Finance worries may cloud solar projects

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The second round of National Solar Mission, which has seen the lowest of the low tariffs, could soon face financing hurdles. The 350 megawatts of solar power saw bids as low as little less than Rs 8 a unit. That is around 33 per cent lower than the current average solar power tariffs of around Rs 12 per unit, says a Business Standard report.

Banks, which are already wary of lending to the power sector, are becoming more cautious with these projects. “I think these bids are aggressive to the extent that they might affect the long-term viability of these projects,” says B K Batra, executive director of IDBI Bank. “But developers might have made their calculations, we will have to see on what basis they were made.”

Sector experts say tariffs like Rs 7.50 per unit and Rs 7.9 could render these projects non viable if these projects were to get financing at current domestic rates of around 13 per cent.

“With non recourse rupee financing of debt, it will be challenging to achieve these tariff numbers and deliver a reasonable return to the equity investor,” notes Debashish Mishra, senior director of accounting firm Deloitte Touche Tomatsu.

The first round of the same auctions, which took place a year back, have not seen financial closures. Banking sources say that only those projects, which leveraged their balance sheet to get financing, have achieved financial closure. Many projects that were by smaller developers have neither raised debt nor progressed. This time around, however, saw some bigger groups participate like Mahindra Solar, Welspun group, and private equity backed companies like Azure Power and Kiran Energy Solar.

For solar power, banks also seek high equity contribution from promoters, which is around 40 per cent of the project cost. “Solar projects are different,” says Batra. “They depend on the location, intensity of irradiation, technology, capacity utilisation and power output.” The capacity utilisation for solar thermal projects is around 19 per cent, while that of solar photovoltaic projects is around 23 per cent.

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