Financing RE Projects

International Congress on
Renewable Energy (ICORE)-2013
Financing and Challenges in RE Projects
Sangeet Shukla
Senior Advisor
Indian Banks’Association
Financing RE Power Projects
• The RE Scene in India (March 2013)
– Wind Power
– Small Hydro Power
– Biomass Power
– Solar Power
– Others
19,051 MW
3,632 MW
3,602 MW
1,686 MW
3,096 MW
Total RE Capacity
28,067 MW
Financing RE Power Projects
 The popularity of Wind Power project was contributed by the
substantial depreciation benefits available in the year of
implementation. The viability of projects is, therefore,
depends on continuation of the depreciation benefit. Wind
Power projects are funded on a name-lending basis.
 The Solar PV and Small Hydro-electric Power projects have a
long project life cycle with a marginal cushion for loan
repayment in DSCR. There would be a need to build a Debt
Service Reserves from the project cash approvals, beginning
immediately after SCOD.
 All RE projects would be eligible for the Certified Emission
Reduction (Carbon Credits) . However, in the depressed
market these do not add substantially to the cash flows.
Financing RE Power Projects
 Apart from Wind Power and Solar Power projects,
other projects have been traditionally funded by the
Indian banks following simple principles of credit
 Most of other projects have not been financially viable
due to a host of reasons. The conventional projects
need to demonstrate their capacity to survive the
fluctuations in their eco system.
 In the next slides, we examine the various risk factors,
which lenders consider important while appraising RE
Projects. A matrix of Risk rating helps banks in the
lending decision.
Financing RE Power Projects
 Promoter Risk/Management Risk - Examine
Whether the promoters have a well-qualified management team with
adequate experience in commissioning and operating power projects.
Risk Perception: Low/Medium/High
 Implementation Risk - Examine.
Whether the project parameters have been designed after a thorough
study of technology and detailed discussions with technology
providers and EPC Contractors.
Risk Perception: Low/Medium/High
Financing RE Power Projects
 Approvals and clearances
Environmental Clearance: The wind based and PV based solar power
plants do not require clearance from Ministry of Environment & Forest
(MoEF) as per GoI’s EIA Notification of Sepember 2006. Whether project
areas are in forest area? Examine whether forest clearances required. Wind
Energy and Solar PV projects do not require many approvals. Whether
major approvals required for setup have already been obtained or are
in advance stage of processing.
 Pollution Control Board (PCB) Clearance : Whether the Company has
obtained PCB Clearance.
Risk Perception: Low/Medium/High
Financing RE Power Projects
 Land Acquisition Risk : Examine
 Adequacy of land
 Lease Period for Land, if leased for project life.
 Whether leasehold rights can be mortgaged.
 Whether there are any resettlement & rehabilitation
 Equity & Debt Funding Risk :Examine
 Debt - Equity is as per norms 2:1!
 Promoters’ Capacity to raise desired equity
 Financial closure for Debts
Financing RE Power Projects
 Technology Risk : In solar power projects, the technology risk is one of the major risks
generally perceived by the lenders.
 Evaluation of modules, invertors and other equipment.
 Insolation level at site.
 Degradation of solar panels over period of their usage etc.
 Cost and time overrun Risk : Examine whether
The project will be implemented by way of fixed price fixed time EPC contract
Currency risk for procurement of modules and invertors has been hedged.
Promoters absorb first part of the cost over-runs, if any.
EPC Contractors are liable to pay by way of penalties, enough LD to cover the
liquidated damages as per the PPA.
Risk Perception: Low/Medium/High
Financing RE Power Projects
 Performance Shortfall Risks:
– Whether Performance Ratio of system have been guaranteed by the
technology provider/EPC Contractors for the entire project life .
– Whether EPC contractors have provided Performance Bank Guarantees
valid for at least 2 years after the project completion and a Performance
Ratio Bank Guarantee of an adequate amount valid for 7-10 years to
cover the shortfall in project revenues.
– Lenders’ Independent Engineer (LIE) should verify adequacy of bank
guarantee amounts to cover the project revenue shortfalls and ensure
the Project DSCR is maintained at acceptable levels.
– Carryout sensitivity analysis to ensure that in adverse conditions the
project can bear 20% fall in revenues without any default.
Financing RE Power Projects
 Operations and Management (O&M) Risk -Examine
 Whether the agencies appointed for O&M have sufficient
experience in managing projects, if not can they outsource
 Performance Risk – Examine
 Whether wind factor data for wind power project gives
confidence level of 20% variation to sustain profitability
 Whether insolation level and performance ratio are
reliable and give confidence level of 20% variation to
sustain profitability.
Risk Perception: Low/Medium/High
Financing RE Power Projects
 Evacuation Risk - Examine
– Whether power evacuation infrastructure will be
ready before SCOD.
– Whether adequate transmission infrastructure will
be ready before SCOD .
Risk Perception: Low/Medium/High
Financing RE Power Projects
 Market Risk (Off take and Tariff ) - Examine
– Whether a power purchase agreement (PPA) has
been executed between the company and state
agency as per the terms of the scheme applicable.
– Whether the tariff under PPA is linked to project
commissioning before/after SCOD whether the
company will receive the compensation in case of
implementation delays.
– Whether PPA contains a termination clause and its
impact on the continuing project viability.
Financing RE Power Projects
 Other Issues
– Long Door to Door Project Loan tenors- 13+years.
– Market determined Interest rates- 1.50%-3.50%
over the base rate.
– Sharp decline in the prices of solar modules
leading to a distrust of project costs.
– Frequent breakdowns of Wind Power Equipment.
– Uncertainty on Pricing Policy of RE Power.
– Recent notices to revise tariff under existing PPAs.
Thank you

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