Way Forward To Recover From The Liquidity Crunch In The Indian Solar Sector


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Mr. Animesh Damani, Managing Partner, Artha Energy Resources

The current liquidity crunch being felt in the Indian Solar sector is very segment-specific. For utility-scale projects, the developers have been facing resistance from banks due to current low PPA rates. However, for developers of open access and RESCO projects, financing was already tough to come by and has become even more difficult. The private industry has seen their sanctioned limits reduced or loans called back. This squeeze has reduced the debt capital for solar.


To recover from this liquidity crunch, more banks need to lend to the solar sector. Currently, the only state lenders to solar developers are SBI and PNB, and in the private space, L&T and Tata. These lenders require solar developers to invest in companies with a minimum BBB+ credit rating, which vastly reduces the number of companies that could receive loans. Hence, the remaining companies do not have access to low cost finance from the Asian Development Bank and the World Bank.

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Therefore, we require more NBFCs and banks, which are willing to deal with zero debt companies and lower credit quality, to lend to the sector. The need of the hour is a solarfocused NBFC that is proficient in the technical aspects of solar and counterparty risk assessment. It creates efficient lending as well as effective installation and maintenance of these assets. This seems to be the most sustainable way out of this liquidity squeeze.

Miss. Vibhuti Garg, Energy Economist, Institute for Energy Economics and Financial Analysis

Indian solar sector has shown a remarkable growth with utility scale installed capacity more than tripled from 9GW to 30GW (with another 4.3GW of mostly behind the meter rooftop solar capacity) during the period January 2017 to September 2019. Since FY 2010-11, solar prices have dropped by more than 75 percent in India, from as high as Rs.12.16 per kWh in December 2010 to Rs. 2.45 per kWh in May 2017.

In the last few months, the sector witnessed a setback on account of the confusion regarding the Goods & Service Tax (GST) and the import duty on solar equipment. Further, offtake of renewable energy power requires grid strengthening and creation of demand through open-access platforms in the situation when discoms are violating the Power Purchase Agreements (PPAs). Further, non-payment by DISCOMs adding to woes of the solar developers. As per CEA September 2019 report, discoms owe Rs. 9736 crores to renewable energy (RE) developers.

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To rebuild the momentum in solar deployment, the government needs to act fast. The sanctity of the competitive auction process should not be violated with imposition of tariff ceilings and serial cancellation/resizing of announced bids. Further, curtailment of solar power to be addressed by strengthening inter-state transmission network. The states should facilitate acquisition of land for development of solar projects.

In order to revive the sector and attract investment, policy certainty and strict enforcement of PPAs is required to build investor confidence. A robust payment security system to be built in requiring adequacy and validity of Letter of Credit (LC) to cover the payments due on account of drawl of power.

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