Greentech Lead India:
Solar industry in India now faces a new challenge: lack of funding from banks.
This is due to the fact that most banks now have limited scope to boost solar
plants as they have reached close to the limit for financing to the power industry
after supporting several coal projects in the country.
S. Vishvanathan, chief executive officer of SBI Capital
Markets., the investment banking unit of the State Bank of India (SBIN), said
most bans are reaching their 15 percent cap on domestic advances to the power
industry and it’s unlikely they’ll seek to separate renewable energy into
another category to allow more lending.
Banks failed to foresee risks in India’s coal power industry
which has delayed or canceled about $36 billion in new projects because of
domestic fuel supply constraints. In February, India’s state-owned lenders were
for the first time charging more for coal-power producers to borrow money than
for wind and solar farms.
Government-backed development banks like the ADB, the World Bank’s
International Finance Corp. and the U.S. Overseas Private Investment have
spearheaded financing of solar power projects in India and are training local
banks on how to assess the risks of a technology that’s new to the country.
“If solar is going to take off here, the commercial banks
are going to have to do the heavy lifting,” said Michael Barrow, director of
infrastructure finance in the ADB’s private sector department. “There’s not
enough in our kitty or in the IFC’s or OPIC’s to finance this alone.”
A shortfall in commercial project finance could stall the
solar industry in India, which is expected to emerge as one of the strongest
solar markets. Big companies like First Solar and Suntech Power Holdings are
looking to India and China to offset plummeting sales in Europe. India will
need at least $3.2 billion of debt finance in the next three years to complete
already announced solar projects, according to ADB.
SBI Capital Markets has financed five solar projects
developed by Tata Power Co., (TPWR) Kiran Energy Solar Power Pvt., Sunborne
Energy Holdings LLC, Alex Astral Power Pvt. and Acme Tele Power Ltd. (ATPL).
Banks are concerned about the lack of ground data on solar
irradiation that could affect a plant’s output, Vishvanathan said. Other
factors that worry banks include the viability of solar equipment suppliers and
whether they’ll survive long enough to uphold warranties over the 20-year
lifetime of a plant. The financial health of India’s state-run utilities buying
the solar power is also a concern for lenders, Vishvanathan said. While solar
projects have signed long-term contracts to sell their power at preferential
rates, the cash-starved state buyers may default or try to renegotiate terms.