What Are The Current Challenges & Future Outlook About Lending To Rooftop Solar Projects?


From banks, NBFCs, to personal loans various financing options are available for financing rooftop projects in India. But if we are to see explosive growth in the rooftop segment, financing must be made more accessible and uncomplicated. Around $40 billion-$50 billion of capital investment is required to meet India’s rooftop solar capacity target of 40 GW by 2022. Multiple lines of credit are extended by State Bank of India (SBI), Punjab National Bank (PNB), and Indian Renewable Energy Development Agency Ltd (IREDA) at attractive interest rates. NBFCs present in the space have higher interest rates, making the project less attractive. Other financial institutions are not well equipped to assess solar systems and hence warrant additional guarantees apart from the solar system itself. Going forward, innovations like solar investment trusts, housing societies, equity funding to multiple small-scale projects, and sustainable energy bonds (SEBs) that channel finances from impact investors through non-banking financial companies can drive market growth as they invest in projects across sectors and thus diversify their risk profile.


Let’s read with the experts say

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Key Challenges for Scale-up

NoCategories of CustomerIssue /Challenges 
1Large Corporate & Medium companiesThere are no such challenges getting debt from both perspectives i.e end consumer (Capex model) and Developer (Opex model). Companies prefer Opex Model or Operating Lease for asset light approach  
2Micro & Small companiesLegal nature i.e Partnership or ProprietorshipMost are not Credit rated and even if they are, it is rated below Investment Grade as their financials are weak,Requirement of additional collateral  or high processing fees and interest rates, which is not sustainable in long run In Opex model, Developers also shy away from signing PPA, as banks don’t finance it
3Trust based Institutions (eg Education Institutes and Hospitals)Unless they are reputed, banks  don’t prefer to lend on account of inherent Trust structure, however it can get financed by banks basis existing lending relationship with additional collateral and personal guarantee from Trustees which is in long run is not sustainable
4ResidentialDedicated Financing solution are not available  on account of loan ticket size , demographics of Borrower (eg in case of Society collective ownership) and monitoring bandwidth

Janak Doshi, AVP-Business Development, Tata Clean-Tech Capital Ltd.

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The lack of financial access is a major challenge hindering RTPV uptake nationwide. To address

the RBI introduced loan options for rooftop solar under the priority sector lending (PSL) norms. However, the initiative failed to create much impact because of high interest rates charged by banks, as they perceived RTPV to be a high-risk asset. Further, because the residential sector comprises multiple small RTPV installations, banks tend to be reluctant in financing such projects to avoid multiple transactional costs, loan recovery issues, and asset monitoring hassles.

There are other factors responsible for the slow uptake of RTPV. Most distribution companies (DISCOMs) are averse to widespread RTPV adoption as it can potentially hurt their revenue. The end consumers do not have adequate information about several pertinent points—technical aspects of RTPV installation, possible income generation, etc. 

Yuvaraja SK, Research Engineer, Energy and Power sector, CSTEP

So far, the residential sector has played the second fiddle to the Commercial and Industrial (C&I) sector in India’s RTS installation journey. The annual growth has been consistent in the residential sector but hasn’t reflected in a significant cumulative installation. This sector still faces barriers such as high upfront costs, roof limitations, low awareness, financing issues and lack of access to single window services. Adding to these, the pandemic has constrained household income only for critical spends.

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MNRE Phase-II of Grid Connected Rooftop Solar Programme launched in August 2019 has so far resulted in allocation of subsidy for over 2.5 GW projects across the country.Undoubtedly, this has contributed to unlocking the residential sector’s RTS potential in a big way thereby providing business opportunities to numerous vendors including entrepreneurs. The price discovered for CAPEX projects are significantly lower than MNRE’s benchmark cost in a few states triggering concerns as regards the quality and the overall performance of RTS systems for 25 years. Nothing can be construed at this point as the installations have begun only during 2020. At the same time, a few vendors have mooted the suggestion of allowing residential consumers to choose RTS systems of costs higher than the discovered price (L1) due to preferred brands for certain RTS components. However, the subsidy could be capped to the discovered price or benchmark cost whichever is lower. Interestingly it has been observed that in Haryana, the percentage of residential consumers installing RTS without subsidy is higher than with subsidy.

Alok A Jahagirdar, Senior Consultant, Government and Public Sector, E&YNithyanandam Yuvaraj Dinesh Babu, Executive Director, E&Y

To read complete story read SolarQuarter February 2021 issue

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