By Richa Chakravarty
By July 9, 2011, the first batch of solar projects under the Jawaharlal Nehru National Solar Mission (JNNSM) ought to have received funding. But that deadline has passed, with only 17 photovoltaic (PV) projects out of 30, and two concentrated solar power (CSP) projects out of seven providing financial closure details to the Ministry of New and Renewable Energy (MNRE). These projects, which were approved in the first batch, amounted to a generating capacity of 620 megawatts.
This lack of funding has put the brakes on India’s ambitious solar mission, which is also said to be the world’s largest. The first phase of the government tender under the 2020 plan to install 20 GW of solar energy had attracted an overwhelming number of companies, but about half failed to secure funds; their licences would probably stand cancelled.
Financing the projects was one of the major problems faced by the winners of Phase 1 of the auctions. Many participating companies with no background in the industry or experience in bidding had bid low to win these projects. “Since the bids were irrationally low and the company could not have made profits, banks and financing institutions refused to fund these projects. Some bidders were so ignorant that they bid as low as Rs 10-12 per unit, which is why the banks did not find their projects viable. In fact, information about how many kWhr of energy will be generated from a particular solar farm is also essential for a finance company to ensure an assured pay back,” explains Vivek Chaturvedi, global head, Sales and Marketing, Moser Baer India Ltd.
A lesson learnt?
In the first week of August 2010, the government had invited bids for Rs 30 billion (Rs 3000 crore) worth of solar power projects with a capacity of 300 MW, and projects were awarded to the lowest bidder regardless of their previous experience in developing such projects.
Learning a lesson from this gloomy situation, MNRE has decided to increase the generating capacity in the next batch of projects, based on the size of the cancelled projects, and will soon announce new policy guidelines.
Challenges for financing
Finance companies and banks face a few challenges while funding a project. Solar technologies are at a nascent stage in India. While crystalline cells and modules are comparatively easier to execute as they are proven technologies, newer technologies like thin film and concentrated PV are unproven and, therefore, considered risky.
Power purchase agreements (PPA) are another obstacle in funding projects. JNNSM provides for a ‘trader PPA’ with NTPC Vidyut Vyapar Nigam Ltd, which passes on the risk of default by state discoms to the developer. Given that many state discoms are notorious for delaying payments and even defaulting, financial institutions and banks refuse to consider these PPAs bankable.
It is high time that the government came up with some sort of arrangement for the guarantees, which would instill confidence amongst investors and banks.