IREDA to finance Solar Energy

India’s main renewable energy funding agency IREDA is going to shift its focus towards solar energy as the country has made extremely ambitious plans to install multiple gigawatts of solar energy. IREDA has already raised its equity capital base and is set to increase its funding from different national and international agencies to meet the huge capital requirements for building almost 100 GW of solar capacity by 2022.

The agency used to mainly fund wind energy farms, with almost 40-50% of India’s wind farms raising debt from IREDA. The company only recently started to fund solar PV power plants as other state owned banks and international agencies such as IFC, ADB and US Exim Bank provided the debt component of the capital intensive solar business. However, the debt requirements from the solar industry is going to increase tremendously, as private players ramp up capacity. Recently three state governments awarded 1500 MW of solar power plants and India has already announced giant solar park under its central subsidy mission.

IREDA is planning to disburse around $2 billion in debt in the next three years. This would fund about 2 GW of solar power plants. Given that India should install almost 10 GW of solar power in the next three years, this would imply a 20% market share of IREDA which is still small compared to its dominant market share in the wind energy market.

I think that other large long term finance players such as pension funds should be allowed to invest in the sector. India’s massive provident fund scheme should be allowed to invest in the sector with appropriate government guarantees. This will provide long only patient money, which the solar sector desperately needs and also allow the Indian provident fund to earn higher yields than government debt.

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“We want to disburse nearly Rs 12,500 crore in the next three years out of which lending towards solar projects would be more than 60 per cent,” Ireda chief general manager (technology) B Venkateswara Rao told on the sidelines of the Intersolar India summit here today.

“The new government has laid emphasis on promoting solar power generation which provides huge business opportunities to us. Therefore, we have decided to increase our exposure to this sector,” he added.This year, the agency has already increased its lending for solar projects, and expects the trend to continue in the future, Rao said.