Engineering.Looks like all the small ones will lose their licenses.It means that only 200 MW of the 470 MW of Solar Thermal Projects will get installed .Here is a list of winners of the JNNSM solar projects

Debt Financing of Solar Power in India was a Problem from the Start

Indian Banks Reluctant to Lend to Solar Projects

Indian Banks have raised concerns over lending money to Solar Projects in India.The main problem arises from the fact that State Electricity Boards (SEBs) are counter-parties to the P0wer Purchase Agreements (PPAs) signed by the developers.Most of the State Electricity Distributors are in poor financial shape and have been known to frequently default on their financial obligations.This means that the cash flows of the Solar Project will depend on entities with poor financial reputation.Note the debt financing of the projects is non-recourse which means that Banks have only the Financed Project as collatarel.With the Solar Energy still being almost 3-4 times more expensive than normal Electricity Prices,it means the banks will  suffer a big loss.With almost 70-75% of the estimated $2.2 Billion in the first phase of the PV projects to be financed by debt,this represents a big hurdle for the success of Solar Energy.The government needs to come out with some sort of arrangement of guarantees for the smooth functioning of the Solar Mission and instill confidence amongst investors and Banks.

Half of firms awarded solar projects yet to achieve financial closure

The ministry of new & renewable energy has said half of the 37 firms awarded solar power projects are yet to achieve financial closure and their contracts will be terminated if they miss the July 9 deadline. “Any failure in meeting the deadline would result in forfeiture of bank guarantees,” a senior official in ministry of new & renewable energy said. He said, the ministry has received financial closure details of 17 photovoltaic (PV) and two concentrated solar power (CSP) projects. He declined to name individual developers.Banks and financial institutions say that they would finance projects only on the basis of their viability. “Only 2 CSP companies have approached us. We are funding on the soundness of balance sheet because we are concerned about the return,” said an official from Rural Electrification Corporation , a stateowned lending agency.

“Developers are unwilling to provide collateral security on the main company’s balance sheet”, the official said requesting anonymity.


Abhishek Shah

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