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Financial Engineering
as a means to support
Jawaharlal Nehru
National Solar Mission
April 2012
Financial Engineering as a means to support Jawaharlal Nehru National Solar Mission
Executive Summary
Indias Jawaharlal Nehru National Solar Mission (JNNSM) is a one of its kind country level initiative
that aims to help achieve the intertwined national objectives of ensuring energy security for the
country and bringing about sustainable and environmentally efficient growth through large scale
deployment of on-and off-grid solar power applications. With a supportive policy framework in place,
the rapidly growing Indian solar industry offers immense investment opportunities. However, the key
to realizing the projected unprecedented growth would be access to affordable and appropriate
financing.
PwC undertook this study to analyse the financial aspects of the JNNSM to understand the projected
demand-supply position of capital for meeting the Mission targets, identify potential barriers and
develop solutions to foster robust public-private financial system to accelerate the growth of the
Mission.
JNNSM is one of the eight National Missions laid out in Indias National Action Plan on Climate
Change (NAPCC). It aims to incentivize the installation of 22,000 MW of on- and off-grid solar power
using both PV and CSP technologies by 2022 as well as a large number of other solar applications such
as solar lighting, heating, and water pumps. Under NAPCC, the government also announced various
regulations, such as the Renewable Purchase Obligation that has mandated distribution utilities to
buy a minimum proportion (with annual increment) of their power from renewable energy based
power plants. To further complement this framework, tradable renewable energy certificates (RECs)
have been introduced to facilitate inter-state trade so that RPOs can be met. To aid the development of
the solar industry, solar-specific RPOs and RECs have also been instituted.
The NSM will be rolled out over three phases by 2022 with targets of 1000 MW of grid connected
solar by 2013, 4000 MW by 2017 and 20,000 MW by 2022. Phase I focused on establishing an
enabling environment and on capturing low hanging options in solar thermal; on promoting off-grid
systems to serve populations without access to commercial energy and modest capacity addition in
grid-based systems. Using learnings from this phase, capacity will be aggressively scaled up in the
subsequent phases. Projects under the Mission have been awarded on preferential feed-in-tariffs
determined through a reverse bidding mechanism wherein, discount bids have been invited on CERC
determined benchmark tariffs through the trading arm of Indias largest power producer NTPC- NTPC
Vidyut Vitaran Nigam Ltd (NVVN).
As per the targets set out by the JNNSM and other state initiatives, the Indian solar sector has a
number of projects in pipeline scheduled for commissioning in the next two-three years. However, the
government recognizes that these targets cannot be achieved without private sector participation.
Stakeholder interactions with project developers, financiers and policy makers (see full list of
stakeholders in Annexure II) revealed that under the first phase of the Mission, no perceptible gap in
financing for solar projects existed although a majority of funding available was based on balance
sheet recourse. Financial Institutions approached during the course of the study highlighted their
concerns regarding accuracy of solar irradiation data and resultant future cash flows from the solar
power projects. Further, due to limited technical exposure and competence to judge the viability of
solar project proposals, most financial institutions conceded that they were following a wait and
watch approach to first let a few projects come up successfully and then form an opinion on the type
of lending (recourse or non-recourse) they wish to pursue.
Based on these stakeholder inputs, a detailed risk assessment matrix was developed. A majority of
risks related to aspects like lack of technical qualification criteria for bidders, delays in getting
clearances/ approvals, potential equipment supply crunch due to emphasis on domestic content, suboptimal evacuation infrastructure, (un)reliability of solar irradiation data etc. Solar technologies are at
a nascent stage in India and there are considerable risks in the execution of projects. Projects based on
crystalline cells and modules are comparatively easier to execute and less risky as manufacturers
generally guarantee the products for more than 20 years. However, newer technologies like thin-film
and concentrated PV, although demonstrating higher efficiency and lower life-cycle cost of ownership,
are yet unproven and therefore considered risky in the Indian context. The returns of a solar project
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are highly sensitive to radiation levels. High quality solar radiation data is a pre-requisite for proper
potential assessment and project development. Hence, solar radiation assessment is a very important
activity and typically requires several months for ground measurement of solar radiations. Any error
in solar resource estimation adds an uncertainty to the expected future returns. As of now, on-ground
solar radiation data is sketchy and the simulation models are at a preliminary stage. Evacuation of the
electricity generated from power plants located in isolated areas is a potential challenge. It may
require development of new transmission lines, which are often controversial, both because of their
expense and the potential of damage to property and environment.
The risks identified and classified as per their impact, probability and time horizon indicates the
overall nature of the risk on the solar sector as a whole. However, these risks are an even greater
concern at a project specific level, where risk avoidance and mitigation measures tend to be limited
and expensive. It is important to determine which of these risks directly impact project viability, and
to what extent. As can be discerned from the analysis above, certain risks have a direct impact on
interest rates and capital costs, which are among the two most important factors affecting project
viability. This report analyzes the extent of impact that these specific risks and their mitigation
measures can have on interest rates.
The report also includes simulations based on a typical financial model for a solar project.Simulating
solar power generation regardless of the technology is not technically dissimilar to simulating
generation from conventional energy sources. Specific technical and operational assumptions relating
to each type of solar technology, which are relatively easily available from international experience,
along with site specific parameters like radiation, regulatory and other expenses etc. are the
predominant variables required to calculate generation from solar technologies.
However, the primary aim of simulating solar PV and thermal generation for this assignment is
threefold:
1.
analyze the effect of various risks, as perceived by different stakeholders, on project viability.
2. analyze the effect of mitigation measures for each of the risks analyzed in the previous steps
on the project viability and;
3. assess the best combination of funding sources to improve project viability
As has been highlighted in this report, a solar PV or CSP plant can face several categories of risks
ranging from policy & regulatory, technical, infrastructural and general project finance risks that are
univerally applicable for all infrastructure projects. However, only some of these risks have a
discernable effect on key variables that determine solar project viability. Other types of risks are more
generic in nature and do not effect any single project variable directly, but rather put the entire project
itself in jeopardy.
Sensitivity analysis on the financial model above confirms, apart from tariff, the capital costs is
perhaps the most important parameters affecting project viability for both solar thermal and solar PV.
This realization is important since unlike other parameters affecting IRRs, these two are directly
under the control of the project developer. Retaining control over these two parameters
simultaneously could ensure that even if other parameters are adverse, overall project viability is not
severely impacted.
Based on the stakeholder consultation and our analysis the risk mitigation measures for various
associated risks are proposed in detail. These measures are inclusive of the steps to be taken at policy
level, industry level, by financial institutions, project developers, state bodies and other regulatory
bodies.
This study also analyzed the Indian financial systems capacity to provide the requisite funding to the
NSM and scenarios of exceeding the NSM targets by 2 and 3 times. Our analysis suggests, contrary to
some perceptions, that there does not appear to be any sizeable funding gap or significant dearth of
funds for lending to solar projects under the phase I, batch I. Banks and financial institutions (FIs)
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are, however, cautious while treading into uncharted territory beyond phase I or relying on nonrecourse financing. Banks are willing to finance projects that are backed by a companys strong
balance sheet and are cautious about providing project-based financing.
Apart from NSM targets, to estimate the investment required capital cost trends of the technology are
required. To calculate the capital cost till 2022, capital costs for the technologies have been taken as
assessed from stakeholder discussions have been taken for the base year 2011-12. The capital cost for
solar technologies covers the equipment cost, land cost, interest during construction, evacuation cost
and civil and commissioning costs. For the base year 2011-12, the capital cost for solar PV, irrespective
of thin film or crystalline technology has been taken as Rs. 11.00 crores/ MW. For solar thermal the
capital cost for the base year is Rs. 13 crores/ MW.
Capital cost reduction trends for solar PV have been taken at 5%, whereas for solar thermal it has been
taken at 3% annual decrease. However when we consider the other cases for installation of 40,000
MW and 60,000 MW by 2022- technology costs will have to decrease even more aggressively to
promote investors to fund the extra capacity. Despite this, capital cost reductions will most likely not
be proportional to extra added capacity. We assume a 6% annual decrease in capital cost for solar PV
for scenario 2 and a 7% annual decrease in capital cost for scenario 3. For solar thermal the base case
capital cost reduction is 3%, under scenario 2 the capital cost reduction has been taken as 4% and
under scenario 3 it has been taken at 6%.
Further, construction time for solar PV plants has been taken as 1 year, whereas for solar thermal the
construction time has been taken as 2 years, with capital cost distribution of 70% in the first year and
30% in the second year.
The analysis revealed that under the base case (20,000 MW by 2022) the total investment required
was calculated to be Rs. 172, 338 crores (USD 34.47 billion) based on the assumptions for capital cost,
and year-wise installations. A significant participation from the private sector is critical to achieve the
envisioned targets. Therefore, there is an urgent need to explore ways to catalyze private sector
participation to support the Government of India in providing sufficient capital to scale up the
Mission to achieve targets till 2022, and beyond.
To ensure 20,000 MW (10000 MW of solar PV, 10000 MW of solar thermal) of grid connected solar
capacity addition, ramping up local manufacturing capacity is required. The National Solar Mission
also targets to create a favourable environment for solar manufacturing and research for both PV and
solar thermal. One of the missions targets is for India to become a global leader across the solar
manufacturing value chain. This is necessary for the overall success of the National Mission as an
evolving domestic industry would help decrease costs and also provide timely maintenance for
projects. Estimates for adding both solar PV and solar thermal manufacturing has been made which
comes out as, the capital outlay for the NSM base for 20,000 MW of solar (10,000 solar PV) requires
Rs.27,698 crores or USD 5.54 billion.
Achieving financial closure has come across a major impediment for few of the projects awarded
under Batch-1 of JNNSM, the reasons of which have been detailed in the report. The need of the hour
is to understand key features of the present sources and instruments of finance with respect to their
applicability for solar power projects. Accordingly, appropriate recommendations need to be made
which can be put into action readily or by bringing in changes in policies, so that future projects do
not face difficulty in raising financing.
There are primarily two methodologies of raising debt, which are through Project financing or Balance
sheet based funding. The provisions of JNNSM allow the selected bidder (developer) to directly invest
in the solar power project, without the need of creating a separate SPV. Debt can be raised by the
developer on the strength of its balance sheet for financing the project. However, in this case, if the
project fails, the lenders will have recourse to the developers other assets and hence is generally less
preferred by developers.
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The report depicts, there are several sources of raising debt namely, commercial banks, IFCs, capital
markets, multilateral/bilateral agencies, export credit agencies, International banks, FIs, pension
funds, insurance companies, foundations etc. Each one has its unique features in terms of tenure,
interest rates, moratorium period, currency of borrowing, suitability for SPV or developer, special
features etc. These sources of debt has been studied in detail to evaluate which ones would be suitable
for raising finance for financing solar power projects in India. The sources of debt have been
categorised into two major heads, vis--vis, domestic and external sources. While the efficacy of
existing financing sources such as commercial banks and Infrastructure financing Companies may be
enhanced through financial engineering tools like sovereign guarantees, differential interest rates
during loan tenures, take-out financing and securitization of loans, new sources of funding such as
Green Infrastructure Bonds, Lease financing, Clean Renewable Energy Bonds and International
Infrastructure/Energy Funds may be explored as well.
Equity financing is more critical for any project as compared to debt financing. When a project is
identified, the first step is to select an appropriate project developer who has willingness and ability to
put in equity in the project. Efforts towards raising debt are initiated in the next step. Debt financing
cant happen for a sector where interested parties, who are willing to take risks and invest equity in
projects, are not present. The report covers different avenues of raising equity financing in detail. The
study also emphasises the need for concerted and continued policy level engagement and leadership
in order to enhance investor confidence and foster private sector participation.
Apart from maximizing equity IRR, developers need to take several other factors into consideration
while raising debt. Some of the important factors include developers financial strength, project
features, possibility of importing equipment and country of import, availability of government
guarantee, creditworthiness in international markets etc. Considering these factors and constraints,
we have arrived at the most optimal debt-raising combination applicable for solar power developers
under certain specific conditions.
Some of the major recommendations that emerged from this study relate to policy and regulatory level
suggestions, such as, establish separate exposure limits for renewable energy or solar power. Some
financial institutions in India face a 5% cap on investments in the power sector. Renewable are a part
of this allocation; therefore, investment in solar is limited by lenders investments in conventional
power. In addition, lenders exposure is calculated over a four-year term (i.e., if a renewable project is
on the books in year one, it stays there till year four, even if it is divested in year two). Discussions
suggest that these guidelines could limit solar investment and could be revisited with a specific focus
on how a separate renewable energy allocation allowance could be appropriately structured. Other
measures such as exploring financing vehicles such as solar bonds and Credit Default Swap
instruments to unlock foreign capital and evolve PPA breach of contract insurance instruments, Policy
interventions, especially to strengthen pre-qualification criteria for bidders and provide contractual
flexibility to developers to choose from different market models for sale of power have also been
suggested.
Indian Solar industry is currently driven almost exclusively by government policies. Capacity
installations from National Solar Mission and other state policies would potentially increase up to 10
times of the current capacity. In the recent times the capital cost reductions for solar power decreased
by about 16% to 20%. Irrespective of the associated risks and wait and watch policy of financial
institutions most of the project developers are optimistic about the growth of solar markets in India.
Some of the financial institutions claimed the tariffs resulting from the reverse bidding during Phase I
batch I of the national solar mission, were very low which could make the projects unviable during
long run, But with some of the common players from phase I batch I bidding were seen re bidding
during batch II where the tariffs quoted were even lower, confirms the seriousness of developers and
their readiness to invest and grow in the Indian solar markets. The capital cost for solar power has
come down by about 16% to 20% in the last two years. It is expected to continue the downward trend
for the next three years as the manufacturing scale increases and the technology matures.
The Grid parity projections which were earlier supposed to occur at the end of current decade is now
being proposed to be seen much earlier near 2016-17 with , the cost for fossil fuels such as coal
increasing day by day, thus driving up grid power prices.
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SHAKTI Foundation
Table of Contents
Executive Summary
Chapter 1: Jawaharlal Nehru National Solar Mission - A sound beginning
14
Introduction
14
Mission Roadmap
15
Institutional Framework for JNNSM
15
Ministry of Power
16
CERC
16
NTPC
16
NVVN
16
State Distribution Utilities
16
Policy Incentives
17
NSM (Phase I Batch I)
18
State Level Initiatives and Development Targets
20
NSM Solar projects (Phase I Batch II)
22
Highlight of Phase I Batch II bidding results
23
Overview of Manufacturing Scenario
25
Chapter 2: Present Status of financing for NSM
27
Stakeholder Consultations
27
JNNSM Tariff and policy framework
27
Funding Options and Risks
28
Threats
28
Future
29
Conclusion: A current assessment of financing
29
Chapter 3: Challenges to advancing the NSM
31
Policy and Regulatory Risks
32
Policy framework
32
1. Past track record of bidders
32
2. Delays in getting clearances and approvals
32
3. Issues related to the Contractual Agreement between NVVN & SPD/Distribution Utility
33
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Construction Risk
33
Generation & Operating Risk
33
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Payment security and default mitigation mechanism
34
4. Aggressive Bidding
34
5. Indigenous Manufacturing base - Supply Crunch
35
6. Scale of Projects
35
7. Political Risk
35
Infrastructure
35
1. Evacuation Infrastructure
36
2. Specific issues with relation to land
36
3. Specific issues with relation to water
36
Technological risks
36
1. Reliability of Solar Radiation Data
36
2. Risks associated with Quality and Service
37
Focus on long-term reliability of PV modules
37
Challenges during system integration
37
Financial Risks
37
1. Interest Rate risks
37
2. Currency risk
38
3. Commissioning risk
38
4. Raising of equity
38
5. Risks leading to non- fulfilment of in-time financial closure by the project developer
38
6. Exposure limits
39
Risk Matrix
39
Impact on expected returns
43
Past track record of bidders
43
Limited exposure of banks/FIs to RE sector
43
Delay in getting clearances and approvals
43
Interest rate risk
43
Currency risk
43
Chapter 4: Risk Mitigation Measures
45
Policy and regulatory Risks
45
Past Track record of bidders
45
Issues related to the Contractual Agreement between NVVN & SPD/Distribution Utility
45
Over Aggressive Bidding
45
Indigenous Manufacturing Supply crunch
45
Scale of Projects
46
Political Risk
46
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Infrastructure
46
Evacuation Infrastructure
46
Technological risks
46
Reliability on available Solar Irradiation Data
46
Technology selection
46
Lack of performance data for Indian conditions
47
Financial Risks
47
Interest Rate Risks
47
Currency risk
47
Commissioning Risk
48
Raising of equity
48
Risks leading to non- fulfilment of in-time financial closure by the project developer
48
Chapter 5: Year-wise investment / funding requirements for NSM
49
Renewable Energy Year Wise Capacity Addition till 2022
49
Investment Required for other Renewable Energy till 2022
51
Solar Capacity Addition under NSM
53
Different Scenarios for the National Solar Mission
53
Estimating Investment Required under the Different Scenarios of NSM
53
Assumptions
53
Scenario 1: Base Case of 20,000 MW of Solar Power by 2022
54
Scenario 2: Twice the Base Case- 40,000 MW of Solar Power by 2022
56
Scenario 3: Thrice the Base Case- 60,000 MW of Solar Power by 2022
57
Solar PV Manufacturing
58
Chapter 6: Solar Power Plant Simulations
60
Introduction
60
Simulation model assumptions
62
Analyzing the effect of various risks
65
Optimal combination of capital cost and tariffs
70
Chapter 7: Estimation of the capacity of Indian financial system for providing funding to NSM
72
Approach
72
Chapter 8: Potential sources of funding
76
Background
76
Options for debt financing
77
Sources of raising debt
77
1. Domestic sources of raising debt
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1.1 Commercial banks in India
77
1.2.
78
Specialised infrastructure financing companies (IFCs)
1.4. Other domestic institutional investors like insurance companies, pension funds,
charitable institutions etc.
2. External sources of raising debt
80
81
2.1.
Multi-lateral and bilateral agencies
81
2.2.
Export credit agencies
82
2.3.
International commercial banks
83
2.4.
Financial institutions, like pension funds etc.
84
Ways to enrich current debt financing instruments

Steps by government
86
86
1. National Clean Energy Fund
86
2. Sovereign guarantees to agencies
86
Steps by other financial institutions/banks/agencies

1. Take-out financing
86
86
2. Differential interest rates during the tenure of the loan depending upon prevalent project
risk
87
3. Securitization
87
4. Partial credit guarantee from Asian Development Bank
87
Steps by companies
1. Loan guarantees by parent companies
Options for equity financing
87
87
87
1. Project sponsors/developers equity
87
2. Capital markets (Public equity)
88
3. Private equity (PE)
88
Conclusion
88
Accelerating NSM by exploring new avenues of financing
89
Green Infrastructure Bonds
89
Lease financing
89
Clean Renewable Energy Bonds (US based)
90
International Funding Sources
90
Assessing the best combination of funding sources
90
Solar PV
90
CSP
91
Chapter 9: Policy Guidance for the Indian Government
92
Regulatory Interventions
92
Policy Interventions
93
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Other Interventions
94
Annexure-I: Assignment of weightages to the identified risks
95
Annexure-II: Minutes of meetings from Major Stakeholder Interactions
97
Annexure-III: International Funding Sources
119
List of Abbreviations
APPC
Average Power Purchase Cost
CEA
Central Electricity Authority
CERC
Central Electricity Regulatory Commission
CPP
Captive Power Plant
CSP
Concentrating Solar Power
DTC
Direct Tax Code
FDI
Foreign Direct Investment
FI
Financial Institutions
GDP
Gross Domestic Product
GOI
Government of India
GW
Giga Watt
IDC
Interest During Construction
IEA
International Energy Agency
IFC
Infrastructure Finance Company
IREDA
Indian Renewable Energy Development Agency
IRR
Internal Rate of Return
JNNSM
Jawaharlal Nehru National Solar Mission
KV
Kilo Volt
kWh
Kilo Watt Hour
MNRE
Ministry of New and Renewable Energy
MOP
Ministry of Power
MW
Mega Watt
NAPCC
National Action Plan on Climate Change
NBFC
Non Banking Financial Company
NTPC
National Thermal Power Corporation
NVVN
NTPC Vidyut Vyapar Nigam Ltd
O&M
Operation and Maintenance
PE
Private Equity
PFC
Power Finance Corporation
PLF
Plant Load Factor
PPA
Power Purchase Agreement
PSA
Power Sale Agreements
PTC
Parabolic Trough Collector
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PV
Photo-Voltaic
REC
Renewable Energy Certificate
REC
Rural Electrification Corporation
RES
Renewable Energy Sources
RPO
Renewable Purchase Obligation
SPD
Solar Project Developer
STU
State Transmission Utility
WtE
Waste to Energy
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List of Tables
Table 1: JNNSM Mission Targets ............................................................................................................... 15
Table 2: Indian Solar PV Manufacturing Companies ............................................................................... 25
Table 3: Risks Associated with JNNSM ..................................................................................................... 31
Table 4: Time Horizon Classification of Risks ........................................................................................... 41
Table 5: Impact of Risks ............................................................................................................................. 44
Table 17: Year-wise RE capacity addition (MW) ...................................................................................... 52
Table 18: Year-wise RE investment required (Rs. Cr) .............................................................................. 52
Table 19: Scenario wise investment required for grid connected solar power ........................................ 58
Table 20: Investment Required under NSM for Solar Power Capacity Addition ................................... 58
Table 21: Investment Required under NSM for Solar Power Capacity Addition and Manufacturing .. 59
Table 6: Major Risks .................................................................................................................................... 61
Table 7: Financial Model Assumptions ..................................................................................................... 62
Table 8: Features of different types of debt .............................................................................................. 64
Table 9: Impact due to capital costs .......................................................................................................... 65
Table 10: Impact due to commissioning time ........................................................................................... 66
Table 11: Impact due to REC prices ........................................................................................................... 66
Table 12: Impact due to CUF ......................................................................................................................67
Table 13: Impact due to interest rates ....................................................................................................... 68
Table 14: Impact on cost of generation per unit due to CUF and interest rates ..................................... 69
Table 15: Sensitivity in IRRs for changes in capital costs and tariff for Solar PV ................................... 70
Table 16: Sensitivity in IRRs for changes in capital costs & tariff for Solar Thermal .............................. 71
Table 22: Projections of Credit Availability for the Power Sector ............................................................72
Table 23: Projections of Credit Availability for Renewable Energy ..........................................................73
Table 24: Funding capacity of select NBFCs for RE ..................................................................................73
Table 25: Capacity of Indian financial system to finance solar power projects .......................................74
Table 26: Credit shortfall under different NSM scenarios ........................................................................74
Table 27: Features of loans from commercial banks ................................................................................. 77
Table 28: Features of loans from IFCs .......................................................................................................79
Table 29: Features of debt raised from Capital Markets ...........................................................................79
Table 30: Features of debt from other domestic institutional investors ................................................. 80
Table 31: Features of debt from foreign sources ....................................................................................... 82
Table 32: Features of debt from export credit agencies ........................................................................... 83
Table 33: Features of debt from international commercial banks .......................................................... 83
Table 34: Features of debt from other foreign sources ............................................................................ 84
Table 35: Sensitivity of sources of funds on IRR ...................................................................................... 85
Table 36: Risk Matrix ................................................................................................................................. 96
Table 37: Rates of PFC Rupee Term Loans ............................................................................................... 98
Table 38: Difference between Gujarat and NVVN solar schemes ..........................................................105
List of Figures
Figure 1: JNNSM Framework ..................................................................................................................... 15
Figure 2: Solar Policy Incentives ................................................................................................................ 17
Figure 3: JNNSM Phase I Batch I bidding process ................................................................................... 18
Figure 4: Recent Market Developments under Phase I ............................................................................. 19
Figure 5: JNNSM Batch I Solar PV Bids .................................................................................................... 19
Figure 6: JNNSM Batch I Solar Thermal Bids .......................................................................................... 20
Figure 7: Recent Market Developments under State policies ................................................................... 21
Figure 8: JNNSM Phase I Batch II Bidding process ................................................................................ 22
Figure 9: Results of JNNSM Phase I Batch II Bidding ............................................................................. 24
Figure 10: Plot of the risk evaluation matrix ............................................................................................. 40
Figure 11: Past Trends of Renewable Energy Capacity Addition ............................................................. 49
Figure 12: Cumulative RE Installed Capacity ........................................................................................... 50
Figure 13: % Addition of RE Technologies ................................................................................................ 50
Figure 14: Capital Cost Trend for Solar PV (Rs. crores/ MW) ................................................................. 54
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Figure 15: Capital Cost Trend for Solar Thermal (Rs. crores/ MW) ........................................................ 54
Figure 16: Scenario 1- Solar Power Installations (MW) ............................................................................55
Figure 17: Scenario 1- Solar Power Investments (Rs. Crores) ...................................................................55
Figure 18: Scenario 2- Solar Power Installations (MW) ........................................................................... 56
Figure 19: Scenario 2- Solar Power Investments (Rs. Crores) ................................................................. 56
Figure 20: Scenario 3- Solar Power Installations (MW) ........................................................................... 57
Figure 21: Scenario 3- Solar Power Investments (Rs. Crores) .................................................................. 57
Figure 22 Capital Cost fluctuations for Solar PV ...................................................................................... 65
Figure 23 Capital Cost fluctuations for Solar Thermal ............................................................................. 65
Figure 24 Impact due to commissioning- Solar Thermal ........................................................................ 66
Figure 25: Impact due to commissioning time -Solar PV projects .......................................................... 66
Figure 26 Decrease in REC prices- Solar PV ..............................................................................................67
Figure 27 Decrease in REC prices-Solar Thermal .....................................................................................67
Figure 28 Change in CUF - Solar PV ......................................................................................................... 68
Figure 29 Change in CUF-Solar Thermal .................................................................................................. 68
Figure 30 Variation in Interest rates - Solar PV ....................................................................................... 69
Figure 31 Variation in Interest rates-Solar Thermal ................................................................................ 69
Figure 32: Gap in financing for solar power from Indian financial system ............................................. 75
Figure 33: Sources of raising finance .........................................................................................................76
Figure 34: Fund Disbursements in 2010-11 ...............................................................................................97
Disclaimer
This report has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You
should not act upon the information contained in this publication without obtaining specific professional advice. No
representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this
report, and, to the extent permitted by law, PricewaterhouseCoopers Private Limited, its members, employees and agents do
not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining
to act, in reliance on the information contained in this report or for any decision based on it.
This initiative is supported by Shakti Sustainable Energy Foundation (Foundation), however the views expressed in this
document do not necessarily reflect views of the Foundation. The Foundation also does not guarantee the accuracy of any data
included in this publication nor does it accept any responsibility for the consequences of its use.
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Chapter 1: Jawaharlal Nehru

National Solar Mission - A
sound beginning
Introduction
The Government of India together with various state governments has been working towards
introducing policies and creating an environment conducive for developing solar power in the
country. The Jawaharlal Nehru National Solar Mission (JNNSM), launched in November 2009, is one
giant step in that direction. JNNSM is one of the eight National Missions laid out in Indias National
Action Plan on Climate Change (NAPCC) and it aims to install 22,000 MW of on- and off-grid solar
power using both PV and CSP technologies by 2022 as well as a large number of other solar
applications such as solar lighting, heating, and solar powered water pumps. The JNNSM of India is a
one of its kind countrywide initiative and it aims to address the shortcomings of prior schemes
through revised and more attractive feed-in tariffs, a single-window application process and
renewable energy purchase obligations (RPOs) that include a solar specific purchase obligation.
The Mission has introduced many innovative measures to propel the development of solar power in
India. The bundling scheme is one such example. Under the bundling scheme, cheap unallocated
power from central power stations is bundled with the more expensive solar power for sale to
distribution utilities. This blending of conventional power with solar power is recognised as a highly
innovative method to make solar power more affordable by the solar industry worldwide. With the
objective of reducing the cost of solar power tariffs, the Mission has opted for a reverse bidding
mechanism wherein reverse bids (discounts) on benchmark tariffs set by CERC are invited from
prospective project developers. This mechanism, too, albeit questioned by many initially, has proved
phenomenally successful in reducing the cost of tariff during the first phase of the Mission.
As the power trading arm of the National Thermal Power Corporation (NTPC), NTPC Vidyut Vyapar
Nigam Ltd (NVVN) has been designated as the nodal agency for the execution of Phase I of the
Mission. NVVN invited bids on benchmark tariffs and entered into Power Purchase Agreements
(PPAs) with winning bidders. It would eventually purchase the expensive solar power from developers
and bundle it with cheaper coal-based power from unallocated NTPC plants before selling the mixed
power to the various state distribution utilities at a reduced average price.
In February 2010, the Central Electricity Regulatory Authority (CERC) announced benchmark
feed-in tariffs for the financial year 20102011 of INR 17.91 (USD 0.36) per kWh for PV and
INR 15.31 (USD 0.31) per kWh for CSP and declared that Power Purchase Agreements (PPAs)
would have a validity of 25 years. It is assumed that at current cost levels, the tariff will allow
investors to achieve an internal rate of return of about 16%17% after taxes. The tariffs
mentioned above were applicable for those solar power projects that had their PPA signed on
or before 31st March, 2011. As capital costs decreased, CERC revised the tariffs for the financial
year 2011-2012. As per the revision, a feed-in-tariff of INR 15.39 per kWh for PV and INR 15.04
per kWh for CSP projects will be applicable for projects whose PPAs are signed after 31 st
March, 2011. Further, if accelerated depreciation at the rate of 80% is considered, the net
levelized tariff would work out to Rs. 12.94 and Rs. 12.69 for solar PV and solar thermal
projects respectively.
Provisions were also made to allow solar power projects allotted before the launch of the Mission to
migrate into it under the Migration scheme. Under this scheme, grid-connected solar projects that
signed PPAs prior to November 19, 2009, were eligible to migrate to JNNSM under certain conditions
until February 29, 2010. This allowed them to avail benefits offered by the Missions incentive
framework. Further, through the Mission, the Government has instituted a progressive and forward-
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looking policy framework that will assimilate developments in the dynamic solar industry. The
Mission itself envisions a thorough revaluation of the process at the end of each phase too.
Mission Roadmap
In order to ensure that the ambitious Mission targets are achieved, smaller targets with shorter time
horizons have been set under each of the three phases of the Mission. The deployment across the
application segments is as follows:
Table 1: JNNSM Mission Targets
S No. Application Segment

Utility grid power,
1. including roof top
2.
Off grid solar

applications
3. Solar collectors
Target for Phase I

(2010-2013)
Target for Phase II

(2013-2017)
Target for Phase III

(2017-22)
1,000-2000 MW
4000-10,000 MW
20000 MW
200 MW
1000 MW
2000 MW
7 million sq meters
15 million sq meters
20 million sq meters
Institutional Framework for JNNSM

The National Solar Mission, being a country level initiative that has ambitious targets of a large
magnitude, demanded an effective implementation framework to ensure successful fruition. The
government has responded to this demand by putting a robust institutional framework in place for the
effective implementation of the Mission. The following figure gives a description of the institutional
framework in place and identifies the various agencies involved along with their roles. The section
further illustrates the role of each agency involved in the process.
Figure 1: JNNSM Framework
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Ministry of Power
The Ministry of Power (MoP), directly under the purview of the Government of India, is primarily
responsible for the development of electrical energy in the country.
It plays a significant role in the implementation of JNNSM. The ministry through NTPC; a major
entity involved in the execution of the JNNSM, has appointed NVVN, a fully owned subsidiary of
NTPC, for entering into PPAs and power sale agreements (PSAs) with power developers and state
utilities respectively. The Mission states that in order to incentivize a large number of solar power
projects and minimize tariffs, solar power will be bundled with cheap unallocated power from central
power stations and then sold to distribution utilities. The Ministry is responsible for allocating an
equivalent megawatt capacity, from the Central unallocated quota to NVVN for bundling together with
solar power.
CERC
CERC, the chief regulatory body in the country, issues guidelines for fixing feed-in-tariff for purchase
of solar power taking into account current cost and technology trends. Under the National Solar
Mission guidelines, CERC has been mandated to provide the benchmark tariff for selection of projects
under the bundling scheme. CERC has also been entrusted to discharge the formulation of guidelines
and solar specific regulations in order to achieve 3% solar RPO by 2022. Additionally, the CERC also
notifies the Ministry of Power about the rates at which the unallocated power from the Central quota
is to be bundled with solar power and sets durations for the PPA between NVVN and the project
developers.
NTPC
Set up in 1975, NTPC is Indias largest power company. Apart from power generation, which is the
mainstay of the company, NTPC has also ventured into consultancy, power trading, ash utilisation and
coal mining.
NTPC has a total installed capacity of 34,854 MW. NTPC has 15 coal based and 7 gas based stations,
located across the country, under its purview. In addition, under joint ventures, there are 5 coal based
stations & another naptha/LNG based station. The company has set a target to have an installed
power generating capacity of 1,28,000 MW by the year 2032. The capacity, it is envisaged, will have a
diversified fuel mix comprising 56% coal, 16% gas, 11% nuclear and 17% renewable energy sources
(RES) including hydro. NTPC plans to expand its non fossil fuel based generation capacity to nearly
28% of its portfolio by 2032.
NVVN
As stated earlier, NVVN is a fully owned subsidiary of NTPC engaged in the business of power trading.
The Mission provides for NVVN to be the designated nodal agency for procuring the solar power by
entering into a PPA with solar power generation project developers who will be setting up solar
projects during the next two years, i.e., before March 2013 and are connected to the grid at a voltage
level of 33 kV or above. For each MW of installed capacity of solar power for which a PPA is signed by
NVVN, the Ministry of Power shall allocate to NVVN an equivalent amount of MW capacity from the
unallocated quota of NTPC coal based stations and NVVN will supply this "bundled" power to the
distribution utilities.
State Distribution Utilities

The state distribution utilities enter into a PPA with NVVN to buy the bundled power at rates
determined as per CERC regulations. The state utilities are also entitled to use the solar part of the
bundled power for meeting their RPOs as mandated under the Electricity Act, 2003. Further, the
Mission document states that at the end of the first phase, well-performing utilities with proven
financial credentials and demonstrated willingness to absorb solar power shall be included in the
scheme, in case it is decided to extend it into Phase II.
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Policy Incentives
Guidelines laid out by the JNNSM and the NVVN Mission statements have raised large business
opportunities within the country. JNNSM Mission document, in particular, encompasses the objective
of maximising indigenous content which, it is envisaged, will lead to the establishment of
manufacturing facilities as well as R&D centres in the country. However, the issue of domestic content
restrictions laid out by the Mission is an important concern. The following diagram highlights this
challenge.
Figure 2: Solar Policy Incentives
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NSM (Phase I Batch I)

The Bidding process under the first phase of the National Solar Mission was split into two batches
with the understanding that this circumspect approach would leave enough room for rectification if
some flaws or shortcomings that may emerge in the first batch of bidding. The following diagrammatic
representation gives a snapshot of the bidding process that ensued in the first batch of bidding under
the first phase of the Mission. Under the first batch, a total of 30 solar PV projects, each with an
individual capacity of 5 MW (total capacity of 150 MW) and solar thermal projects (CSP Segment)
with a total capacity of 470 MW were allocated. In addition to the 30 solar PV projects, capacity worth
another 84 MW was contributed through the Migration Scheme that permits projects planned before
the Mission was launched, to migrate into it and enjoy the incentives offered there under.
JNNSM-Phase I, Batch I
400 bids for 650 MW
on offer
PV Segment
CSP Segment
Benchmark Tariff
Rs 17.91/kWh
Benchmark Tariff
Rs 15.40/kWh
150 MW on Offer
500 MW on Offer
Maximum size for

a PV bid-5 MW
Maximum size for

a PV bid-100 MW
Reverse Bidding
PV Segment
CSP Segment
30 Projects worth
150 MW selected
7 projects worth
470 MW selected
Tariff Range: Rs
10.95-12.76/kWh
Tariff Range Rs.

10.58-12.33/kWh
Figure 3: JNNSM Phase I Batch I bidding process
As the pictorial representation also suggests, there was substantial oversubscription for projects to
start with, and then the government invited reverse bids asking for discounts on the initial benchmark
tariff of Rs 17.91/ kWh for PV projects and Rs 15.40/ kWh on CSP projects. Thirty PV projects worth a
cumulative capacity of 150 MW and seven CSP projects worth a cumulative capacity of 470MW were
selected under Batch I of the scheme. Remarkably, the bidding process did result in exceedingly
competitive bids. PPAs have been signed at an average levelized tariff of Rs. 12.16 / kWh for PV
projects and Rs. 9.50/ kWh (taking accelerated depreciation into account) for CSP (thermal) projects,
i.e., the government has secured 32.1% and 29.3% discount respectively in PV and CSP projects.
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The following map highlights the recent (till August, 2011) market developments under Phase I of the
Mission.
Figure 4: Recent Market Developments under Phase I
Among solar PV projects, the highest discount offered during the round of bids invited for the first
batch of Phase I was Rs 6.96/ kWh whereas the lowest successful discount offered was Rs 5.15/ kWh.
Therefore, the tariffs varied from Rs 10.95/ kWh to Rs 12.76/ kWh. Notably, most of the successful
bidders were new players in the sector. It can be deduced that the larger industrial houses failed to
qualify as they did not bid aggressively, partly because of the 5 MW cap imposed on the size of the
projects, presumably rendering the size of the project vis--vis the organizational commitment
required, unattractive. New entrants have, as has emerged, made good use of the opportunity afforded
by the minimal pre qualification requirements in the policy. For example, there was an absence of any
technical experience requirements in the Policy. The policy merely required a bank guarantee of Rs 3
million per MW along with unconsolidated, audited accounts for the last four years as a proof of the
net financial worth of the companies. The following diagrams illustrate the price discovery mechanism
under Batch I bidding.
18
Batch I
Rs/ kWh
16
Average discount - Rs 5.75/

14
12
10
PV Bid tariff
Bidders
Average Tariff
Benchmark Tariff
Figure 5: JNNSM Batch I Solar PV Bids
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Among CSP projects, the highest discount offered was Rs 4.82/ kWh while the lowest successful bid
was for Rs 3.07/ kWh. As such, the average discount offered on the benchmark tariff of Rs 15.40/ kWh
was Rs 3.65/ kWh. Notably, all CSP projects have made use of the accelerated depreciation of 80% in
the first year. Consequently, the base feed-in-tariff before discount worked out to Rs 13.45/ kWh
instead of Rs 15.40/kWh. The new tariff range taking into account the accelerated depreciation was
from Rs 8.63 to Rs 10.38 per kWh and the average tariff offered was Rs 9.50/ kWh.
The figure below draws a comparison between tariffs offered by different project developers who won
during the bidding process.
18
16
Rs/ kWh
14
12
Average Discount - Rs 3.65/ kWh
10
8
6
4
2
CSP Bid Tariff

Average Tariff
Benchmark Tariff
Figure 6: JNNSM Batch I Solar Thermal Bids
It is worth noting here that in spite of the recent rise in the CSP industry; the technology remains
relatively expensive. The components used in such projects have not reached economies of scale and
lack a competitive market. Further, most components are still manufactured by only a handful of
manufacturers across the world and as such, there needs to be a continuous deployment of technology
to ensure indigenization of such components and bring costs down.
State Level Initiatives and Development Targets

Spurred by national level initiatives and policy push, several states like Gujarat, Rajasthan, Madhya
Pradesh, Karnataka and Jammu & Kashmir have also formulated and adopted solar policies for
development of solar energy projects in their respective states. Salient Features of these policies have
been discussed herewith.
Gujarat
Gujarat, among all the other states, has taken the lead and already allotted projects worth a
cumulative capacity of 716 MW to 34 national and international project developers against the
declared 500 MW in their policy. Of the 716 MW, 365 MW has been allocated to Solar PV and
the remaining 351 MW to Solar Thermal Power plants.
Major players in the state include AES Solar, Astonfield Solar, Azure Power Ltd. with
allotments ranging from 5 to 50 MW.
Rajasthan (Draft)
Rajasthan has set a target of developing 10,000-12,000MW solar power capacity in the next
10-12 years.
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It has been mandated that 200MW of solar power shall be developed till 2012-13 and an
additional 400MW power shall be developed between 2014 and 2017. The State also plans to
develop 1000MW of solar parks
Madhya Pradesh (Draft)

Madhya Pradesh targets a total solar power capacity development of 500MW.
The facility of wheeling solar power, exemption of open access charges and electricity duty
shall be extended to developers and distributors
Power evacuation facility shall also be extended to concerned licensees.
Jammu & Kashmir

Under this policy, prior weightages to be given to financial capacity, technical capability, past
experience and other relevant attributes of the applicants, the sub-categories of these
attributes to be evaluated and their inter-se weightage, the guidelines for evaluation and the
passing score on attributes /in aggregate required for pre-qualification shall be specified in
the bid documents inviting bids for pre-qualification.
The minimum project capacity shall be 1 MW. However, if MNRE launches any scheme for
lower capacity power plant then that shall also be considered.
Karnataka
Karnataka targets a total solar power capacity development of targeting capacity addition in
solar power projects by 350 megawatts by 2016.
The solar PV projects that plan to sell their electricity to state utilities at preferential tariff
have to have a capacity of between three and 10 MW.
To keep the costs lower, policy allows developers to inject power at 11kV and above.
Figure 7: Recent Market Developments under State policies
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NSM Solar projects (Phase I Batch II)

Building further on the lessons learnt from the first batch of bidding, bids were invited for a
cumulative capacity of 350MW in the second batch of Phase I. The entire quota of 350MW was for
capacity in solar PV only. CERC revised the benchmark tariff for solar PV in light of the dropping
trends in solar equipment prices. The following diagrammatic representation further illustrates the
Batch II bidding process and its outcome.
JNNSM-Phase I, Batch II
Total Capacity on Offer:
350 MW
PV Segment
Benchmark Tariff Rs
15.39/kWh
350 MW on Offer
Capacity Maximum:
20 MW (+-5%)
Minimum: 5 MW In
multiples of 5 MW
Reverse Bidding
PV Segment
27 Projects worth
350 MW selected
Tariff Range: Rs
7.49-9.44/kWh
Figure 8: JNNSM Phase I Batch II Bidding process
Some of the salient features and enhancements made in Batch II guidelines include:
Maximum capacity of a single PV plant increased to 20 MW.
Plant capacity could be in multiples of 5 MW. In other words, a developer could bid for
projects of size 5 MW, 10 MW, 15 MW or 20 MW.
Winners of projects under the previous round of bidding or under the Gujarat Solar Policy
were allowed to bid for these projects.
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A company in any form (including parent, affiliate, ultimate or any group company) could bid
for a maximum of 3 projects totalling 50MW.
Financial Criteria for bidding: The net worth of the company was required to be greater than
or equal to the value calculated at the rate of Rs 3 crore per MW of the project capacity up to
20 MW. For every MW additional capacity beyond 20 MW, an additional net worth of Rs 2
crore had to be demonstrated.
Foreign companies could participate in the bidding process. But before signing of the PPA, the
policy mandated such companies to form an Indian company registered under the Companies
Act, 1956
Deadline for achieving financial closure has been raised to 210 days (7 months) from the
earlier 180 days (6 months). The timeline for the commissioning of the project has also been
extended by a month to 13 months from the date of signing PPA from 12 months earlier.
Part commissioning of the Project shall be accepted by NVVN subject to the condition that
the minimum capacity for acceptance of part commissioning shall be 5 MW and in multiples
thereof. The PPA will remain in force for a period of 25 years from the date of acceptance of
respective part commissioning of the project.
As per the revised guidelines, the controlling shareholder of the project must now maintain
50% share for 1 year (up from 26% earlier)
Domestic requirement Both cells and modules have to be manufactured in India. This
domestic content requirement does not apply for thin film and Concentrating Photovoltaic
(CPV) technologies.
The bidder will have to deploy only commercially proven technology those that have at least
one project successfully operational for at least one year, anywhere in the world. Crystalline
Silicon and most of the Thin Films Technologies (CdTe, CIGS, a-Si) easily meet this criteria.
Highlight of Phase I Batch II bidding results

The NVVN bidding results were out on 2.12.2011. Most notably, the lowest bid submitted in Batch II,
offered more than 50% discount on the CERC benchmark tariff. This lowest bid submitted by Solaire
Direct was for a 5 MW capacity project and the quoted tariff was Rs. 7.49 per KWh. 1The tariffs
quoted by winning bidders in Batch II bidding ranged from Rs. 7.49 to Rs. 9.44 per kWh. This tariff
range is remarkably lower than the one discovered in Batch I. In fact, the highest winning tariff in
Batch II is almost Rs 1.5 lower than the lowest winning tariff in Batch I. Such a steep drop in tariffs,
that too within a short of one year, augurs well for the Indian solar industry and may to some extent
be attributed to the adaptive policy framework. Hence Other Developers such as Welspun quoted for
3 Projects at Rs.7.97, Rs.8.05 & Rs.8.14 respectively, Sun Edison at Rs.9.28 Mahindra Bids at
Rs.9.34, Sai Sudhir at Rs.8.22, VS Lignite at Rs.8.54, Sunborne Energy at Rs.8.99. Azure Power
quoted at a price of Rs.7.91 (50 MW), Sujana Energy at 9.09,and Kiran Energy quoting Rs.9.34 for a
50 MW Project.
For example, besides prevalent market conditions such as dropping module prices, we understand
that by relaxing the 5MW size capping on PV projects to 20MWlarger companies were encouraged to
participate and it was one of the contributing reasons that resulted in aggressive discounts. Some of
the other highlights of Batch II bidding were:
Most of the successful bids belong to project development in Rajasthan.
As many as five developers have won bids in both rounds of JNNSM bidding. This goes to show
that developers are confident of sustaining their projects even at tariffs that are still widely
considered to be too low to guarantee viability.
1
EQ International Magazine : www.eqmqglive.com
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The lowest quoted tariff in Batch II bidding is approximately 32% lower than lowest tariff quoted
in Batch I, Similarly, the highest quoted winning tariff is lower by nearly 26%.
.
18
16
14
Rs/ kWh
12
Average Discount - Rs 6.57/ kWh
10
8
PV Bid Tariff
6
4
Average Tariff
Benchmark Tariff
2
0
Figure 9: Results of JNNSM Phase I Batch II Bidding
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Overview of Manufacturing Scenario

There are about 90 solar PV manufacturing companies in India; with 60 engaged in system
integration. Of the 9 and 21 SPV cell and module manufacturers, 6 and 15 cell and module plants
respectively are located in south India. The following table gives a brief description of the major
players in the field.
Table 2: Indian Solar PV Manufacturing Companies
The overall production of solar cells and modules in India in 2008-09 was over 175 Wp and 240 Wp2
respectively. The cumulative production of solar PV in India is about 800 MW in cells.
While globally, nearly 75% of the power generated from solar PV technology is grid interactive and the
remaining 25% accounts for off-grid applications, PV installations in India almost entirely account for
off-grid connectivity and small capacity applications. In urban areas, solar PV technology finds
application in street lighting, traffic lighting and domestic power backup whereas in rural areas it
powers solar lanterns, small electrification systems and, off late, small water pumps as well.
There are, however, significant challenges before the solar PV industry in India. One of the major
barriers for the industry is the absence of a manufacturing base for the basic raw material silicon
wafers. The industry, as such, relies heavily on imports from international markets and is exposed to
fluctuating prices and availability. For the year 2008-09, the total value of Indias imported raw
material was Rs. 1,750 crore (C.I.F.). Of this, nearly 80% was imported from Germany and Taiwan 3.
Interestingly, till 2009, India had always been a net exporter of solar PV technology, with 66% of the
cumulative domestic production of solar PV till 2009 catering to foreign markets. But as a
consequence of the global economic slowdown in 2009, the offtakes from international clients
reduced and resulted in low capacity utilization for Indian manufacturers. To add to it, domestic
demand remained frugal.
Other threats to the solar PV industry in India include increasing competition from international
markets like China and Taiwan and a lack of infrastructure for manufacturing. However, the Indian
industry continues to hold an edge in cost effectiveness even though it operates at a much smaller
scale compared to some of the other developer solar PV markets in the world.
2
3
MNRE presentation, Solar Energy Conclave, January 2010

Report on solar PV industry in India, May, 2010 India Semiconductor Association
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As such, new investments are being planned by many players across the value chain comprising of raw
material production, solar cell or module manufacture and system integration. Players such as Lanco
Solar have a planned capacity addition of about 1330 MW in raw material with a planned capacity of
1250 MW in polysilicon and 80 MW in wafers. The BHEL-BEL joint venture also plans to have a
capacity of 250 MW in wafers. To add to the 800 MW manufacturing capacity in solar cells, further
investments are planned by companies such as Tata BP Solar, Moser Baer PV, Indo Solar, Microsol
Power (P) Ltd. and Central Electronics Ltd. India has a solar module assembly line of 1250 MW
capacity and apart from Tata BP Solar and Moser Baer Photovoltaic, Rajasthan Electronic
Instruments Ltd., PLG Power and Titan Energy Systems Ltd. have large investments planned here as
well.
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Chapter 2: Present Status of

financing for NSM
This section presents a snapshot of the current financing status of the National Solar Mission (NSM)
and is based on the interactions with different stakeholders who indicated their present outlook
towards solar power in India and how it may evolve over a period of time. Stakeholders such as
financial institutions, projects developers and equipment manufacturers have been approached for the
purpose and they have been extremely supportive of our endeavour.
Stakeholder Consultations
The following contains a gist of the opinions shared by different stakeholders presented under
different heads and is concluded by an overall assessment of the current scenario.
JNNSM Tariff and policy framework

JNNSM has adopted a fixed levelized tariff policy whereby a fixed tariff would be paid to the developer
over the entire period of 25 years (or the period for which PPAs are signed). Welspun Energy, a
leading solar power developer in India, suggests that a constant levelized tariff would be unsuitable in
the initial years, wherein cash flow requirements are high, and would contribute almost entirely to
profits in the later years when all debt obligations are cleared.
Comparisons have been drawn with the Gujarat tariff policy wherein a tariff of Rs. 15/ kWh is payable
for the first 12 years and Rs. 5/ kWh for the remaining 13 years of the contract. Although on levelized
basis, this translates to a tariff similar to the one offered under the Mission, the stepped structure is
more aligned with the cash-flow structure of a solar project.
Next, the reverse bidding mechanism being followed is not particularly popular among developers. As
per Moser Baer India Limited, the reverse bidding mechanism skews down the tariffs to very low
levels which may render many projects unviable. They raised their concerns regarding the high bank
guarantees to be paid to NVVN as they feel that it could cause a huge blockage of money for players
like them who are already investing aggressively in Germany and Italy. The company, however,
welcomed the move to increase the size limits on solar power projects.
The developers feel that, a minimum technical qualification is essential for the success of the Mission.
A mere net worth qualification would be inadequate and echoing the concerns of all developers,
Welspun Energy remarked that a rich farmer or for that matter, even a diamond merchant could be a
competitor! An interesting insight into the matter is the fact that among 301 bidders during the
reverse bidding process initiated by NVVN, as many as 70 bidders did not submit any discount on the
CERC benchmark tariff. This clearly reflects a lack of both seriousness and competence on the part of
bidders.
A leading private equity firm in Delhi also expressed reservations regarding the PPA and PSA
mechanism proposed by the Mission. According to them, it is improper to bank heavily on the credit
worthiness of state distribution companies many of whom have, notoriously in the past, defaulted on
several occasions. Further, they feel that since regulating tariffs puts a cap on the return on equity,
funding equipment manufacturers, instead, could be more beneficial. For any PE firm, since the total
Return on Equity (RoE) is an important parameter that helps them decide whether a proposition
would be profitable or not, they would be comfortable owning and operating a power plant only if the
project has a good expected internal rate of return (IRR), which they feel might be currently hampered
by the extremely low tariffs. They also raised concerns regarding the present status of RPOs on the
distribution companies and called for stronger regulations to implement the whole operation by fixing
players to buy solar power.
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Funding Options and Risks

Corporations such as Power Finance Corporation and Yes Bank have been actively involved in the
renewable energy space. Specifically, Power Finance Corporation has funded a number of projects
under the Gujarat Solar Policy initiative while under the JNNSM it has funded only one project of 2
MW capacities under the migration scheme. Similarly, Yes Bank has funded projects in Gujarat
adding up to a capacity of 50MW, off-grid projects in Madhya Pradesh, Rajasthan and Uttar Pradesh
adding up to 10MW and two other solar thermal projects. Yes Bank did not albeit fund any solar PV
projects in the first batch of projects under Phase I of JNNSM.
Power Finance Corporation also has not funded any solar thermal projects yet, as they perceive
certain risks and uncertainties associated with the technology. Many of these issues have yet to be
satisfactorily addressed and they are willing to wait for some projects to come up successfully before
they can start funding any.
For lending agencies, issues regarding technology, estimation of solar irradiation and availability of
evacuation infrastructure continue to be of high concern. As per Yes Bank, as of now, on-ground solar
radiation data is sketchy and the simulation models are at a preliminary stage. Moreover, the high cost
involvement, lack of proven track record among project developers and lack of dependable foresight
on returns from the projects only make matters worse.
The developers, on the contrary, foresee an important role for the banks in financing the mission.
However, at this stage, they do not entirely fault them for not financing projects more aggressively. In
their opinion as well, banks do not have enough data or experience to fall back on as a means to verify
claims made by project developers. Project developers themselves find it difficult to substantiate their
claims through verifiable data or proven track record. An interesting suggestion put forth was that, the
government could impose obligations on banks to lend a specific fraction of their entire portfolio to
renewable energy/solar power projects. The mechanism could be similar in nature to the RPO
mechanism embodied in JNNSM.
As discussed above, it is indeed imperative for banks to ensure payment security. The fixing of REC
prices for a period of five years instead of declaring prices for a given year, therefore, is welcomed by
the project developers. This would definitely give the banks a better idea about developers revenue
stream. However, as was pointed out during interaction with Welspun Energy, RECs are generally
traded only at the end of the year to meet the compliance requirements. Therefore, the cash flows
remain scant during the rest of the year and developers may still find it difficult to pay their quarterly
or half-yearly instalments of loan repayment.
Lastly, as observed by Power Finance Corporation, taking into account the time and administrative
due diligence required for each loan application, especially in the solar sector, which has relatively
higher risks and capital commitment requirements, the timelines proposed for achieving financial
closure are stringent and there is a strong case for providing greater time to developers for achieving
financial closure.
Threats
As per opinions expressed by Welspun Energy, the likelihood of Indian manufacturers meeting the
imminent steep demand for equipment is low. The industry is not well developed at this stage and
resources are limited. Moreover, prices offered by Chinese manufacturers, who are content with
realising a profit of as low as 5-6% in order to sustain their business, would be tough to match anyway.
The Chinese manufacturers have already developed huge capacities in PV and wafers and this, in a
way, substantiates the fact that they are forced to supply at low profit levels. Further, as far as solar
thermal technologies are concerned, a leading private equity firm in Delhi pointed out that patented
technology is a major concern as it increases the costs involved. As of now, there are no popular
examples of solar thermal technologies being run successfully across the world.
On the Missions emphasis on use of indigenous technology, Mr Gupta of EQ International, said that
developers should be given the flexibility to execute the project in the most economic manner. While
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he is in favour of developing a domestic eco-system for the solar industry, he also believes that in the
short run there should not be stringent norms on domestic content.
Therefore, a complete ban on importing foreign equipment might be risky. The developers also do not
see any harm in importing technology if it enables them to offer power at a relatively lower tariff. To
further this argument, they pointed out that EXIM funding is also available at a relatively low cost.
Besides, protectionism could be harmful for the economy as well.
Realizing the possibility that such domestic content restrictions may cause a gap in supply of critical
components that may hamper the NSM, the MNRE announced, in the guidelines issued for the second
batch of Phase I projects, that domestic content requirements would be relaxed for PV modules made
from thin film technology or concentrator PV cells and project developers would be free to import
them.
Future
As per information shared with us by Welspun Energy, the western and European markets are near a
saturation state as far as demand for solar PV equipment is concerned. Germany, for instance, has
already set up 10GW of solar power. Further, the European financial crisis has led to an even more
pronounced fall in capital expenditure on Solar PV. As such, the rapidly growing Indian economy
offers an attractive market for PV manufacturers. Given the fact that the Indian market is extremely
Price sensitive and that competition is likely to be intense, prices in the most likely scenario will come
down in future. The cost of generation is also likely to come down as a consequence of lower capital
expenditure and higher Plant Load Factors (PLFs) in future through technological advancements. Mr
Gupta of EQ International, based on his own interactions with project developers, also shared the
opinion that as technology matures and we achieve economies of scale, reduction in the cost of
generation is imperative. Added to this is the fact that the government of India has created a
regulatory environment that encourages the industry. The competition that this will lead to, will also
contribute towards driving down the costs.
Conclusion: A current assessment of financing

Based on the above stakeholder consultations and our broad desk research, the following points have
emerged as significant facets of the current financing scenario under the JNNSM.
As such, there does not appear to be, as is commonly felt among the projects developers community,
any sizeable funding gap or significant dearth of funds for lending to solar projects under the phase I,
batch I. Banks and financial institutions (FIs) are, however, cautious while treading into uncharted
territory. The funding available is primarily non-recourse in nature. Banks are willing to finance
projects that are backed by a companys strong balance sheet and are cautious about providing
project-based financing.
In fact, as per the statement by the Union Minister of Ministry of New and Renewable Energy, Dr.
Farooq Abdullah, NVVN has accepted the documents of financial closure of 35 project developers for
setting up 610 MW capacity. Only one project of 5 MW failed to meet the requirements. Remarkably,
however, most of the projects that reported financial closure were backed by their respective
companies balance sheet. Now, this poses a stiff challenge for new entrants in the market. Many new
project developers who do not have the backing of a strong balance sheet find it difficult to secure
loans for their projects and hence are lead to believe that there may be a funding gap.
Financial closure has been achieved for 35 projects adding up to a capacity of 610 MW. Most projects
got financial closures are being backed by the respective companys balance sheet. A Brief snapshot of
number of projects financed by consulted FIs in India
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Yes Bank: 3 projects under NSM; a 50MW project under Gujarat Policy
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Bank of Baroda: 2 projects
ICICI Bank: 2 projects
Axis Bank: 4 projects
PFC: 2 MW project (under the migration scheme)
Under the NSM, project developers sign PPAs with NVVN which in turn enters into PSAs with the
state utilities for buying and selling solar power respectively. Project developers seek funding against
these PPAs. However, most FIs are not convinced about the bankability of such PPAs.
Moreover, as brought out earlier as well, banks remain sceptical of the available solar irradiation data,
effectiveness of technology, Concentrated Solar Power (CSP) technology in particular, and projected
returns from these projects. Although some FIs acknowledge that some of the proposed technologies
have been successful elsewhere, they are not convinced about their feasibility in Indian conditions yet
and therefore, want the technologies to be tested and established first.
Many FIs have also conceded the fact that they themselves lack the technical exposure to judge the
projects on merit. Their competence in assessing the viability of solar power projects is low.
Consequently, they remain sceptical of developers, new entrants to the market in particular, in terms
of whether or not they may be capable of developing and presenting a feasible business proposal.
Additionally, FIs and project developers believe that the Missions emphasis on use of indigenous
technology could have a dampening effect on the progress of solar power projects in India. While on
the one hand, the Indian manufacturing industry will take time to develop in order to be able to meet
the demand for equipment, it may not be able to offer any significant cost advantage over imported
technology any time soon, either.
Another key point of debate among financial institutions, pertinent to projects under the NSM, is the
perceptible advantages offered by the Gujarat Solar Policy. The tariff policy in Gujarat offers are more
front ended tariff schedule which enables the lenders to foresee a more secure cash flow pattern from
the projects during the initial years of operation as compared to projects under the NSM. Further, the
Gujarat State Policy mandates the state transmission utility, GETCO, to lay the transmission line
between the solar power plant and the transmission sub-station closest to it; whereas under the NSM,
onus for this lies with the project developer.
As such, most FIs, at this point in time, feel comfortable in waiting for a few projects to come up
successfully and then frame their firm opinion on the type of lending (non-recourse or project based)
they wish to pursue. Over time, they also plan to build their capacity in terms of their competence
level to evaluate solar power projects and develop an understanding of the functioning and
implementation of various organisations and policies involved.
The above snapshot, while presenting the current financing scenario of the NSM, revolves around
various barriers and risks that project developers and FIs are confronted with at present. Subsequent
chapters of the report discuss these risks and present a comprehensive overall assessment of the
scenario in detail.
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Chapter 3: Challenges to
advancing the NSM
As per the targets set out by the JNNSM and other state initiatives, the Indian solar sector has a
number of projects in pipeline scheduled for commissioning in the next two-three years. However, the
government recognizes that these targets cannot be achieved without private sector participation.
From our discussions with stakeholders, we are able to summarise constraints and challenges that are
being perceived by the financial institutions, bankers and equity providers. These constraints and
challenges can be classified into various categories of risks that need to be mitigated in order for the
Indian solar industry to achieve its targets. These risks are presented below. It is important to note
that some of these risks are already being addressed, albeit to different degrees, by the constantly
evolving policy & regulatory framework in the country. Consequently, after the initial classification,
the risks are also further sub-divided according to their time-horizon of influence later in this chapter.
Table 3: Risks Associated with JNNSM
Major risk categories
Specific Risks
3
4
Issues related to the Contractual Agreement between NVVN

& SPD/Distribution Utility
Aggressive Bidding
Indigenous Manufacturing-Supply Crunch
Scale of Projects
Political Risk
Specific issues related to land
Specific issues related to water
Reliability of Solar Irradiation Data
Lack of Performance data for Indian conditions
Interest Rate Risk
Currency Risk
Commissioning Risk
Raising the equity
Timely financial Closure
Exposure Limits
Infrastructural Risks
Technological Risks
Financial
Risks4
These risks are explained in detail below:
While most stakeholders highlighted financial risks as being the most serious of their concerns,
detailed analysis of financial risks reveals that most of these are actually the results or the effects of
possible or actual realization of other categories of risks listed in the matrix. The financial risks listed
in this matrix are the generic project finance risk that are faced by all categories of infrastructure
projects, modified to reflect concerns of solar power plant developers in particular.
4
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Policy framework
A significant proportion of the decision making regarding the location of solar power plants depends
on the policies & regulations at central and state levels. Specifically, policies and regulations translate
into key market aspects such as market size, policy continuity, and the overall ease of operating
businesses in the state/country. The size of the market has to be large enough to attract the
established players in the industry. Bringing in established players is often useful in setting
benchmarks in a nascent industry like the Indian solar sector. Many established power project
developers perceive the size of individual projects allotted under the first phase of the Mission to be
limiting. For solar PV projects, Phase I, Batch I of JNNSM capped the project size to 5 MW for each
player. This had dissuaded some of the leading utility-based companies such as NTPC Limited and
Tata Power, which are now developing solar projects under state-level schemes. It was encouraging to
note that Batch II guidelines significantly increased this limit, presumably in response to the reactions
against the limits in Batch I.
Developers need to be assured of a market that is assured beyond the short-term horizon. Developers
would be reassured of their investment decision if, for example, the government issues a detailed
roadmap on how it plans to achieve 20,000 MW of solar capacity by 2020 as envisaged under the
Mission. Uncertainty about future policies, as is the case with the allocation of JNNSM projects
beyond the first Phase, impacts not only the investment outlook but also the developers trajectory in
the market.
The ease of doing business in the country, which influences the transaction costs of developers, is
another critical factor. It brings forth the long-standing demand for a single-window clearance system.
As investors compare the costs and returns in various sectors, there is a bigger incentive for the solar
power sector to streamline its processes in order to attract competing investments. The required
infrastructure is already in place in the form of state nodal agencies, which can be strengthened for
operating in service delivery mode. These agencies could offer packaged services to prospective
developers for a fee. The central level nodal agencies can offer an umbrella support structure to ensure
such a single window mechanism can be implemented efficiently.
1. Past track record of bidders

The competence, expertise and experience of solar project developers, their technical partners and
EPC contractors should be given due importance while short-listing the project developers. Policy
level interventions need to ensure that due importance is afforded to past experience of bidder to
weed out non-serious players that have no prior sector experience. Such a move is likely to reduce the
number of projects that may not be able to obtain financial closure on account of financial institutions
not being convinced of their technical credentials. The Batch II guidelines have already imposed
higher net worth criteria, which is a move towards further enforcing eligibility criteria for bidders.
2. Delays in getting clearances and approvals

From the developers and financial institutions point of view, the timelines for achieving financial
closure in the JNNSM Batch I guidelines were a bit stringent in nature. It was perceived that
developers and financial institutions found it difficult to achieve the financial closures in the
stipulated time. Considering the different risks and teething problems in this niche sector, the
timelines could have been more lenient in order to encourage the developers and other involved
stakeholders to properly gauge the risks involved at each stage, and plan mitigation measures. The
policy-makers have been apprised of this risk, and have responded by extending the time for achieving
financial closure by 30 days (from 180 to 210 days). It is now important to wait and watch to judge if
this extension is sufficient.
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3. Issues related to the Contractual Agreement between NVVN

& SPD/Distribution Utility
In order to achieve the target of 1000 MW during Phase I and to operationalise the Bundling Scheme
the NVVN, the designated agency, shall enter into the power purchase agreement with the solar power
project developers and shall also enter into the power sale agreement with the distribution utilities of
the State. The following paragraphs present the analysis of the proposed contractual agreement by the
NVVN with the solar power project developers.
The solar power projects require high initial capital investment compared to other renewable energy
technologies and hence recognised under high risk category by the stakeholders as well as by the
financial institutions providing debt for these segment of power generation plants.
The NVVN has proposed a tripartite arrangement for purchase of power from Solar Project
Developers (SPD) and sale to Distribution Utilities. Some of the key features of proposed contractual
arrangement is summarised below:
Construction Risk
Clause 4.6 of the PPA between NVVN and SPD suggests payment of Liquidated Damages for delay in
commencement of supply of power to NVVN by the Solar Project Developer. The relevant section of
the clause is re-produced below:
4.6.1 If the SPD is unable to commence supply of power to NVVN by the Scheduled
Commissioning Date other than for the force majeure conditions, the SPD shall pay to
NVVN, Liquidated Damages for the delay in such commencement of supply of power and
making the Contracted Capacity available for dispatch by the Scheduled Commissioning Date
at the rate of /MW/day for delay of first 30days and Rs. . /MW/day for
delay thereafter
It is to be noted that solar power projects, solar thermal projects in particular, are amongst the first of
their kind in India. International experience suggests that such solar thermal projects may take more
than 3 years to commission from its financial closure, owing to the complexities involved in the
project implementation schedule as well timeline for supply of critical components of solar field and
power block components. The solar thermal technology is still in its early development phase in India
and presently, the technology partners associated with the solar thermal technology are mostly based
overseas with limited experience for supply and installation in Indian conditions. Further, deliveries
for the solar thermal technology components, measurement of the solar irradiation and its varying
pattern, detailed engineering of the projects and its optimisation vendor qualification and contract
negotiation makes the stipulated timeframe for commissioning of solar projects very aggressive.
Generation & Operating Risk
Clause 4.8.3 of the PPA between the SPD and NVVN suggests for maintaining the capacity
utilisation factor by the solar power plant. The relevant section of the clause is reproduced below,
At any time during the Term of the Agreement, if the CUF of the Power Project is found to
be below .. [Insert value i.e. 5% less than CUF] or if it is found that the SPD has not
been able to maintain a CUF of [Insert value i.e. 3% less than CUF] for a
consecutive/non consecutive period of three (3) months during a Contract Year on account of
reasons solely attributable to SPD, NVVN shall have the right to assign the liability of
payment of liquidated damages to the distribution utility as identified in the PSA, to the
SPD. The SPD shall be liable to pay such liquidated damages as identified in the PSA to
NVVN.
It is to be noticed that generation from most of the renewable energy are dependent on the vagaries of
the nature and therefore its generation output cannot be predicted accurately. Typically solar resource
data is required to be computed from 12 year solar cycle period and projected over 25 years to
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estimate the electricity generation potential of the site and determine the economic feasibility of the
project. Delays may be expected in procuring requisite certified data to accurately assess project
feasibility and secure guarantees of performance from technology providers. Solar resource, despite
the sophistication in techniques employed to forecast hourly solar irradiation using Typical
Meteorological Year (TMY), may vary by 15% on a year to year basis. Therefore, NVVN suggestion to
penalize lower generation of electricity may be considered contrary to the principles of power
generation through renewable sources and the generation/operation risk on this count may be
required to be factored in.
Furthermore, during the periods of generation from the solar projects in case the Distribution Utility
is unable to draw power for any reason, the solar project developer should not be penalised. The PPA
suggests the delivery point at the commercial metering point at the STU substation. Thus, the losses
up to metering point as well as risk of curtailment due to non-availability of evacuation line will have
to be borne by the solar project developer. The provision of deemed generation for non-availability of
transmission/evacuation arrangement has not been provided under PPA, hence the SPD will have to
bear such risk.
Payment security and default mitigation mechanism
Clause 6.4.8 of the Power Sale Agreement between the NVVN and Distribution Utility suggests a
tripartite agreement for the purchase of the power from solar project developers and sale to
Government owned Distribution Utilities. The relevant portion of the clause is reproduced below,
As a further support for the Discoms obligations, on or prior to the Effective Date, a
Tripartite Agreement may be signed in between the central government, the state government
of the Discom and RBI. NVVN shall be authorized by the central government to invoke such
Tripartite Agreement in case of payment default by the Discom. If the Discom fails to pay a
Monthly Bill or Supplementary Bill or part thereof within thirty (30) days from the Due
Date, NVVN shall have the right to invoke such Tripartite Agreement, after giving a notice
of seven (7) days to the Discom, whereby the pending dues from the Discom shall be routed
through RBI to NVVNs designated account.
In its Power Selling Agreement, it has been implied that the final responsibility of payment rest on
Distribution Utility and in eventuality if the Utility fails to make payment to the NVVN for the power
procured, then it may make payment to the SPDs from separate fund created by Government of
India/or through RBI (designated third party of the agreement) routing the fund to the SPD. The
proposed mechanism suggested under the existing contractual framework for ensuring payment to
SPD in event of default of payment by the Government owned Utility would enhance investor/lender
confidence to ensure steady flow of revenue streams for the Solar Project developer and thereby
enhance the bankability of the project.
4. Aggressive Bidding
At the outset, several project developers and financial institutions were of the view that the reverse
bidding mechanism would threaten the growth the nascent sector by exposing it to uncurtailed
competition, thereby wiping out margins and destroying any incentives for investment. This view was
supported by the fact that reverse tariff bidding for solar energy has not been adopted by any other
country in the world. The results of the first phase of bidding further strengthened this view when the
quoted tariffs were viewed by many project developers and financial institutions alike as being
completely unviable.
However, the Government of India was confident that the reverse bidding is potentially the fastest
way to scale up solar energy, even if it is done at the expense of quickly and somewhat brutally
weeding out the inefficient players that would be unable to compete. This expectation was borne out
by the fact that despite pervasive reservations in the financial community, a majority of projects were
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able to achieve financial closure, and moreover, the second batch of bidding led to even more drastic
cost reductions, reaffirming investor confidence in the sector. The Batch II bidding results also
highlighted the fact that reverse bidding is in fact the fastest way to commercialize solar energy, with
tariffs as low as INR 7.49 indicating a rapid descent towards grid parity.
In light of these developments, the initial risk perception regarding unviable and unsustainable
competitive bidding has been for the most part, alleviated.
5. Indigenous Manufacturing base - Supply Crunch

Government has stipulated local sourcing for cells, panels and other equipments for JNNSM projects.
However, project developers are apprehensive about the ability of the domestic manufacturing
capacity to meet the projected demand or match international prices. Among other things, effective
indigenisation will require large-scale manufacturers. There is a very limited manufacturing capacity
in country itself as compared to any big international supplier. For the success of NSM, the Indian
market requires individual large-scale manufacturing facilities of at least 500 MW to leverage pricing,
supply and research capabilities.
The entire supplier base for solar PV segment which is the pre dominant technology in the present
scenario of solar industry is concentrated in solar cells, modules as well as the balance of systems. For
upstream segments comprising silicon wafers, ingots, etc., the sector depends on imports. Also, only
five-six solar cell and module manufacturers are able to supply thin film technologies such as
amorphous silicon while none supplies other key technologies like cadmium tellurium.
Domestic supplier base in the concentrating solar power (CSP) segment is yet to come up. Critical
components for CSP projects such as receiver tubes are sourced under licensing agreements from
overseas. Indigenisation in these projects is not yet possible as functional plants are about to come up
in future and then only indigenisation of capacity building will pace up. Currently, developers are
relying on high import content for timely commissioning of projects, but a domestic supplier base is
crucial to sustain the market in the long term.
6. Scale of Projects
In the case of solar PV, the restriction of 5 MW per business group (in phase I, batch I) makes the offer
further more unattractive for large players to show active interest in solar PV projects. As in the batch
II guidelines scaling issue had been addressed, but still bankers feel no waiver on the size restrictions
shall be made in order to bring in better economies of scale. Financiers are of the view that the small
project size does not support the transaction costs associated and also will lead to larger losses and
trimming profitability. In addition, financial institutions have concerns with regard to technological
uncertainty as they are not fully educated on the various technological issues and are not exact about
which technologies could be the best and most profitable according to the environmental conditions of
the country.
7. Political Risk
A large part of the JNNSM is policy-driven. Project developers and financiers have apprehensions that
a change in the government regime might alter some of the existing regulatory provisions that might
result in changing the overall viability and attractiveness of the sector. For example, as was discussed
during stakeholder discussions, PPAs signed at the current tariffs might be viewed as being too high if
solar power approaches grid generation costs in the future, and the government may independently
decide to renegotiate them in public interest. These types of risks are specific to the political situation
on ground and can have a significant impact on project and sector viability.
Infrastructure
Infrastructure is central to the sustainable development and economic competitiveness of any sector.
Barriers with regard to infrastructural requirements emerged as one of the most important for the
solar power developers in the country. An important parameter which is of critical importance
specifically for solar thermal power projects is the proximity to water resource.
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The lead times required for all the approvals were quite substantial and hence the developers have
highlighted the need for government intervention to reduce the same. In some cases, the developers of
solar thermal power projects did not obtain allotment near water resources since the developers of PV
projects were already allotted the land at those locations.
Single window clearance for solar power project can potentially be a very powerful solution to address
most infrastructure related aspects of solar projects. It is possible to bundle the land, evacuation and
water related approvals under one clearance and the developer would have to approach just one entity
to avail this clearance provided he meets the criteria set by the guidelines. However, such single
window clearances need to be put in place by the individual state governments, since the central
government does not have direct jurisdiction over the various state departments in charge of
clearances.
1. Evacuation Infrastructure
Grid availability is a major issue for developers once the project is completed. For the renewable
project developers grid availability is a major issue of concern, especially for the plants connected at
HT level (33Kv and above).As enunciated in the Electricity Act, 2003, responsibility of the making
necessary arrangement of the solar power rests on the respective State Electricity Regulatory
Commission. However, the approach for providing the evacuation arrangement is not uniform across
regulatory bodies. This proposition creates a sense of uncertainty among the developers with regards
to evacuation of generated power.
Lack of Planning and sharing of information by the respective state transmission utilities with the
developers is seen as one of the major concerns by most of the project developers in finalizing their
project locations. Typically, state utilities do not publicise their present and future infrastructural
plans of setting up of new transmission lines and evacuation infrastructure, it is a major threat as
concerned and upcoming developers are not aware of any developments in the area thus posing a
major risk involving bad planning and changing policies.
2. Specific issues with relation to land

Land related issues were the most discussed of all the infrastructure related issues with the
developers. The process of land acquisition differed from state to state. While Gujarat gave a free hand
to developers to choose based on the developers criteria (the type of land they needed), Rajasthan
adopted a different path of first identifying government waste land for developing solar power projects
and then allotting them to various developers. The lead time to acquire land in states by the
developers could range anywhere between 6-12 months and in some cases more than a year. Land was
the most important barrier as stated by most of developers as far as infrastructure issues are
considered. The rest of the developers own the land on which they are developing the projects and
hence did not face any challenges.
3. Specific issues with relation to water

The canals in Gujarat and Rajasthan are the only water resource available to the solar power
developers. The developers apply to the local authorities to disburse annual estimated amount of
water to them. The authorities then analyse and gauge the current water usage pattern and also
account for future usage either for irrigation or domestic use and then allocate the amount of water
needed for the power project. The lead times required for acquiring this approval ranged from 3 6
months.
Technological risks
1. Reliability of Solar Radiation Data
The biggest risk associated with solar projects lies with the estimation of solar radiation. The returns
of a solar project are highly sensitive to radiation levels. High quality solar radiation data is a prerequisite for proper market assessment and project development. Hence, solar radiation assessment is
a very important activity and typically requires several months for ground measurement of solar
radiations. Any error in solar resource estimation adds an uncertainty to expected outputs. According
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to Power Finance Corporation, as of now, on-ground solar radiation data is sketchy and the simulation
models are at best at a preliminary stage.
The industry is relying on suboptimal solutions in the absence of credible and adequate data. Non
availability of standardised information is leading to the developers opting different sources of
information and hence bankers and financers are finding it very difficult to rely on the provided data
and proceed with investments.
MNRE has initiated steps in this direction, with the Centre for Wind Energy Technology being
assigned to set up 50 ground monitoring stations in association with the states. Probable sites have
been identified in states including Andhra Pradesh, Chhattisgarh, Gujarat, Jammu & Kashmir,
Madhya Pradesh, Maharashtra, Karnataka, Puducherry, Rajasthan and Tamil Nadu.
2. Risks associated with Quality and Service

Focus on long-term reliability of PV modules
The Jawaharlal Nehru National Solar Mission (JNNSM) and various state solar programmes have
provided a huge impetus to the deployment of utility-scale solar photovoltaic (PV) power plants across
the country. However, banks and financial institutions that are funding solar PV projects are worried
about the quality of components used for building solar PV systems and their long term performance
in Indian conditions. PV equipment manufacturers and project developers are under pressure to
demonstrate the long-term reliability and performance of modules, inverters, etc. in the Indian field
conditions, despite the fact that each of the components come with standard international quality
certifications.
Challenges during system integration
The performance of a solar PV system could also be impacted by the way it is installed. One of the
major challenges facing the successful implementation of JNNSM and state solar programmes is the
non-availability of skilled and trained manpower. The Ministry of New and Renewable Energy
(MNRE) has been working with educational institutes like IIT Bombay through the National Centre
for Photovoltaic Research and Education towards developing training infrastructure for solar PV
installation, but these initiatives are struggling to keep pace with the huge demand for manpower.
Using appropriate installation techniques is vital both from a performance perspective and safety
viewpoint.
Financial Risks
Banks and financial institutions remain averse to the idea of lending to solar power projects. While the
general perception about solar technologies has improved over the years, the technical risk perception
remains high. As a result, there is a near absence of non-recourse or project financing for solar
projects. Most of the lenders insist on recourse to either the parent companys balance sheet or a
performance bond for the project. Industry experience in the energy sector has shown that capacity
addition would not have been possible had financing been limited to only balance sheets. Clearly, this
could defeat the larger objectives of jump-starting capacity addition in solar power.
1. Interest Rate risks

The risk that interest rates will rise and reduce the market value of the solar investments has always
been considered as a major issue as far as the financial markets are concerned. These risks are
important to the business transactions in the future, as solar being capital intensive sector and
considering its associated risk profiles bankers are concerned for the measures for balancing the
interest rate risk. Finally, interest rate risk is important from the perspective of project finance on the
whole, if interest rates rise; funding may not be available for a new loan for a project that has already
started
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2. Currency risk
Currency risk is a form of risk that arises from the change in price of one currency against another.
Whenever investors or companies have assets or business operations across national borders, they
face currency risk if their positions are not hedged. Since the solar markets will involve investments
from various international banks, funding agencies and equity investors the risks associated to the
currency rates fluctuations will always be involved in the sector. This will always involve the
international interactions in terms of investments, production and technology, hence the participation
of different currencies in the Indian solar industry. The currency risks is one of the major financial
risks, especially considering the current market conditions across the world, particularly the European
markets which are well advanced in the solar industry.
3. Commissioning risk
Several infrastructure projects, specifically solar projects have loan agreements that incorporate
commissioning charges. These charges refer to periodic payments associated with the undisbursed
amount of the loan. Essentially, commissioning charges hedges the risk faced by the lender, in case
the borrower is unable to drawdown the entire loan amount, as agreed at the time of financial closure.
For solar projects in particular, risk associated with commissioning charges can pose a significant
threat since plant commissioning can be delayed on account of several factors outside the control of
the developer. Without a revenue stream, commissioning charges, if applicable can impose a heavy
burden on the developer.
4. Raising of equity
Most of the equity financiers look for borrower credit-worthiness, speedy recovery and safety of
investments are indeed sceptical about the financial success of these solar projects. They feel the
prices and tariffs are too much regulated and the return on equity as fixed by the government is not
very competitive for them to invest at such an initial stage of a new sector. Companies would
alternatively have to take loans on their original balance sheet and provide a corporate guarantee.
Balance sheet funding, however, limits the ability, to induct a higher-level debt and so increases the
overall cost of the project. Private equity funds that provide equity, quasi-equity and mezzanine
financing are interested in quick scalability and exit strategies. To compensate for the uncertainty
involved, they expect a very a high rate of return. With traditional financiers for capital-intensive
projects raising doubts about sustainability, developers have limited options to achieve the desired
financial closure.
5. Risks leading to non- fulfilment of in-time financial closure

by the project developer
Solar Project financing is difficult because lenders perceive the solar energy industry as highly risky.
The main risk associated with this industry is lack of reliable solar irradiation data, which makes it
difficult to estimate the return on investment. In addition, the majority of project developers are new
entrants with no track record to prove their ability to build and operate solar power plants. Therefore
majority of Indian financial institutions are unsure about the generation capacities of power plants
and hesitant to finance the projects.
For JNNSM projects, banks are particularly wary of the heavily discounted tariffs resulting from the
bidding process. Current tariffs are among the lowest in the world for solar, and banks are concerned
that project risks have been underestimated in order to win bids. Lenders are also wary of the small
margins that projects are looking to operate on, in order to be viable at low tariffs. In addition, the
small size (5 MW) of solar photovoltaic (PV) projects (in phase I, batch I) is resulting in high
transaction costs for large banks.
Considering the large number of projects waiting to achieve financial closure and begin construction,
there is immense pressure on the market to explore options other than non-recourse project
financing. The majority of large players are taking loans based on the strength of their balance sheets
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while providing corporate guarantees. Some companies are, for the most part, funding their projects
themselves through equity.
6. Exposure limits
Stakeholder consultations have revealed that several banks and FIs are constrained to lend to the
renewable energy sector, in particular to solar energy due to their existing exposure limit norms. At
present, banks and FIs are mandated to lend to priority sectors, which includes the power sector.
However, no further classification within the power sector means that a majority of the allocation
within this sector is diverted towards conventional power projects which are viewed as being less risky
and more financially attractive. Due to an absence of specific exposure limit norms lending to
renewable energy, investments for this sector are crowded out by conventional energy.
Risk Matrix
The various categories and specific risks within each category, as described above, have the potential
to significantly affect the viability of solar projects. However the severity of impact and the probability
of occurrence of each risk are not uniform. In order to better understand these risks, it is important to
classify the risks on two parameters:
1) Severity of Impact: This parameter gauges the extent to which the risk is likely to affect overall
project viability, in case it occurs
2) Probability of Occurrence: This parameter assess the likelihood of a particular risk occurring
As can be discerned, any risk is insignificant if it does not contain both these parameters. In other
words, the higher the severity and / or probability, the more significant is the risk. In order to classify
risks, a matrix of scores has been designed. This matrix assigns scores to the severity of impact and
probability of occurrence. It is shows in the graph below5:
The numerical basis and other assumptions for this graph are given in Annexure I
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100%
Exposure Limit of Banks to RE

Timely financial closure
90%
Tariff Bidding
80%
Probabality of Occurrence
70%
Scale of projects
60%
Availability of Suitable land
PPA-risk
Delay in clearences
Currency risk
and Water
Interest rate risk

Commissioning risk
Track record of bidders

50%
Indigeneous manufacturing
Reliability of Solar
Irradiation Data
40%
Political risk
30%
20%
10%
0%
0
5
Impact of Risk
10
Figure 10: Plot of the risk evaluation matrix

Risk independent of time
frame
Medium Term Risk
Short Term Risk
Long Term Risk
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The risk evaluation matrix highlights the fact that a majority of risks associated with the solar industry lie in the high impact high probability quadrant. This
indicates the need for developing effective solutions for addressing and mitigating these risks. However, in addition, another parameter is important when
assessing the severity of these risks. Risks can be classified according to the time horizon in which they are likely to be realized. The following table shows this
classification:
Table 4: Time Horizon Classification of Risks
Risks
Time horizon
Description
Short term
Subsequent modifications in the RFS/RFP can mitigate this risk
Short term
PPA- Risk in Payment Realisation
Medium term
Aggressive Bidding
Short term
As was done for Batch 2, time for financial closure can be further
increased from 210 days
Will need policy level changes to modify specific clauses in existing
PPA PSA regulations
Will need policy level consideration to discuss the merit of this risk
Short term
Policy level thrust is likely to address this challenge
Scale of Projects
Short term
Political risk
Long term
Medium term
Short term
As was done for Batch 2, minimum and maximum permissible size

per project can be expected to increase to tap economies of scale
Changes in political considerations leading to changes in
policy/regulatory setup can occur anytime
Will need policy level coordination between central and state
transmission utilities to ensure solar projects receive priority while
transmission planning is undertaken
As the sector matures, more and more data will clarify the uncertainty
Short term
10
Lack of Performance data for Indian conditions
Short term
Rapid technology development and experiences of Batch I will reduce

the probability of occurrence
As the sector matures, more and more data will clarify the uncertainty
11
Interest Rate Risk
Independent of time frame
This is a project intrinsic risk that will always remain
12
Currency Risk
Independent of time frame
This is a project intrinsic risk that will always remain
13
Commissioning Risk
Medium term
As the sector matures, unforeseen delays will be reduced lenders will

be persuaded to not apply commitment charges
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14
Raising of equity
Medium term
15
Timely financial closures
Short term
16
Exposure Limits
Medium term
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As the sector matures, risk perceptions decrease and equity will be

available in greater amounts
As was done for Batch 2, time for financial closure can be further
increased from 210 days to ensure timely closures
As the sector matures, specific exposure limits for renewable energy,
and even perhaps for solar can be mandated in light of the rising
demand for financing from this sector
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Impact on expected returns

The risks identified and classified as per their impact, probability and time horizon indicates the overall nature
of the risk on the solar sector as a whole. However, these risks are an even greater concern at a project specific
level, where risk avoidance and mitigation measures tend to be limited and expensive. It is important to
determine which of these risks directly impact project viability, and to what extent. As can be discerned from
the analysis above, certain risks have a direct impact on interest rates and capital costs, which are among the
two most important factors affecting project viability. The following section analyzes the extent of impact that
these specific risks and their mitigation measures can have on interest rates.

As has been described previously, past experience of bidders to design and execute a power project, and their
familiarity with solar energy is an important criterion when considering their technical ability to successfully
design and operate a solar power plant under the Mission. This consideration has been reaffirmed by banks and
other financiers during several rounds of stakeholder interactions.
In light of this risk (lack of past experience), nearly all sources of financing, including ones with high risk
appetites may not be forthcoming. Thus, a developer may have to take on credit at a premium over the risk
hedging already built into interest rates, translating into higher than market average cost of borrowing. In other
words, in the absence of a past track record, credit may not be forthcoming, even when the borrower may be
willing to pay a high rate of interest.
Limited exposure of banks/FIs to RE sector

This risk is in effect, the other side of the same coin of the risk described above. Just as banks and FIs may be
unwilling to lend to project developers with little or no prior experience in the field, they may be wary of taking
exposure to this sector if they have no prior experience either. Consequently, even experienced, well qualified
developers may find it difficult to secure funding for their projects, since credit may not be forthcoming even
when the borrower is willing to take a loan at a higher than market rate of interest.

Clearances and approvals have been cited as the most common reason for delays in plant commissioning. This
has been corroborated over several rounds of discussions with a wide range of stakeholders. Delay in
commissioning can have a significant detrimental effect on project viability, and this effect is exaggerated in
case debt is sourced from certain specific sources. These sources, like funds from multilateral and bilateral
funding agencies, and other sources that offer loans with a commitment charges impose a penalty if the loan
disbursement schedule is delayed due to any reason. With such a provision, delays in getting clearances and
approvals could translate into commitment charges as high as additional 100 basis points over base rate.
Interest rate risk

LIBOR linked loans have interest rates that are linked to LIBOR, and consequently fluctuate on a daily basis.
Although these fluctuations are relatively small, over time, depending on the international economic conditions,
these could have a significant impact on the cost of borrowing. Considering that LIBOR fluctuations cannot be
predicted with any reasonable accuracy beyond a limited time horizon, LIBOR linked floating loans present a
significant risk. This risk is inherent to all sources that offer LIBOR linked loans, like capital markets,
multilateral and bilateral funding agencies, ECBs etc.
In order to hedge against this uncertainty, borrowers can opt for fixed rate loans that pass the interest rate risk
onto the lender. In such a case, the lender would charge a premium for absorbing the loan, and as a result, fixed
rate loans can be up 500 basis points more expensive than floating rate loans.
Currency risk
Akin to the interest rate risk, currency risk also arises due to uncertainties in the international economy. Loans
that are provided in foreign currencies need to be converted into domestic currency for use. Typically, this
conversion is made at the prevailing exchange rate as on date. As is the case with the LIBOR, exchange rates
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cannot be accurately predicted beyond a limited time horizon. If the exchange rate gets significantly
unfavourable, loan and interest repayments can get substantially more expensive than anticipated. This risk is
most visibly manifested in funding sources that offer such loans, namely, ECBs, international banks and other
foreign lenders.
In order to hedge against this uncertainty, borrowers can opt for taking fixed rate loans. In this case, the
exchange risk is passed onto the lender. However, in order to provide this service, the lender would typically
increase the cost of borrowing by as much as 500 basis points over the base rate.
The following table summarizes the above assessments:
Table 5: Impact of Risks
Specific Risks
Affected Financial Sources
Net impact
Past track record of bidders All
Financing may not be forth coming

even at higher rates of interest
Limited exposure of
Banks/FIs to RE sector
Commercial banks, Capital

markets
Financing may not be forth coming

even at higher rates of interest
Delay in getting clearances

and approvals
Multilateral and Bilateral

agencies, Other sources with
commitment charges
Commitment charges of up to 100

basis points additionally may apply
Interest Rate Risk
Capital markets, LIBOR linked

loans
Differential of up to 500 basis point

between fixed and floating interest rate
Currency Risk
Export Credit agencies,

International banks
Spread of up to 5oo basis point on

LIBOR for hedging exchange rate
fluctuations may apply
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Chapter 4: Risk Mitigation

Measures
Based on the stakeholder consultation and our analysis the risk mitigation measures for various associated risks
are proposed under following paragraphs. These measures are inclusive of the steps to be taken at policy level,
industry level, by financial institutions, project developers, state bodies and other regulatory bodies.
Policy and regulatory Risks

Past Track record of bidders
Under the Phase I of JNNSM, it is proposed to promote only commercially established and operational
technologies to minimize the technology risk and to achieve the commissioning of the projects. Although
nothing substantial has been said regarding the experience profiles for the bidders under the solar PV
segments. Through our various stakeholder interactions we have observed that the government should
introduce more stringent technical qualification criterion for bidders. This would ensure that only players with
prior experience in setting up power plants are eligible to bid which will in turn help them to achieve financial
closure for their projects. In this regard, we propose that only players with prior experience of setting up power
projects (including renewable energy) of more than 10 MW capacities should be eligible to bid. These policy
level changes should be introduced in order to assert the seriousness of prospective developers towards NSM.

Policy documents for NSM suggests heavy penalties for the delays in the commissioning of projects. From our
stakeholder consultations, this has been observed that getting clearances from the various state departments
can lead to delays in the projects and sometimes even the failures, hence most of the stakeholders demand a
more efficient clearance mechanism to be set in place. Here we propose, that the state government should
create a designated entity to provide single window clearances for-Land, Water availability, Environmental
clearances and Evacuation Infrastructure, by coordinating with each department(including the STU)
responsible for issuing these clearances.
Issues related to the Contractual Agreement between NVVN &

SPD/Distribution Utility
A number of discussions had been made at all the major forums and discussion panels regarding the PPA, its
realisation, payment mechanism, security and all other associated issues. From our findings we found out that,
the actual Risk associated to PPA is not that payment will not be realised but the risk is that PPA will be renegotiated at a later stage. In the near future when solar power reaches grid parity, the developer should be
free to choose the quantum of power to other market models besides NVVN.

Tariff bidding mechanism is being opposed by most of the developers, but to encourage the competitive market
mechanism such a scenario is a must in the sector. Some of the stakeholders are of view that solar technology is
in its nascent stage; high competition at such a stage will kill innovation and development in the sector.
The mechanism which could be proposed to meet the risks involved in the tariff bidding can be introduction of
a floor price on which the discount could be offered and floor should be decided as a discount based on a
percentage of lowest bid received during last bidding.
Indigenous Manufacturing Supply crunch

Focus on indigenous manufacturing for building up the internal capacities is a good thought by authorities, but
to provide economies of scale and cheaper power the mechanism should not be implemented at a faster pace, it
would be better to bring in such a system in phases and the developers should be allowed to export the cheaper
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components and instruments. Moreover, closing the doors for the latest and more efficient technologies to
Indian market to start with would be counterproductive from the point of view of reducing the costs and
inculcating state of art technologies. Although incentives like tax benefits could be provided for the players
adopting indigenous manufacturing.
Scale of Projects
Scalability is one of the major issues seen by the funding agencies and bigger developers. Although much had
been done in the phase I batch II guidelines, encouraging large scale development would further bring in
economies of scale. Higher MW range of projects had to be promoted for using better evacuation infrastructure.
Political Risk
Political risk is one of the most difficult risks to mitigate since its the sovereign right of the government of the
day to modify existing policies and regulations in best public interest. However, certain measures can be taken
to ensure that the impact of these changes is not directly and unilaterally imposed on the project
developers/financial institutions. For example, developers and FIs can make the case that since tariffs are
calculated based directly on the capital cost in existence at that time, and since payback periods for solar energy
are significantly long, changing tariffs can destroy project viability and offer strong disincentives for future
sector growth. However, apart from petitioning against clauses in the PPA/PSA can define legal redressal and
compensation mechanisms in the case of change in law.
Infrastructure
The concept of a single window entity had to be developed.
The State transmission Utilities (STUs) should public their present and future plans of development, as of
putting in black and white their infrastructure plans including the areas where the transmission lines will be set
up, such an action will help the project developers to make their development plans accordingly, it would bring
in more clarity for the developers regarding the availability of evacuation infrastructure
Reliability of 33KV grid system in India had always been questionable; hence connection to the unreliable grid
would result in loss of revenue to the solar power producers. The government should facilitate the grid
connectivity at 132 KV or higher voltages and the responsibility for development and maintenance of
transmission line shall be on the state transmission utilities.
Technological risks
Reliability on available Solar Irradiation Data
Although the government is in the process to set up radiation measurement centres across various locations in
India, training and capacity building programs should be arranged for creating awareness among the financers
and the other stakeholders and a standardized methodology should be adapted to measure the solar
irradiations. Such a system will bring in more clear mechanism and encourage investments in the sector.
Project developer shall take up the responsibility for ensuring the validity of data. Solar energy centre data
should be standardized which will remove all the confusions for both the developers and the financers.
Selecting technology for Solar Thermal is still an important issue for developers as well as the bankers. The
technology has not been tested under Indian conditions.
Although, the guidelines for selection of projects mention about the technical standards, but since its a very
new sector most of the stakeholders are quiet unsure of the performance concerned. Both the developer and the
financers community proposes the adoption of some well proven and standardized mechanisms at policy levels
to ensure quality of services and pitch in only the serious market players in the market and help to phase out
non serious short term profit seekers from the solar industry.
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Lack of performance data for Indian conditions

Solar sector is particularly in a niche stage at this point of time, lots of analysis regarding policies, finances and
behaviour of market can be done from the global perspective. But its very early to comment on the exposure
and response of all the market factors related to the solar industry as the performance data under the Indian
conditions would evolve slowly and steadily. This is a variable risk since no policy level or technology level
changes can be made. We propose that first, a study must be undertaken to establish the authenticity of data
from various sources. The study should determine the extent of discrepancies in data released by the Indian
Meteorological Department (IMD) and also highlight reasons behind the same. The government should then
designate a central agency to iron out errors in methods or procedures as established by the study and invest in
building necessary infrastructure for data collection through IMD. This would, over time, build an extensive
database and largely help address the concerns regarding the reliability of solar irradiation data in India.
Financial Risks
Interest Rate Risks
Interest rate risk is the sensitivity of an institutions cash flows, reported earnings, and economic value or
market valueof-equity (MVE) to changes in interest rates. The movement of interest rates affects the earnings
and book capital by changing the net interest income, the market value of balance sheet instruments accounted
for at market value and other interest sensitive income and expenses. Solar being a capital intensive sector
interest rate will always be affecting the investments in the solar industry.
A forward contract is the most basic interest rate management product. Forward Rate Agreements (FRAs) is
based on the idea of a forward contract, where the determinant of gain or loss is an interest rate. Under this
agreement, one party pays a fixed interest rate and receives a floating interest rate equal to a reference rate.
The actual payments are calculated based upon a notional principal amount and paid at intervals determined by
the parties. Only a net payment is made - the loser pays the winner, so to speak. FRAs are always settled in cash.
A futures contract is similar to a forward, but provides the counterparties with less risk than a forward contract,
namely a lessening of default and liquidity risk, due to the inclusion of an intermediary.
Similarly a swap is an exchange. More specifically, an interest rate swap looks a lot like a combination of FRAs
and involves an agreement between counterparties to exchange sets of future cash flows.
All these products all provide ways to hedge interest rate risk, with different products being appropriate for
different scenarios. Although need for that can be ascertained on case by case basis and market outlook.
Currency risk
Fluctuations in foreign exchange are considered another major risk which might affect the solar project during
the construction and operation. Foreign companies who are interested to invest in Indian solar market are
analyzing the opportunities and threats associated with international currency transactions before they
proceed. This is preventing many of the foreign investors to invest freely in the Indian solar markets since, as of
present no guarantee mechanisms are in place to mitigate this risk.
Transactional currency risk can be hedged tactically or strategically to preserve cash flow and earnings,
depending on their currency view.
Translational currency risk is usually hedged opportunistically rather than systematically, notably to try to
avoid emerging market-related shocks to net assets, usually focusing on either long-term foreign investment or
debt structure.
Hedging economic risk is complex, requiring the corporation to forecast its revenue and cost streams over a
given period and then to analyze the potential impact on these of an exchange rate deviation from the rate used
in calculating revenue and cost. For the debt structure, the currency of denomination must be chosen, the
amount of debt estimated in that currency and the average interest period determined. The effect on cash flow
should be netted out over product lines and across markets. Whats left from this process is the economic risk
that has to be managed. For large multinationals, the net economic risk may in fact be quite small because of
offsetting effects. However, economic risk can be substantial for corporations that have invested in only one or
two foreign markets. Concluding it, either taking Rupee loans or hedging the risk by derivative contracts are the
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most effective measures to mitigate the risk. Although the need for that can be ascertained on case by case basis
and market outlook.
Commissioning Risk
Commissioning risk is another major financial risk of concern. NSM is tightly bounded with the stipulated time
frame; hence the timely completion of the projects is mandatory for the successful completion of the mission.
This has been observed that in a typical power project a number of issues come up which leads to delay in the
commissioning and operations, apart from many other risks, laxity from the developers and EPC contractors
side plays a major role in the causing delays. A mitigation measure to bring in better discipline amongst all can
be imposing a penalty clause on the EPC contractor if delay happens, this will reduce the occurrence of such a
risk from the developers side.
Raising of equity
Rising of the equity is a pre-requisite for any project, arranging the equity had been one of the major concerns
for the solar projects under NSM. It has been observed that many equity investors are excusing themselves from
investing under NSM, their concerns and issues have been majorly addressed before in our risk chapters. In
order to encourage participation of equity players, an option which could be forwarded can be allotting
maximum preference shares to institutional investors i.e. fixed return for some period followed by conversion
into normal equity, which will be an encouraging step to pitch in more equity players in the solar projects under
NSM. Apart from this, mitigation of all major risks associated with the solar projects would be an encouraging
step for equity players to start investing in solar industry.
Risks leading to non- fulfilment of in-time financial closure by the

project developer
To help developers achieve timely financial closures most of the banks suggested for creation of a separate
window mechanism for investments in renewable particularly solar, as most of the banks are already filling
their appetites for investment in power sector by investing in the conventional projects. There is a need for
some investment scenarios where investments should be mandated will definitely help the development of
sector and will help developers achieve the timely financial closures. Another method could be tie-up funds with
banks first, and then raising the funds from other time consuming options like bonds, ECBs etc. can also help
reduce the probability for non fulfillment of timely financial closures.
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Chapter 5: Year-wise investment

/ funding requirements for NSM
Renewable Energy Year Wise Capacity Addition till 2022
Currently India has an installed capacity of around 180 GW of electricity, with more than 60% generated from
thermal energy. Hydro power is a distant second at 21%, whereas renewable energy contributes only 20 GW or
11% of the installed mix. However as the capacity utilization factor of renewable energy sources is very low as
compared to capacity utilization factor of thermal electric plants, the energy mix of India from renewable
energy further decreases to 4%.
India continues to grow at a rapid pace, but the growth in the power sector has not been very rapid and the
demand supply gap has widened at now stands at around 10% of total electricity requirement which is around
13% for peak demand. Indias ability to close this gap will be critical for maintaining a high growth rate as
supply of electricity is a major bottleneck for growth in India. To meet this demand and also account for
increase in demand in the future years due to higher economic growth, rural grid electrification, urbanization,
etc, India needs to have an installed capacity of over 300 GW by 2017. While in the 12 th Plan most of this
additional requirement will be met with cheaper thermal (mostly coal power), to grow sustain ably India needs
to increase its mix of renewable energy.
The Ministry of New and Renewable Energy has projected the capacity addition of different renewable
technologies till 2017 in its strategic plan 6 and in its sub-group recommendations for the 12th Five Year Plan7.
For the 13th Five Year Plan, MNRE has envisaged cumulative capacity addition for each of the renewable energy
technologies.
Currently the Indian renewable energy scenario is dominated by the wind sector with an installed capacity of
approximately 15GW as on 31/08/2011 which is 75% of the total installed renewable energy capacity. Wind has
been driving the renewable energy sector and it has grown mainly due to incentives such as accelerated
depreciation and preferential tariffs. However previously developers focussed on installing wind power plants
to avail accelerated depreciation and emphasis on generation was low which is responsible for an overall low
CUF of 17% for the wind sector in India. But with more encouragement from the government towards power
generation through generation based incentives and RPOs, the CUF of wind plants should increase. The
following graph represents the year wise addition of different renewable energy technologies from 2006/07 to
2010/11.
3500
3000
MW
2500
2000
1500
1000
500
0
2006-07
2007-08
Wind
Biomass
2008-09
WtE
SHP
Solar PV
2009-10
2010-11
Solar Thermal
Figure 11: Past Trends of Renewable Energy Capacity Addition
Strategic Plan for new and renewable energy sector for the period 2011-17, extracted from: http://www.mnre.gov.in/policy/strategic-planmnre-2011-17.pdf
7 Extracted from http://www.mnre.gov.in/twelth-plan.htm
6
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Solar power addition during this period has been negligible with a total addition of around 37 MW of solar PV.
Other technologies have shown little growth, but there is a huge potential for biomass and small hydro to grow
in the coming years.
The graph below represents the cumulative capacity of renewable energy in India till 2022 based on MNRE
targets. Wind energy will still be the most dominant technology for this entire period, though based on current
planned scenarios, solar power addition will overtake wind power addition in the 13th Five Year Plan. The
addition of other renewable energy technologies is not as prominent as the addition of wind and solar power.
80,000
Cumulative Capacity (MW)
70,000
60,000
50,000
40,000
30,000
20,000
10,000
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Year
Wind Power
Biomass
WtE
Small Hydro Power
Solar PV
Solar Thermal
Figure 12: Cumulative RE Installed Capacity
T he graph below depicts the year wise percentage distribution of addition planned capacity for different
renewable energy technologies till 20228. In the 12th Five Year Plan and the remained of the 11th Five Year Plan,
wind sector will dominate total renewable energy capacity addition, however solar power- both PV and thermal
will dominate the renewable energy planned projections in the 13 th Five Year Plan.
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Wind Power
Biomass
WtE
Small Hydro Power
Solar PV
Solar Thermal
Figure 13: % Addition of RE Technologies

MNRE Projections extracted from: MNREs Strategic Plan 2011-2017, http://mnre.gov.in/policy/strategic-plan-mnre-2011-17.pdf, and
Working Group for 12th Plan for MNRE: http://mnre.gov.in/twelth-plan.htm
8
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Investment Required for other Renewable Energy till 2022

The investment required for the envisaged capacity addition has been determined by calculating year wise
capital cost of the different renewable energy technologies. The capital cost trends of the various technologies
are:
1)
Wind Power: For wind power, a 1% year on year decrease in capital cost has been taken as the wind
power market has matured, with various technological advances and large investments in local
manufacturing capacity. Further technological advancements may not decrease the capital cost of
turbines, but will increase efficiency and reduce per unit cost of generation.
2) Biomass: For the biomass sector a 2% year on year decrease in capital cost has been taken, as there is
further scope in new technologies, and further R&D efforts will reduce capital costs along with providing
cleaner power and reduced cost of generation.
3) Waste to Energy: For WtE, a year on year capital cost reduction of 2% has been taken as presently the
capital cost is relatively high as compared to other RE technologies as WtE is relatively a new technology
and as more R&D investment flows, capital costs will decrease.
4) Small Hydro: Yearly capital cost for small hydro has been taken as 1%, as the majority of capital cost is
in the form of land and civil costs which will not decrease and will offset technology advancements in
terms of capital costs.
5) Solar PV: Solar Costs for utility scale solar PV have drastically reduced, and as per reports from the
International Energy Agency this trend will continue. Analysis from the Technology Roadmap- Solar
Photovoltaic Energy, IEA9 and the University of Melbourne- Renewable Energy Technology Cost
Review10, along with PwC analysis it has been estimated that the capital cost for solar PV will reduce by
5% annually. Capital cost for the solar technologies will decline as production increases to attain
economies of scale, along with cost reduction measures from increased investment in research and
development in this sector.
6) Solar Thermal: Yearly capital cost decrease for solar thermal has been taken at 3%, as solar thermal is a
still a new technology and with further R&D in this sector, rapid decrease in costs will not be seen
immediately, but in later years when it becomes a mainstream technology.
http://www.iea.org/papers/2010/pv_roadmap.pdf
http://www.earthsci.unimelb.edu.au/~rogerd/Renew_Energy_Tech_Cost_Review.pdf
10
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The investment requirements have been calculated year wise, taking into account the phasing of capital costs for technologies such as biomass, small hydro,
WtE and solar thermal power plants that take more than one year to complete. The year-wise capacity addition targets, along with the investment
requirements to meet these
The table below gives the year wise capacity addition of the renewable energy technologies till 2022 based on MNRE projections and for solar only includes
the NSM targets:
Table 6: Year-wise RE capacity addition (MW)
Year
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
Wind Capacity Addition for Year (MW)
2400
2500
2300
2200
2100
1900
2016
2128
2240
2352
2464
Biomass Capacity Addition for Year (MW)
350
380
380
330
330
330
340
340
340
340
340
WtE Capacity Addition for Year (MW)
20
25
35
45
55
60
75
88
100
113
125
SHP Capacity Addition for Year (MW)
350
350
400
400
450
500
320
320
320
320
320
Solar PV Capacity Addition for Year (MW)
150
400
200
200
500
550
800
1200
1600
2000
2400
Solar Thermal Capacity Addition for Year (MW)
500
50
200
200
500
550
800
1200
1600
2000
2400
Total Capacity Addition (MW)
3770
3705
3515
3375
3935
3890
4351
5276
6200
7125
8049
The investment required for installation of this capacity is given below:

Table 7: Year-wise RE investment required (Rs. Cr)
Year
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
Wind (Investment) in cr.
12000
12375
11271
10673
10086
9034
9490
9917
10335
10743
11142
Biomass (Investment) in cr.
1732
1548
1567
1416
1307
1281
1278
1268
1242
1217
1193
WtE (Investment) in cr.
128
193
255
330
403
449
523
613
692
768
840
SHP (Investment) in cr.
1950
1741
1846
1950
2051
2269
1942
1499
1484
1469
1454
Solar PV (Investment) in cr.
1650
4000
1900
1805
4287
4480
6190
8821
11173
13268
15126
Solar Thermal (Investment) in cr.
2391
1902
2395
4740
6024
7906
11422
15193
18727
22035
22524
Total Investment in RE in cr.
19851
21759
19235
20915
24158
25420
30846
37311
43653
49501
52280
PwC
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Solar Capacity Addition under NSM

The National Solar Missions envisaged capacity addition of 20,000 MW of solar power has been presently
equally distributed among solar photovoltaic and solar thermal technologies. The first phase of the mission till
2013 has envisaged a capacity addition of 1,000 MW, cumulative capacity of 4,000 MW till 2017 and 20,000
MW grid connected solar power. MNRE has provided figures for year-wise capacity of grid connected solar
power till 2017 in its strategic plan, which adheres to the National Solar Mission targets.
Different Scenarios for the National Solar Mission

Our analysis considers three potential scenarios for the National Solar Mission:
The base scenario- 20,000 MW of grid connected solar power by 2022

Twice the base scenario- 40,000 MW of grid connected solar power by 2022
Thrice the base scenario- 60,000 MW of grid connected solar power by 2022
The allocation of the three scenarios into solar photovoltaic and solar thermal has been done by doubling or
tripling the base scenario in line with the assumptions used by MNRE.
Estimating Investment Required under the Different Scenarios of

NSM
Assumptions
Apart from NSM targets, to estimate the investment required capital cost trends of the technology are required.
To calculate the capital cost till 2022, capital costs for the technologies have been taken as assessed from
stakeholder discussions have been taken for the base year 2011-12. The capital cost for solar technologies covers
the equipment cost, land cost, interest during construction, evacuation cost and civil and commissioning costs.
For the base year 2011-12, the capital cost for solar PV, irrespective of thin film or crystalline technology has
been taken as Rs. 11.00 crores/ MW. For solar thermal the capital cost for the base year is Rs. 13 crores/ MW.
Capital cost reduction trends for solar PV have been taken at 5%, whereas for solar thermal it has been taken at
3% annual decrease. However when we consider the other cases for installation of 40,000 MW and 60,000 MW
by 2022- technology costs will have to decrease even more aggressively to promote investors to fund the extra
capacity. Despite this, capital cost reductions will most likely not be proportional to extra added capacity. We
assume a 6% annual decrease in capital cost for solar PV for scenario 2 and a 7% annual decrease in capital cost
for scenario 3. For solar thermal the base case capital cost reduction is 3%, under scenario 2 the capital cost
reduction has been taken as 4% and under scenario 3 it has been taken at 6%.
Further, construction time for solar PV plants has been taken as 1 year, whereas for solar thermal the
construction time has been taken as 2 years, with capital cost distribution of 70% in the first year and 30% in
the second year.
These capital cost reduction trends for the three scenarios is given for both the technologies is given below:
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12
10
8
6
4
2
0
2011-12
2012-13
2013-14
2014-15
Solar PV Scenario 1
2015-16
2016-17
2017-18
Solar PV Scenario 2
2018-19
2019-20
2020-21
2021-22
Solar PV Scenario 3
Figure 14: Capital Cost Trend for Solar PV (Rs. crores/ MW)
14
12
10
8
6
4
2
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Solar Thermal Scenario 1
Figure 15: Capital Cost Trend for Solar Thermal (Rs. crores/ MW)
Scenario 1: Base Case of 20,000 MW of Solar Power by 2022

This scenario is the base scenario and adheres to NSM targets of 20,000 MW- 10,000 MW of solar PV and
10,000 of solar thermal by 2022. As per MNREs projections and guidelines, the distribution of this projected
capacity has been done with 1000 MW in the 11th Plan, 3000 MW in the 12th Plan and the rest 16000 MW in the
13th Plan by 2022. The graph below captures the year wise target of grid connected solar power using figures
provided by the MNRE strategic plan. For the years 2017 to 2022, the capacity addition of 16,000 MW of solar
power has been distributed as given in the chart below.
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6000
5000
4000
3000
2000
1000
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Solar PV
Solar Thermal
Figure 16: Scenario 1- Solar Power Installations (MW)
Based on the assumptions above, the capital cost requirements were calculated for this scenario by multiplying
the year wise capacity addition and the annual capital costs. For solar thermal as the construction cost is two
years, capital cost phasing has been done. Based on the assumptions for capital cost, and year wise installations
the total investment required for the base scenario was calculated to be Rs. 172, 338 crores (USD 34.47 billion).
As can be seen on the graph below, investments for achieving installation targets for the period 2017 through
2022 are not linearly growing. We have assumed that due to learning curve and bandwagon effects, projects
will come online faster towards the end of the plan period, rather than being equally distributed throughout.
Accordingly, installation targets and corresponding investment requirements are bunched up towards 2020,
dropping rapidly in the final year of the Mission period.
40000
35000
30000
25000
20000
15000
10000
5000
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Solar Photovoltaic
Solar Thermal
Figure 17: Scenario 1- Solar Power Investments (Rs. Crores)
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Scenario 2: Twice the Base Case- 40,000 MW of Solar Power by 2022

This scenario is twice of base scenario and targets an installed capacity of 40,000 MW by 2022- 20,000 MW of
solar PV and 20,000 of solar thermal by 2022. The year wise distribution of this projected solar power capacity
has been done by doubling the existing plan and year wise targets with 2000 MW in the 11 th Plan, 6000 MW in
the 12th Plan and the rest 32000 MW in the 13th Plan by 2022. The estimated funding requirement for this
scenario is Rs. 320,902 crores (USD 64.18 billion). With double targets of the NSM under scenario 2, the total
investment has increased 86% more than the base case scenario. The charts for year wise capacity addition and
investment required is given below:
12000
10000
8000
6000
4000
2000
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Solar PV
Solar Thermal
80000
70000
60000
50000
40000
30000
20000
10000
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Solar Photovoltaic
Solar Thermal
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Scenario 3: Thrice the Base Case- 60,000 MW of Solar Power by

2022
Under this scenario an installed capacity of 60,000 MW of solar power has been envisaged by 2022- 30,000
MW of solar PV and 30,000 of solar thermal by 2022. The year wise distribution of this projected solar power
capacity has been done by tripling the existing plan and year wise targets with 3000 MW in the 11 th Plan, 9000
MW in the 12th Plan and 48000 MW in the 13th Plan by 2022. The funding requirement for this scenario has
been estimated to be around Rs. 429,080 crores (USD 85.82 billion). Even with tripling the targets of the NSM,
the total investment under this scenario is only 149% more than the base case scenario. The charts for year wise
capacity addition and investment required is given below:
16000
14000
12000
10000
8000
6000
4000
2000
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Solar PV
Solar Thermal
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Solar Photovoltaic
Solar Thermal
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The following table gives the investment required under each scenario and also gives the % increase in
investment required from the base case:
Table 8: Scenario wise investment required for grid connected solar power
Scenario Target (MW)
Investment
Required (Rs. Cr.)
Investment Required
(US$ billion)
% increase in investment
required over base case
20,000
Rs. 172,338 crores
US$ 34.47 billion
0%
40,000
Rs. 320,902 crores
US$ 64.18 billion
86.2%
60,000
Rs. 429,080 crores
US$ 85.82 billion
149%
Solar PV Manufacturing
To ensure 20,000 MW (10000 MW of solar PV, 10000 MW of solar thermal) of grid connected solar capacity
addition, ramping up local manufacturing capacity is required. The National Solar Mission also targets to create
a favourable environment for solar manufacturing and research for both PV and solar thermal. One of the
missions targets is for India to become a global leader across the solar manufacturing value chain. This is
necessary for the overall success of the National Mission as an evolving domestic industry would help decrease
costs and also provide timely maintenance for projects.
At present India is currently an exporter of solar modules, but the domestic solar industry is heavily dependent
on imports of raw materials and components including silicon ingots, wafers and cells. Cell production of both
crystalline and thin film solar PV have risen in the last year with corporations like Moser Baer Solar, TATA BP
Solar, Websol Energy, etc adding cell production capacity to their plants. To promote the nascent solar PV
industry, the central government launched the Special Incentive Package (SIPs) policy which provided capital
subsidies of 20% on capital expenditure for manufacturing units to be set up in Special Economic Zones (over
and above the incentives of SEZ) and capital subsidies of 25% on capital expenditure for Non- SEZ
manufacturing units. The scheme also provided other benefits including exemption from countervailing duties
for manufacturing units being set up in Non- SEZ areas.
To estimate the investment required for solar PV manufacturing- the PV addition has been equally divided
amongst crystalline and thin film technologies. Further 50% domestic content requirement has been taken for
thin film, and 100% for crystalline technology. Year wise incremental manufacturing capacity was computed by
finding the extra capacity required every year to meet at most the local demand with a production efficiency of
80%. Additional solar PV manufacturing capacity available for exports and other schemes is not considered as it
is difficult to estimate the extent of Indias export. The capital cost for base year has been taken as Rs. 18 crores
and then given a decreasing trend with the same % as the capital cost reduction in solar PV project cost.
As per the estimations, the cumulative capacity of solar PV manufacturing based on the above estimations at
the end of the 13th Five Year Plan comes out to be 2250 MW. This figure accounts only for capacity required to
meet the mission targets and excludes additional capacity required for exports and other domestic RPO
schemes. The capital outlay for the NSM base for 20,000 MW of solar (10,000 solar PV) requires Rs.27,698
crores or USD 5.54 billion.
Solar Thermal manufacturing is not considered as globally, existing glass manufacturers are modifying their
existing products to manufacture solar thermal grade reflectors and concentrators. In a typical solar thermal
power plant, the solar field (reflectors/ concentrators) contributes around 40% of the total project cost, whereas
power block equipment comprises of 17% capital cost. The power block is an existing technology, with a large
domestic base. The rest of the capital cost includes engineering and layout of the plant along with construction,
civil costs and land costs.
Table 9: Investment Required under NSM for Solar Power Capacity Addition
Scenario
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Target (MW)
Investment (Rs. Cr.) Investment (US$ billions)
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20,000
27,698
5.54
40,000
51,399
10.28
60,000
71,571
14.31
SHAKTI Foundation
Table 10: Investment Required under NSM for Solar Power Capacity Addition and Manufacturing
Scenario
PwC
Target (MW)
Investment (Rs. Cr.) Investment (US$ billions)
20,000
200036
40.01
40,000
372301
74.46
60,000
500651
100.13
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Chapter 6: Solar Power Plant

Simulations
Introduction
Simulating solar power generation regardless of the technology is not technically dissimilar to simulating
generation from conventional energy sources. Specific technical and operational assumptions relating to each
type of solar technology, which are relatively easily available from international experience, along with site
specific parameters like radiation, regulatory and other expenses etc. are the predominant variables required to
calculate generation from solar technologies.
However, the primary aim of simulating solar PV and thermal generation for this assignment is threefold:
4. analyze the effect of various risks, as perceived by different stakeholders, on project viability.
5. analyze the effect of mitigation measures for each of the risks analyzed in the previous steps on the
project viability and;
6. assess the best combination of funding sources to improve project viability
As has been highlighted in earlier sections of this report, a solar PV or CSP plant can face several categories of
risks ranging from policy & regulatory, technical, infrastructural and general project finance risks that are
univerally applicable for all infrastructure projects. However, only some of these risks have a discernable effect
on key variables that determine solar project viability. Other types of risks are more generic in nature and do
not effect any single project variable directly, but rather put the entire project itself in jeopardy.
In order to understand effect of the various risks on the key parameters that effect solar projects, it is essential
to define these parameters upfront.
1.
Capital Cost: Capital cost is perhaps the most important and the largest cost component associated
with solar projects, since operating costs for solar power plants is negligible. Any increase in capital cost
has a significant impact on the overall project IRR.
2. Commissioning time: Apart from capital costs, interest costs are the most significant portion of a
solar projects cost components. Any delay in commissioning, delays revenues and increases costs
associated with interest during construction (IDC), and commissioning charges, if any.
3. REC prices: The REC RPO regime provides project developers with an alternative revenue stream to
substitute for the discounted preferential tariffs available under the JNNSM. However, the REC prices
are market determined within a band of regulated prices. Depending upon the prevailing demandsupply situation, the prices of RECs can fluctuate wildly, and considering the infancy of the market, it is
impossible to predict price trends.
4. CUF: Capacity utilization factor (CUF) determines the amount of electricity that can be generated from
a given size of the system installed. A plants CUF can be affected by several factors like insolation,
deration etc.
5.
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Interest Rates: While interest rates can affect the overall viability of any project, for solar project in
particular, there are several factors that can adversely affect interest rates, including the inherently high
risk perception harbored by lenders, as well as lack of investor confidence in new project developers,
who inadvertently receive a higher interest rate to hedge risks.
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In order to assess the impact of various risks on each of these key parameters, the following section presents, in
brief, the assumptions used by the simulation model.
Table 11: Major Risks
Major risk
categories
Specific Risks
Affected Parameters
Policy and
Regulatory Risks
Interest rates
Delay in getting clearances and

approvals
Issues related to the Contractual
Agreement between NVVN &
3
4
5
Infrastructural
Risks
Technological Risks
Financial Risks11
Commissioning time, interest rates

Capital cost, commissioning time, interest
rates
REC prices
Indigenous Manufacturing-Supply
Crunch
Scale of Projects
Political Risk
Commissioning time
Capital cost, commissioning time
Specific issues related to land
Specific issues related to water
CUF
Capital cost, CUF
3
1
Lack of Performance data for Indian

conditions
Interest Rate Risk
Currency Risk
Interest rates, capital cost
Commissioning Risk
Interest rates
Raising the equity
Timely financial Closure
Exposure Limits
Commissioning time
Capital cost, commissioning time, CUF

CUF
Interest rates
While most stakeholders highlighted financial risks as being the most serious of their concerns, detailed
analysis of financial risks reveals that most of these are actually the results or the effects of possible or actual
realization of other categories of risks listed in the matrix. The financial risks listed in this matrix are the
generic project finance risk that are faced by all categories of infrastructure projects, modified to reflect
concerns of solar power plant developers in particular.
11
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Simulation model assumptions

The assumptions on this model can be classified under different heads; these are reproduced in the table below:
Table 12: Financial Model Assumptions
Solar Power Plant related assumptions

S. No. Assumption Head Sub-Head
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Power Generation
Time period
Project Cost
Financial
Assumptions
CERC norms
Actual
Unit
Solar PV
Solar Thermal Solar PV
Solar Thermal
Installed Power Generation Capacity
MW
25
Annual Deration Factor
0%
0%
0.15%
0.15%
Auxiliary Consumption
0%
10%
0%
10%
Capacity Utilisation Factor
19%
23%
19%
23%
Transmission and distribution losses
0%
0%
3.5%
3.5%
Life of the project
Years
25
25
25
25
Construction period
Months
12
24
12
24
Start date
Date
1-April-12
1-April-12
Time required for achieving financial closure
Months
Power Plant Cost
Rs Mn/MW
144.2
150
120
125.7
Land requirement
Sq. m/MW
20,000
30,000
20000
30000
Land Cost including administrative and

incidental charges
Rs. Per sq.m.
314.25
314.25
314.25
314.2314.25
Debt
70%
70%
70%
70%
Equity
30%
30%
30%
30%
Upfront equity
25%
25%
Loan Repayment Period
years
10
10
Specific to
combination
Specific to
combination
Moratorium period
months
24
Specific to
combination
Specific to
combination
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Interest Rate
SHAKTI Foundation
13.25%

4
Financial
Assumptions
Tax and
depreciation
13.25%
CERC norms
19%
19%
15%
15%
Return on Equity after 10 years
% p.a
24%
24%
15%
15%
Income Tax
32.45%
32.45%
32.45%
32.45%
MAT Rate
20.01%
20.01%
20.01%
20.01%
Depreciation Rate - First 10 years
7%
7%
5.28%
5.28%
Depreciation Rate - Remaining Years
1.3%
1.3%
5.28%
5.28%
Years for 7% rate
Years
10
10
Salvage value
10.0%
10.0%
10%
10%
15%
15%
80%
80%
Salvage value as per IT Act
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Operation &
Maintenance
Actual
% p.a
Accelerated depreciation rate
Working Capital
12.50%
Return on equity for first 10 years
Depreciation as per Income tax Act
12.50%
5%
5%
O&M Charges
Months
Receivables for Debtors
Months
Maintenance
% of O&M exp.
15%
15%
15%
15%
Interest On Working Capital
12.75%
12.75%
12%
12%
O&M charges for FY 2011-12
Rs. mn/MW
1.01
1.45
1.01
1.45
Total O & M Expenses Escalation
5.72%
5.72%
5.72%
5.72%
Tariff period 1
Years
25
25
10
12.00
Tariff period 2
Years
15
13
Tariff for Tariff period 1 under PPA
Rs/kWh
15.39
15.04
12.16
11.57
Tariff for Tariff period 2 under PPA
Rs/kWh
12.16
11.57
REC
Rs/kWh
12
12
Average pooled cost of power purchase
Rs/kWh
2.65
2.65
2.65
2.65
Sale of Power
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Discount factor: normative for levelizing tariff
15.88%
Other assumptions
15.88%
CERC norms
Actual
Transmission line cost per km
Rs mn/km
1.1
1.1
Transmission length to the nearest sub-station
Km
Water supply cost
Per unit
Water requirement
Units/MW
Direct tax code: No tax holiday, No AD, no MAT credit, change in MAT calculations, carry forward of losses for infinite time
10
Tax regime: DTC is Corporate tax rate

applied
MAT rate
32.45%
20.01%
MAT rate-calculated on GFA
2%
In addition to these solar plant specific assumptions, we have also included assumptions regarding the various sources of finances available for solar projects.
These sources of finances have specific characteristics that can have a significant impact on project viability. The following table lists out the key features of
the various sources of financing considered for this simulation.
Table 13: Features of different types of debt
Mode of raising debt and its

features
Interest rate
Repayment tenure
(years)
Moratorium period (years)
Commercial banks
12.5%
10
Specialised infrastructure financing companies
13.0%
12
Non-convertible debentures
11.0%
15
Multi-lateral agencies
9.0%
20
7.0%
External commercial borrowings
9.0%
10
While its likely that the specific values assumed for the different features of each financing source may differ, the values given above are largely
representative of actual numbers.
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Analyzing the effect of various risks

As described previously, the various categories of risks can have a significant impact on key variables
of the project. In order to clearly deliniate the impact of risks on variables, they have been considered
one at a time, for each variable. Funding source is chosen as 100% commercial bank borrowing.
Table 14: Impact due to capital costs
Solar PV
Capital cost fluctuations
Project IRR
Equity IRR
Project IRR
Equity IRR
-15%
11.36%
14.53%
10.92%
13.75%
-10%
10.47%
12.70%
10.15%
12.32%
-5%
9.65%
11.12%
9.45%
11.08%
0%
8.89%
9.74%
8.77%
9.92%
5%
8.22%
8.59%
8.18%
8.94%
10%
7.61%
7.58%
7.64%
8.08%
15%
7.01%
6.63%
7.09%
7.23%
% IRR
Result of scenario analysis
Solar Thermal
Solar PV
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-15%
-10%
-5%
0%
5%
Capital Cost Fluctuations
Equity IRR
Project IRR
10%
15%
10%
15%
Figure 22 Capital Cost fluctuations for Solar PV
Solar thermal
16.00%
14.00%
% IRR
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-15%
-10%
-5%
0%
5%
Capital Cost Fluctuations
Equity IRR
Project IRR
Figure 23 Capital Cost fluctuations for Solar Thermal
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Table 15: Impact due to commissioning time
Result of scenario analysis
Solar PV
Solar Thermal
Delay in commissioning
Project IRR
Equity IRR
Project IRR
Equity IRR
30 days
8.73%
9.52%
8.64%
9.76%
60 days
8.58%
9.33%
8.48%
9.57%
90 days
8.40%
9.08%
8.32%
9.36%
Solar PV
Solar thermal
12%
8%
10%
6%
8%
% IRR
% IRR
10%
4%
2%
6%
4%
2%
0%
0%
30 days
Equity IRR
60 days
90 days
30 days
Equity IRR
Project IRR
Figure 25: Impact due to commissioning time -Solar

PV projects
60 days
90 days
Project IRR
Figure 24 Impact due to commissioning- Solar

Thermal
Table 16: Impact due to REC prices
Solar PV
Decrease in REC prices: Revenue by REC and APPC
Project IRR
Equity
IRR
Solar Thermal
Project IRR
Equity IRR
0%
12.02%
15.92%
12.06%
15.96%
-1%
11.99%
15.85%
12.04%
15.91%
-2%
11.96%
15.79%
12.01%
15.85%
-5%
11.87%
15.60%
11.93%
15.69%
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Solar PV
18.00%
16.00%
14.00%
%IRR
12.00%
10.00%
Project IRR
8.00%
Equity IRR
6.00%
4.00%
2.00%
0.00%
0%
-1%
-2%
Decrease in REC prices
-5%
Figure 26 Decrease in REC prices- Solar PV
Solar thermal
18.00%
16.00%
14.00%
%IRR
12.00%
10.00%
Project IRR
8.00%
Equity IRR
6.00%
4.00%
2.00%
0.00%
0%
-1%
-2%
Decrease in REC prices
-5%
Figure 27 Decrease in REC prices-Solar Thermal
Table 17: Impact due to CUF
Solar PV
Decrease in CUF
Solar Thermal
Project IRR
Equity IRR
Project IRR
Equity IRR
-1.50%
8.67%
9.36%
8.60%
9.64%
-1%
8.74%
9.48%
8.66%
9.73%
-0.50%
8.81%
9.60%
8.72%
9.83%
+0.50%
8.97%
9.89%
8.84%
10.03%
1%
9.05%
10.03%
8.90%
10.14%
+1.50%
9.14%
10.18%
8.97%
10.25%
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% IRR
SHAKTI Foundation
Solar PV
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-1.50%
-1%
-0.50%
0.50%
Change in CUF
Equity IRR
Project IRR
1%
1.50%
1%
1.50%
Figure 28 Change in CUF - Solar PV
Solar thermal
12.00%
% IRR
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-1.50%
-1%
-0.50%
0.50%
Change in CUF
Equity IRR
Project IRR
Figure 29 Change in CUF-Solar Thermal

Table 18: Impact due to interest rates
Solar PV
Solar Thermal
Increase in interest rates
Project IRR
Equity IRR
Project IRR
Equity IRR
-1.50%
9.13%
10.89%
9.05%
10.91%
-1%
9.06%
10.51%
8.95%
10.57%
-0.50%
8.97%
10.12%
8.86%
10.24%
0.50%
8.84%
9.43%
8.72%
9.66%
1%
8.77%
9.10%
8.63%
9.36%
1.50%
8.69%
8.75%
8.54%
9.05%
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% IRR
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Solar PV
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-1.50%
-1%
-0.50%
0.50%
Variation in interest rates
Equity IRR
1%
1.50%
Project IRR
Figure 30 Variation in Interest rates - Solar PV
Solar thermal
12.00%
% IRR
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-1.50%
-1%
-0.50%
0.50%
Variation in interest rates
Equity IRR
Project IRR
1%
1.50%
Figure 31 Variation in Interest rates-Solar Thermal
Finally the impact on the levelized cost of generation per unit has been calculated by running
sensitivities by varying CUF and interest rates (these parameters are affected by the risks as
mentioned in Table 6). Following table helps us determine as to how the cost of generation varies by
controlling various affected parameters due to the associated risks.
Table 19: Impact on cost of generation per unit due to CUF and interest rates
Sensitivity analysis for Cost of generation with varying CUF(Solar PV)

17.50%
18% 18.50%
19% 19.50%
20%
4.27
4.886
4.750
4.622
4.500
4.385
4.275
20.50%
4.171
Sensitivity analysis for Cost of generation with varying CUF(Solar CSP)

17.50%
18% 18.50%
19% 19.50%
20%
4.69
6.158
5.987
5.825
5.672
5.527
5.388
20.50%
5.257
Sensitivity analysis for Cost of generation with varying interest rates(Solar PV)
11.00% 11.50% 12.00% 12.50% 13.00% 13.50% 14.00%
4.27
4.11
4.16
4.22
4.27
4.33
4.38
4.44
Sensitivity analysis for Cost of generation with varying interest rates(Solar CSP)
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4.69
11.00%
4.33
11.50%
4.45
12.00%
4.57
12.50%
4.69
13.00%
4.80
13.50%
4.92
SHAKTI Foundation
14.00%
5.04
Optimal combination of capital cost and tariffs

As the sensitivity analysis above confirms, apart from tariff, the capital costs is perhaps the most
important parameters affecting project viability for both solar thermal and solar PV. This realization is
important since unlike other parameters affecting IRRs, these two are directly under the control of the
project developer. Retaining control over these two parameters simultaneously could ensure that even
if other parameters are adverse, overall project viability is not severely impacted.
The following graphs show the golden zone the sweet spot where optimal combination of tariffs
and capital costs result in the best possible IRRs for each technology. Areas highlighted in grey are
unfavourable IRRs and the zone in the middle in white represent IRRs in the neighbourhood of base
case assumptions presented previously in this chapter.
Table 20: Sensitivity in IRRs for changes in capital costs and tariff for Solar PV
Capital Costs in Rs. Millions --->
Tariff in Rs. /kWh --->
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80
85
90
95
100
105
110
7.50
7.77%
6.92%
6.16%
5.46%
4.82%
4.23% 3.67%
3.15%
8.00
8.83%
7.93%
7.13%
6.40%
5.74%
5.11% 4.53%
4.00%
8.50
9.87%
8.92%
8.07%
7.31%
6.61%
5.95% 5.37%
4.83%
9.00
10.88%
9.88%
9.00%
8.20%
7.47%
6.78% 6.17%
5.62%
9.50
11.86% 10.83%
9.90%
9.06%
8.31%
7.60% 6.95%
6.37%
10.00
12.84% 11.75% 10.79%
9.91%
9.12%
8.41% 7.72%
7.11%
10.50
13.80% 12.69% 11.66% 10.75%
9.92%
9.18% 8.49%
7.83%
11.00
14.73% 13.58% 12.54% 11.59% 10.71%
9.93% 9.22%
8.57%
11.50
15.66% 14.46% 13.38% 12.40% 11.52% 10.69% 9.94%
9.27%
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Table 21: Sensitivity in IRRs for changes in capital costs & tariff for Solar Thermal
Capital Costs in Rs. millions
Tariff in Rs. / kWh
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80
85
90
95
100
105
110
7.50
9.64%
8.82%
8.09%
7.42%
6.78%
6.22%
5.70%
5.21%
8.00
10.52%
9.67%
8.91%
8.21%
7.56%
6.96%
6.43%
5.92%
8.50
11.38%
10.50%
9.70%
8.98%
8.32%
7.68%
7.12%
6.61%
9.00
12.24%
11.33% 10.49%
9.73%
9.05%
8.42%
7.80%
7.27%
9.50
13.05%
12.12% 11.27% 10.47%
9.76%
9.11%
8.50%
7.92%
10.00
13.87%
12.89% 12.01% 11.22% 10.47%
9.78%
9.16%
8.58%
10.50
14.63%
13.66% 12.75% 11.92% 11.17% 10.47%
9.80%
9.21%
11.00
15.40%
14.39% 13.47% 12.63% 11.84% 11.12% 10.47%
9.82%
11.50
16.13%
15.12% 14.18% 13.31% 12.51% 11.76% 11.08%
10.46%
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Chapter 7: Estimation of the

capacity of Indian financial
system for providing funding
to NSM
Approach
Indian financial system is primarily composed of three major categories of institutions:
Scheduled commercial banks

NBFCs
Regional cooperative banks etc.
Out of these, we have not considered small NBFCs and regional cooperative banks as a potential
source of finance for solar power projects as power projects require large scale investment and they
may not have adequate appetite to finance large scale projects. Thus, to estimate the capacity of
Indian financial system for financing solar power projects, scheduled commercial banks and select
NBFCs such as RECL, PFC and IREDA have been considered for the projections.
Capacity of scheduled commercial banks to finance renewable energy projects
To estimate capacity of scheduled commercial banks to finance solar power projects, we have first
estimated credit availability from these banks for the whole economy by regressing credit availability
over factors such as GDP at nominal rate, cash-reserve ratio, SLR, repo rate, gross NPAs of Indian
banks, US M2 and inflation. The results of the regression analysis indicate that GDP and repo rate are
the most determining factors for estimating credit availability. Basis these results, credit availability
from scheduled commercial banks for the whole economy is estimated.
Table 22: Projections of Credit Availability for the Power Sector
Year (Rs.000
crores)
GDP at nominal
rate
GDP growth
rate (%)
Credit-GDP
ratio %
Credit
availability in
the economy
Credit for
power: credit
for economy
(%)
Credit available
for power
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FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
8,451
9,621
10,960
12,417
14,036
15,994
18,170
20,634
23,418
26,586
30,208
15.7
13.8
13.9
13.3
13.0
13.9
13.6
13.6
13.5
13.5
13.6
53.8
55.1
56.2
57.1
58.0
58.7
59.4
59.9
60.4
60.9
61.3
4,549
5,300
6,160
7,095
8,134
9,391
10,787
12,369
14,156
16,189
18,514
5.9
6.3
6.5
6.3
6.4
6.4
6.3
6.4
6.4
6.4
6.4
267
336
402
443
518
599
683
787
901
1,029
1,178
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After this, credit availability for power sector has been estimated using past figures, which is then
apportioned to renewable energy in the ratio of investment required for renewable vs. Power. This is
further apportioned to solar power on the basis of investment required.
For this, firstly nominal GDP has been projected for FY 12 to FY 16 using projections from IMF. GDP
for rest of the years till FY 2022 has been estimated using five year CAGR. Credit availability is
estimated using GDP as a factor. Repo rate is not considered for estimations as it is nearly impossible
to predict repo rate till FY2022.
Credit availability for the economy is apportioned to power sector assuming 3 year moving average of
credit to power: credit to economy ratio.
Credit availability for power sector is apportioned to the renewable energy in the proportion of
investment required in both the sectors. Projections for investment requirement for renewable sector
are described in the previous section. Investment for power sector is calculated using a GDP growth
rate multiplier of 0.7-0.8 of power sector growth. 12
Table 23: Projections of Credit Availability for Renewable Energy
Year (Rs.000
FY12
FY13
FY14
FY15
FY16
FY17
crores)
Growth in
power sector
19.58
17.30
17.41
17.72
17.38
18.60
investment
(%)
Investment in
power sector
468
549
644
758
890
1,055
at current
prices
Credit
availability
for RE
11.4
13.4
12.0
12.3
14.1
14.5
FY18
FY19
FY20
FY21
FY22
18.14
18.08
19.27
19.32
19.47
1,247
1,473
1,756
2,096
2,521
17.0
20.1
22.6
24.6
24.8
Capacity of select NBFCs to finance renewable energy projects

We have considered three NBFCs which are prominent in lending to power sector, namely, RECL, PFC
and IREDA. We have estimated their financing plan for renewable energy using company news and
assumed growth rates for future disbursements.
Table 24: Funding capacity of select NBFCs for RE
Growth in disbursements %
IREDA
PFC
RECL
Assumption
15%
10%
5%
Year
(Rs.crores)
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
IREDA
1,850
2,128
2,447
2,814
3,236
3,721
4,279
4,921
5,659
6,508
7,484
PFC
513
564
620
682
750
826
908
999
1,099
1,209
1,330
RECL
560
560
560
560
560
588
617
648
681
715
750
12
Handbook of Power Sector- Multiplier calculated using data from 1970-2009
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Capacity of Indian financial system to finance solar power projects (Base case)
Using the lending capacity available for renewable energy from scheduled commercial banks and
select NBFCs, we have calculated lending capacity for solar power projects by apportioning it in the
proportion of credit required.
Table 25: Capacity of Indian financial system to finance solar power projects
Year (Rs. crores)
Total credit
available for RE
Credit available
for solar power
Credit required
for solar power
Credit (shortfall)
for solar power
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
14,283
16,615
15,672
16,333
18,688
19,660
22,838
26,699
30,066
33,036
34,334
2,908
4,507
3,499
5,111
7,976
9,580
13,040
17,184
20,594
23,561
24,727
2,829
4,131
3,006
4,581
7,218
8,670
12,329
16,810
20,930
24,712
26,355
79
375
493
530
759
909
712
374
(336)
(1,151)
(1,629)
Similarly, shortfall is calculated under Scenario 2: Double NSM and scenario 3: triple NSM are
mentioned below:
Table 26: Credit shortfall under different NSM scenarios
Years(Rs.Crores)
FY 12
FY 13
FY 14
FY 15
FY 16
FY 17
FY 18
FY 19
FY 20
FY 21
FY 22
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Scenario 1: Base case

79
375
493
530
759
909
712
374
(336)
(1,151)
(1,629)
Scenario 2: Double NSM

(82)
240
554
227
(86)
(418)
(1,894)
(3,918)
(6,540)
(9,308)
(10,974)
Scenario 3: Triple NSM

(394)
(183)
364
(407)
(1,409)
(2,207)
(4,828)
(8,262)
(12,266)
(16,240)
(18,433)
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5000
0
INR crores
-5000
-10000
-15000
Scenario 1: Base case

Scenario 2: Double NSM
Scenario 3: Triple NSM
-20000
-25000
-30000
Figure 32: Gap in financing for solar power from Indian financial system
It can be seen that under base case, credit shortfall is reaching significant amount from FY 2019
onwards. Further, the shortfall is emerging from FY 2015 onwards under Scenario 2: Double scenario
and from FY 2014 in Scenario 3: Triple scenario. This indicates there is an urgent need to explore
other innovative areas of financing to meet this shortfall and to position solar power as a priority
sector for lending from banks.
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Chapter 8: Potential sources of

funding
Background
Achieving financial closure has come across a major impediment for few of the projects awarded
under Batch-1 of JNNSM, the reasons of which have been detailed in the previous section. The need of
the hour is to understand key features of the present sources and instruments of finance with respect
to their applicability for solar power projects. Accordingly, appropriate recommendations need to be
made which can be put into action readily or by bringing in changes in policies, so that future projects
do not face difficulty in raising financing.
Solar power projects require financing only for meeting capital cost requirements. It is to be noted
that solar power projects require less working capital as no fuel stock needs to be maintained.
Working capital is required to the extent of receivables of few days as generally distribution
companies take couple of months to make payment to the generation company. Central Electricity
Regulatory Commission (CERC) has also specified working capital norms as 2 months of receivables, 1
month of O&M expenses and 15% of O&M expenses as maintenance spares in its (Terms and
Conditions for Tariff determination from Renewable Energy Sources) Regulations, 2009, hereinafter
referred to as CERC Renewable Energy Tariff Regulations. However, the scope of our study is related
only to the long term financing.
Financing of project involves two components, namely, debt and equity. The various sources of raising
debt and equity are represented in the following figure:
Potential Sources
of Financing
Debt
Domestic
sources
Equity
External sources
Commercial banks
IFCs like IREDA,

RECL, PFC
Other sources like
insurance companies,
pension funds etc.
Capital market (public
issue of bonds)
Sponsors
equity
Multilateral/bilateral
agencies
International banks
Private equity
(domestic or
international)
Capital market
(public equity)
Financial institutions,
pension funds,
charitable institutions,
foundations etc.
Figure 33: Sources of raising finance
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Options for debt financing

There are primarily two methodologies of raising debt, which are described below:
1.
Project finance: Debt can be raised by the Special purpose vehicle (SPV) created for the
identified solar project. This is essentially non-recourse debt, where financing is done solely on
the basis of cash flows of the project, with no recourse to the parent company i.e. developer.
Project developers prefer this mode of financing to safeguard their other businesses in the event of
failure of project. However, our stakeholder consultations with leading financial institutions
suggest that lenders consider solar power industry in a nascent stage and perceive solar power
projects as risky ventures. Hence, they are reluctant to provide project finance to solar power
developers.
2. Balance sheet based funding: The provisions of JNNSM allow the selected bidder (developer)
to directly invest in the solar power project, without the need of creating a separate SPV. Debt can
be raised by the developer on the strength of its balance sheet for financing the project. However,
in this case, if the project fails, the lenders will have recourse to the developers other assets and
hence is generally less preferred by developers.
Sources of raising debt

As depicted in the previous figure, there are several sources of raising debt. Each one has its unique
features in terms of tenure, interest rates, moratorium period, currency of borrowing, suitability for
SPV or developer, special features etc. These sources of debt need to be studied in detail to evaluate
which ones would be suitable for raising finance for financing solar power projects in India.
The sources of debt have been categorised into two major heads, vis--vis, domestic and external
sources.
1. Domestic sources of raising debt

There are numerous domestic sources of raising debt, such as, commercial banks, infrastructure
finance companies, insurance companies, pension funds etc. Each of the domestic sources is discussed
in detail in this section.
1.1 Commercial banks in India
There are two categories of commercial banks in India, viz. domestic commercial banks (including
nationalised banks and private banks) and international commercial banks having offices in India
(such as HSBC, Standard Chartered, Bank of America etc.). These two categories of banks are different
from each other in terms of their appetite for giving long tenure rupee loans. While domestic
commercial banks can extend rupee loans of long tenure (10-12 years), international commercial
banks are generally not willing to take such long term exposure in rupee, hence they are reluctant to
provide long tenure rupee loan. Since solar power projects have long gestation period and require long
term loans, only domestic commercial banks have been analysed in detail below:
Table 27: Features of loans from commercial banks
Parameters
Details
Instruments
Term loans
Suitability
Domestic commercial banks can be tapped by the SPV (as project financing) as well
as by the developer (as balance sheet based funding). The developers ability to raise
debt from commercial banks would be dependent on the existing relationships and
credit appraisal of the project/company done by the banks.
Interest rate
Interest rate of ~ 12-13%. These rates are equal to base rate of the bank + spread.
Base rate is different for each bank and is reset periodically as per monetary policy
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Parameters
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Details
changes by RBI. The spread is dependent on credit rating/credit appraisal of the
borrower.
The changes in base rate will expose the borrower to interest rate fluctuations, but
currently no derivative instrument is available for hedging interest rate risk of loans
from domestic commercial banks.
Tenure of the loan Long-tenure loan of maturity 10 years with a moratorium of 2-3 years are usually
extended by domestic commercial banks
Lead time in
raising debt
Generally, banks take 3-4 months in doing credit appraisal and finalising loan
documents for solar power projects.
Special features
Generally banks impose strict covenants on borrowers like maintenance of Debt

service reserve account etc. The favourable feature is RBI has included solar power
generating systems as priority sector under Clause 1.2.1.3 in Master Circular on
Priority Sector Lending-2004.
Administrative
expenses
Typically, banks charge 2-3% of the loan amount as commitment fees and other
administrative charges. Initial project appraisal costs and ongoing expenses incurred
by the banks to monitor the project performance are also included in administrative
expenses.
Example
State Bank of India and the Export-Import Bank of India has extended a 14-year
loan to a solar plant being built by Spains Grupo T- Solar Global SA and Astonfield
Renewable Resources in Rajasthan. It is said that this long tenure loan may be the
longest in the south Asian nation, where banks have been reluctant to offer loans for
more than 10 years to solar power projects.13
Remarks
Considering that domestic commercial banks can give long term rupee loan and
expedite the whole process quickly, they are one of the most sought after source of
raising money by developers.
1.2. Specialised infrastructure financing companies (IFCs)

Infrastructure projects, due to their large scale and long gestation period need long term finance.
Long-term loans create problem for commercial banks due to mismatch in duration of their assets and
liabilities. To overcome this shortcoming, government has created specialised infrastructure financing
companies such as IDFC, Power Finance Corporation (PFC), Rural Electrification Corporation
Limited (RECL) to provide long tenure loan to infrastructure projects. Typically, these companies
have been created with a specific objective of investing in a particular sector, for e.g. PFCs objective is
to finance power projects.
These institutions can raise funds from multilateral agencies like World Bank, Asian Development
Bank (ADB) (with sovereign guarantee), issue infrastructure tax-free bonds and explore other sources
of low cost financing such as external commercial borrowings (ECBs) etc. For example, in the past,
International Finance Corporation (IFC) has lent USD 75 million to IDFC as part of its Climate
Change strategy of partnering with financial intermediaries to scale up the impact for climate change
projects in India.14
Similarly, Government of India has created a dedicated NBFC, Indian Renewable Energy
Development Agency (IREDA) to promote renewable energy and energy efficiency initiatives.
13
http://www.bloomberg.com/news/2011-06-01/sbi-agrees-to-record-14-year-loan-for-t-solar-astonfield-plant.html
14
http://www.ifc.org/ifcext/spiwebsite1.nsf/f451ebbe34a9a8ca85256a550073ff10/90a9316abecfa844852577070062fca0?opend
ocument
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However, currently IREDA cant raise ECBs as it is not yet registered as an IFC with Reserve Bank of
India (RBI). It has submitted an application to be registered as an IFC with RBI in 2010. Once IREDA
gets status of an IFC, it will play a much greater role in extending low cost finance to the renewable
energy sector by exploring option of raising ECBs.
The detailed analysis of IFCs is mentioned below:
Table 28: Features of loans from IFCs
Parameters
Details
Instruments
Term loan
Suitability
IFCs can be tapped by SPVs as well as by project developers.
Interest rate
Interest rate would range between 13%-14% (PFC), depending upon market
conditions. Further, RECL and PFC reduce interest rates by 0.5% after CoD.
IREDA (12.25%-13%)
Tenure of the loan IFCs provide long tenure loans to the developers
Lead time in
raising debt
IFCs generally take 6-8 months in extending loan due to their rigorous project
appraisal mechanism and several rounds of discussions within the organization.
Special features
IFCs also impose certain covenants on the borrowers
Administrative
expenses
Typically, IFCs charge 2-3% of the loan amount as commitment fees and other
administrative charges.
Example
Power Finance Corporation has floated a special subsidiary PFC Green Energy to
provide loans to renewable energy projects.15
Remarks
Owing to the long gestation period of solar power projects, IFCs play an important
role in meeting financing requirements of solar power projects. This would
especially be true for IREDA as its primary objective is promoting renewable
energy.
1.3. Capital markets (Public issue of bonds)

Public is also an important investor base which participates in bond issues of companies. The detailed
analysis is presented below:
Table 29: Features of debt raised from Capital Markets
Parameters
Details
Instruments
Bonds (convertible and non-convertible) via public issue
Suitability
Capital market can be tapped by SPVs as well as by project developers. However, SPV
may not have good credit rating to issue bonds at lower coupon rates as compared to
the parent developer.
Further, as per Clause 2.2.1 (b) of SEBI DIP Guidelines 2007, convertible bonds can
only be issued by company which is listed and has track record of distributable profits
for at least 3 out of immediately preceding 5 years as per. This implies that
convertible bonds can only be issued by the developer.
Only if the project is developed by an infrastructure company16 or if it is appraised by
a Public Finance Institution (PFI)/IDFC/IL&FS or a bank which was earlier a PFI, or
http://www.greenworldinvestor.com/2011/05/12/power-finance-corporation-green-energy-pfc-subsidiary-to-become-oneof-the-biggest-green-energy-financiers-in-india/
15
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Parameters
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Details
5% or greater of the project cost is financed by any of the above mentioned
institutions by way of loan or subscription to equity or a combination of both; then
convertible bonds can be issued without the qualifying criteria of past profitability
and can be issued by SPV.
Interest rate
Coupon rates and bond pricing would depend upon market conditions. Convertible
bonds are issued at comparatively lower coupon rates. However, interest rates are
largely dependent upon prevalent market conditions, credit worthiness and rating of
the borrower.
Tenure of the loan Bonds can be raised for longer tenure like 15 years.
Lead time in
raising debt
Lead time for bond issue is longer than debt syndication. Preparation of issue
material, credit rating, road shows, book building process, listing with a recognized
stock exchange etc. may take up to 6-7 months, as book building process is dependent
upon market sentiments. For a reputed company, lead time may be lower.
Special features
Bonds are better than commercial banks as they are generally issued at lower interest
rates and impose lesser covenants on issuers.
One of the main advantage of issuing bonds is they are issued at fixed coupon rates;
hence project is not exposed to interest rate risk.
Administrative
expenses
Floatation costs are incurred in the range of 0.5-1% of the issue amount.
Example
Typically, large companies with good creditworthiness find it viable to publicly issue
bonds. Currently given the scale of most of the solar power developers, this is not
considered as preferred source of financing by them.
Remarks
In future, public issue of bonds can play an important role in meeting financing
requirements of solar power projects. To enable that solar power projects need to
first demonstrate their creditworthiness to be able to tap such source of fund.
1.4. Other domestic institutional investors like insurance companies, pension funds, charitable
institutions etc.
Apart from the lending institutions, there are other institutions such as, insurance companies, pension
funds, charitable institutions, foundations, which invest in other companies via, term loans, bonds or
shares to earn required rate of return on their assets. These companies scrutinize investment
opportunities available in the market and take investment decisions keeping in mind their return
objective, risk tolerance and liquidity needs.
Since most of these institutions deal with public money, their utmost objective is principal protection.
Due to this, these institutions invest only in certain grade of instruments. If solar power projects can
meet their investment criteria, new avenues of raising finance can be tapped by project developers.
Table 30: Features of debt from other domestic institutional investors
Parameters
Details
Instruments
Term loans (LIC has given term loans to few power developers), private placement of
bonds (convertible and non-convertible).
Suitability
These sources can be tapped by SPVs as well as by project developers.

However, typically these institutions invest in certain grade of instruments with a
primary objective of principal protection. Considering these factors, institutional
Infrastructure Company means, a company wholly engaged in the business of developing, maintaining and operating
infrastructure facility. Infrastructure Facility refers to the meaning of Section 10(23G) (c) of Income Tax Act, 1961.
16
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Parameters
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Details
investors can be tapped only by developers enjoying high credit rating. SPV will have
to take guarantee from a higher rated developer to avail the same rating.
Interest rate
Coupon rate and bond pricing would be contingent upon market conditions.
Convertible bonds are issued at comparatively lower coupon rates.
Bonds are issued at fixed coupon rates, while loans may be raised at floating rates
Tenure of the loan Long tenure term loans are available from these sources as they have long term
liabilities.
Bonds can also be raised for a longer tenure, such as 15 years. Certain blue chip
companies like TATA Steel has raised perpetual bonds with no fixed maturity.
However, solar power developers will take substantial time to reach that level of
creditworthiness to be able to issue a product like this.
Lead time in
raising debt
Lead time for private placement of bonds is 3-4 months, as book building process is
dependent upon market sentiments.
Raising term loans from these sources may entail lower lead time.
Special features
Coupon rates for private placements are slightly higher than that of public issue.
Bonds are issued at fixed coupon rates, avoiding interest rate risk.
Interest rate of loans can be linked to a base rate which is subject to change with
changing market conditions.
Administrative
expenses
Example
As of now, institutional investors have not actively participated in meeting debt

requirements of solar power developers. This could be due to developers finding it
difficult to convince qualified institutional buyers to invest in a relatively new and
untested concept of solar power.
Further, for small developers, raising money from institutional investors would be
difficult.
Remarks
We believe once few solar projects are successfully commissioned, tapping this
source of debt may become viable for the solar power developers.
2. External sources of raising debt

Apart from domestic sources, debt can also be raised from foreign sources such as multi-lateral
agencies, export credit agencies, international commercial banks etc. Debt raised from foreign sources
will be in a foreign currency and hence, need to be hedged against foreign exchange fluctuations. The
various sources of raising debt from external sources are discussed in detail below.
2.1. Multi-lateral and bilateral agencies
Several multi-lateral and bi-lateral agencies like World Bank, Asian Development Bank, Japan
International Cooperation Agency (JICA), KfW and others provide funds for infrastructure projects of
developing countries via soft loans or grants. With increasing focus towards environment protection
and clean energy, these agencies have started focusing on renewable energy especially solar power in
India.
Funding from World Bank is accessible only for governments or government companies with
sovereign guarantee. Since majority of the solar power projects are taken up by private players, it is
not possible for them to get sovereign guaranteed loans. They can avail loan from other agencies
meant for financing private sector projects, such as, IFC-World Banks private lending arm.
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Table 31: Features of debt from foreign sources
Parameters
Details
Instruments
Soft loans, government guaranteed loans by World Bank and ADB (classified as
External commercial borrowings)
Suitability
The strict restrictions imposed by multi-lateral agencies make it difficult for an SPV
to raise funds from them. It is more appropriate for a developer to raise debt from
these sources using balance sheet financing.
Interest rate
Interest rates charged by some multi-lateral agencies are given below:
World Bank: LIBOR+0.2%+0.25% (upfront fees) + sovereign guarantee ;
ADB: LIBOR+0.4%+0.15% (commitment charges) + sovereign guarantee;
Sovereign guarantee fee ranges between 1-2% and is applicable when govt.
agency is undertaking the project
Additional spread of 2-3% (assumed) in case of non-sovereign loan
Additional cost of ~6% for hedging interest rate risk and foreign exchange
risk
Current six month LIBOR is 0.59%
Tenure of the loan Multi-lateral agencies provide long tenure loans (20-30 years) with up to 5 years of
moratorium period. The tenure and moratorium will differ from one agency to
another and will depend upon the type of project.
Lead time in
raising debt
Multi-lateral agencies take around 6 to 12 months to complete project appraisal,

finalizing loan documents, term sheet etc.
Special features
Sovereign guarantee require approval from Ministry of Finance.

Further, multi-lateral agencies require adoption of several international best
practices such as international competitive bidding framework for procurement of
raw materials/equipments, establishment and implementation of an environmental
and social management system (ESMS). Abiding by these compliances result in
longer lead time in raising debt and may lead to delay in project execution.
Administrative
expenses
Administrative expenses would be incurred by the developer while availing loan for
the first time as processes of the company would need to be aligned as per lenders
requirements. Subsequent borrowings wont have significant administrative
expenses.
Example
KfW has signed EUR 250 million loans for 125 MW Mahagenco solar PV plant in
Maharashtra.
Remarks
Multi-lateral agencies are playing a crucial role in fulfilling financing requirements

of solar power developers either by directly lending to them or lending to
intermediaries such as IREDA. Considering that long tenure loans can be availed
from these agencies and the net interest rate (including hedging costs) is lower than
that of domestic banks, these agencies will continue to act as a saviour in solar
power financing.
2.2. Export credit agencies

Export credit agencies (ECAs) extend loans to project developers of other countries in lieu of
importing equipments/raw material from the country of ECA to promote its industrial growth and
exports. Presently, limited technology is available for CSP equipments in India and there is need to
import the equipment from foreign equipment manufacturing companies.
JNNSM has allowed import of 70% of equipments for CSP projects, which would largely be parabolic
troughs, reflectors etc. Presently, only a handful of equipment manufacturing companies are
supplying CSP equipment worldwide. Some of the known names are Brightsource Energy, eSolar,
Solar Reserve (US based); Solar Millennium, Siemens (Germany); Abengoa Solar, Acciona (Spain-
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based); Areva (France-based). Raising debt from ECAs of these countries can be explored if Indian
CSP developers decide to import equipments from these countries.
For solar PV projects, JNNSM doesnt allow import of high value items like solar cells and modules.
However, inverters (costing Rs. 90 lacs for each MW of solar PV generation 17) are usually imported
from China. Loan from China Development Bank can be explored in this regard. Further, JNNSM has
allowed import of PV modules made from thin film technologies or concentrator PV cells. Raising debt
from the corresponding ECAs can also be explored, if these PV modules are imported.
Table 32: Features of debt from export credit agencies
Parameters
Details
Instruments
Term loans (classified as external commercial borrowings)
Suitability
SPV may find it difficult to raise debt from this source. It will be more appropriate for
an established developer to raise loan from export credit agencies.
Interest rate
Considering current LIBOR of 0.59%, ECAs may charge nearly 6.5-7.5% as interest
rates (including hedging costs). This would however depend upon the international
relations between India and the country of ECA and creditworthiness of the borrower
and viability of the project.
Tenure of the loan Typically, ECAs provide loans for medium term- up to 7 years
Lead time in
raising debt
Lead time in raising debt will depend upon sourcing of equipments and negotiations
with the EXIM banks, which is longer than domestic debt raising
Special features
Financing from export credit agencies is dependent upon the country from where
equipment is imported, restricting this source for the developer.
Administrative
expenses
Higher as compared to domestic debt raising
Example
Export Import Bank of United States has extended USD 16 million loan of 16.5 year
tenure to Azure Power to import thin film PV modules for construction of 5MW solar
project in Rajasthan. US EX-IM Bank has also provided financing to three other
projects in India, namely, Dalmia Solar Project in Rajasthan, the Punj Lloyd Solar
Project in Rajasthan and ACME Solar Technology Project in Gujarat. 18
Remarks
Considering the lower interest rates offered by ECAs, this financing should
definitely be explored to the extent of import of equipments.
2.3. International commercial banks

International commercial banks offer long tenure floating rate loans in USD or their home currency to
project developers.
Table 33: Features of debt from international commercial banks
Parameters
Details
Instruments
Term loans (classified as external commercial borrowings)
Suitability
Both SPV as well as developer can raise loan from international commercial banks.
But, SPV may find it difficult to raise ECBs due to low creditworthiness.
India Solar PV Advisor, A comprehensive guide for developers and investors. (Updated Sept 2011)
Export-Import Bank of the United States, Office of Communications. July 18, 2011 news release
EX-IM Bank Announces $16 Million Loan to Support First Solar Inc. Exports to Azure Power Project
in India
17
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Parameters
Details
Interest rate
Floating interest rate based on LIBOR + spread of nearly 2-3% (depending upon the
creditworthiness of the borrower)
Hedging costs to hedge interest rate risk and foreign exchange risk is nearly 6%
Tenure of the loan 10-12 years

Lead time in
raising debt
Shorter lead time as compared to multi-lateral agencies
Special features
No need to take approval from RBI as automatic route is allowed for ECBs raised for
infrastructure development. Maximum borrowing allowed in a year by a company is
USD 750 million.
Administrative
expenses
Comparable to that of domestic debt raising
Remarks
A large business group having good relationships with bankers/or having treasury
desks can explore this option.
2.4. Financial institutions, like pension funds etc.

Foreign pension funds, insurance companies and other foreign institutional investors (FIIs) also
invest in Indian market via bonds or stock issue. It is important to give serious consideration to this
source of fund raising as they have large amount of funds and generally have certain allocations for
renewable energy or emerging economies. However, Indian solar sector is still in nascent stage
making it difficult for developers (esp. smaller ones) to tap this source. The industry needs to establish
a sound track record of performance and profitability and build credibility in international markets to
attract debt funds from these sources.
Table 34: Features of debt from other foreign sources
Parameters
Details
Instruments
Private placement of bonds (convertible and non-convertible)
Suitability
More suitable for an established developer
Interest rate
Interest rate may be lower than that of domestic bond issue, and will depend upon
market conditions.
Tenure of the loan Bonds can be raised for a longer tenure like 15 years
Lead time in
raising debt
Lead time for international bonds is 3-4 months, as book building process is
dependent upon market sentiments. For a reputed company, lead time may be lower.
Special features
Preparation of issue material, road shows etc would be necessary to issue bonds.
Further, the developer also needs to conduct credit appraisal from an international
credit rating company before issuing bonds in international market.
Administrative
expenses
Remarks
In the current scenario, it is difficult for a developer to raise funds from these
sources. Once the solar industry matures, it will be easier for an established
developer to tap this source.
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Conclusion
The above detailed analysis gives us following key insights:
1.
In the present scenario where high technology and contractual risks exist with solar power
plants, domestic commercial banks and specialised infrastructure financing companies will
continue to be the most sought after source of raising debt financing for solar power
developers. Their shorter lead time, low degree of complexity in documentation process and
other arrangements make it easier for developers to raise debt from these sources as
compared to other domestic sources like institutional investors and bond issue. Further, as of
now, solar power is not lucrative enough to entice institutional investors and capital markets
to lend to solar power projects.
2. Interest costs are dependent upon the creditworthiness of the borrower and associated project
risk. This may decrease in future once few projects are successfully commissioned and
demonstrate good track record of operational performance.
3. Till date, only few established developers have been able to tap external sources of finance for
solar power projects. Going forward, once the technological and contractual risk factors
diminish, it will become easier for the project developers to explore these sources of finance.
Along with the qualitative factors, attempt has been made to evaluate the best option of raising debt in
terms of its impact on project IRR and equity IRR. IRR for a solar power project (both PV and CSP)
after considering various sources of debt financing are:
Table 35: Sensitivity of sources of funds on IRR
Source
Multi-lateral agencies
External commercial borrowings
Non-convertible debentures
Commercial banks
Specialised infrastructure financing companies
Project IRR Equity IRR

10.08%
24.23%
10.80%
16.78%
10.36%
15.83%
9.85%
14.09%
9.76%
11.46%
9.41%
10.69%
It can be deduced that:

1.
Multi-lateral agencies top the list in terms of equity IRR owing to their long tenure loans,
which spread repayment over a longer period and hence result in increase in free cash flows to
the equity.
2. Export credit agencies provide highest project IRR due to their low interest rates, followed by
other commercial borrowings.
3. Borrowing from commercial banks and special IFCs lead to lowest project and equity IRR.
But, currently these are the most preferred source of raising debt as raising debt from other
sources have their own impediments.
4. Though IRR of raising debt from multi-lateral agencies and export credit agencies is high, it is
not feasible for small project developers to explore these avenues.
It is expected that going forward, solar power will gain momentum and financial institutions will gain
more confidence in solar power. Once that confidence is generated and risks are resolved by bringing
in policy and structural changes, solar power developers would be able to raise funds from capital
markets, financial institutions and other external sources.
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Ways to enrich current debt financing instruments

Currently, solar power projects dont have established history of high performance and
creditworthiness, due to which, lenders perceive these projects as risky and therefore, charge higher
interest rates. In order to improve financial viability of these projects, it is important to finance these
projects at reasonable rates. This can be possible by enriching it with some other
instruments/techniques given by government, lenders or companies. Some of these are discussed in
detail below.
Steps by government
Certain steps undertaken by the government to promote financing of clean energy in India are as
follows:
1. National Clean Energy Fund
The Government of India has set up a National Clean Energy Fund to serve as a separate corpus for
funding green energy projects with the broader objective of cutting down Indias carbon footprint. The
collections for the fund come from clean energy cess of Rs 50 per ton imposed on production/import
of coal, lignite and peat. The corpus of this fund is expected to expand to over Rs 6,500 crore in 201112.19 It will be used for entrepreneurial ventures and research in the field of clean energy technologies.
Use of this fund for development of solar PV and CSP technology will further give boost to solar power
development in the country.
2. Sovereign guarantees to agencies
Typically, multilateral agencies provide debt at lower rates to the emerging economies. To safeguard
their money, they demand guarantee from government of the concerned country. The Government in
turn charges sovereign guarantee fee from the borrower, such as Government of India (GoI) charges 12% guarantee fee from the borrower. However, GoI gives guarantee only to the government
companies or PSUs and not to the private companies.
For example, IREDA avails such loans from multi-lateral agencies with sovereign guarantee and use
the proceeds for solar power development.
Steps by other financial institutions/banks/agencies

Bank and financial institutions can also adopt certain techniques to extend financing to solar power
developers while mitigating their risk.
1. Take-out financing
It has been observed that although banks have enough liquidity to fund power projects in India, they
dont have confidence in viability of solar power projects owing to contractual and technological risks.
Due to this reason, they have been reluctant to lend to this sector. Once CoD is achieved and project
generates power as per capacity utilization factor assumed at the time of bidding, and developers are
getting regular payment from distribution companies, project risk decreases significantly. At this
stage, the lending institutions, which have been earlier reluctant to extend loan to solar power, can
acquire loan assets of existing lenders at a lower interest margin than the initial spread.
In this way, the bank which has provided loan to the project developer at the time of construction will
be able to free up its capital for further lending to solar projects, and at the same time, earn a margin
for its risk-taking ability. The other lending institution cant provide a longer tenure loan to a risky
project, but is able to provide medium term financing to a project when risk has been reduced. This
feature is called Take-out financing. Take-out financing allows lending institutions to earn a higher
margin for their ability to take this risk, while allows others to lend medium term loans to
infrastructure projects.
http://articles.economictimes.indiatimes.com/2011-04-07/news/29392656_1_national-water-mission-water-resourcesclean-energy
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2. Differential interest rates during the tenure of the loan depending upon prevalent project risk
Due to high risk perception of the project during pre-stabilization period, banks charge higher rate of
interest to safeguard themselves from construction and operation risks. Considering this feature,
project developers can negotiate terms with the lenders in such a way that spread charged by banks
reduce once the project risk decreases, i.e. post 1-2 years of CoD. In nutshell, banks can provide
discount to spread once the project achieves stabilization phase.
3. Securitization
Securitization is a process through which illiquid assets are transferred into a more liquid form of
assets and distributed to a broad range of investors through capital markets. Loans extended to solar
power developers can also be bundled together and sold in the form of securities in capital markets.
However, as per RBI regulations, lending institutions can undertake securitization only for risk
transfer and not for profit booking.
4. Partial credit guarantee from Asian Development Bank
Asian Development Bank has decided to extend up to USD 150 million in credit guarantees to help
India scale up its use of solar power under India Solar Generation Guarantee Facility. The
guarantees will be provided to commercial banks that finance private sector solar power plants (PV or
CSP) and will cover 50% of the bank loans against default risk by project developers. This scheme
aims to mobilize long-term funding for solar energy development in India.20
Steps by companies
1. Loan guarantees by parent companies
If a special purpose vehicle is formulated for setting up a solar power project, the SPV may find it
difficult to raise debt at competitive rates due to its high risk profile. However, if the SPV is backed by
a parent company with strong financial strength, parent companys good relationships with bankers
and better credit rating can be leveraged to raise loans at competitive interest rates. For this
arrangement, it is necessary that the parent company should have strong financial strength.
Based on our stakeholder interactions, it was observed that banks and financial institutions are willing
to lend to the developer as balance sheet financing, but are averse to project based lending. Taking
guarantee from parent company would resolve this issue.
Options for equity financing

Equity financing is more critical for any project as compared to debt financing. When a project is
identified, the first step is to select an appropriate project developer who has willingness and ability to
put in equity in the project. Efforts towards raising debt are initiated in the next step. Debt financing
cant happen for a sector where interested parties, who are willing to take risks and invest equity in
projects, are not present. In this section, we have studies different avenues of raising equity financing
in detail.
There are primarily three sources of equity:
1. Project sponsors/developers equity
Sponsors equity comes from reserves and surplus of sponsors existing businesses. Large business
houses such as Moser Baer, TATA Group, Abhijeet Group etc. would play an important role in the
development of solar power in India. Large companies have high risk taking and execution capabilities
to undertake capital intensive projects. To ensure success of JNNSM, it is imperative to select
technically equipped and financially sound companies with committed management.
20
http://www.adb.org/About/Private-Sector/India-Solar-Guarantee-Facility.asp
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It has been noticed that developers of CSP projects announced under Batch 1 of JNNSM have not
faced much problems in achieving financial closure of the projects. This could be due to the fact that
CSP projects were largely awarded to established players, which have good creditworthiness to raise
debt. Problems were witnessed by solar PV project developers in achieving financial closure. To avoid
this problem in future, financial criteria of minimum net worth and technical criteria of minimum
capacity (MW) under execution can be included in subsequent bidding processes under JNNSM to
select only creditworthy bidders.
2. Capital markets (Public equity)
Established players in power sector can raise equity from capital markets. However, tapping capital
markets is feasible only for those companies which have achieved significant scale and have profitable
operations. Probably, small solar power developers who have won projects under Batch-1 of JNNSM
will be able to raise funds from capital markets once they commission 2-3 power projects.
3. Private equity (PE)
Private equity plays an important role in providing equity to companies requiring capital to execute
their business plan from conceptualization to execution stage. From our stakeholder discussions, it
has been observed that private equity firms prefer to provide company-based funding rather than
project based funding for renewable projects. Typically, PE firms invest in those companies which
have pipeline of credible upcoming projects. PE firms invest in the projects before CoD is achieved at
discounted price and wait for CoD and project to stabilise. Once the project stabilises and returns are
generated as per the assumptions factored by the management and investment committee of PE firm,
PE firms sell their stake at premium. Some of the PE firms interested in solar energy space in India
are Olympus Capital, IFC- investment in Azure Power, Baring Private Equity and Blackstoneinvestment in Moser Baer Projects.
However, our stakeholder consultation with a major private equity firm indicated that PE firms are
less attractive towards solar projects due to capping of returns by CERC. Instead, they are more
focussing on value chain enablers such as equipment manufacturers, EPC firms etc. For example,
Moser Baer Photo Voltaic has received investment of USD 92.5 million from Japan's Nomura, CDC
Group, IDFC PE, Morgan Stanley, Credit Suisse and IDFC in September 2008.21 It had also raised
USD 100 million in November 2007 from a round led by IDFC PE, with other investors including GIC
Special Investments, CDC and IDFC.22
Apart from direct investment in companies, some PE firms have created innovative business models
regarding investments in renewable energy. The leading example is Green Infra Limited, set up by
funds managed by IDFC PE. Green Infra works like an independent power producer and
develops/operates renewable power generation projects across wind, solar, biomass, waste-to-energy,
small hydro, and energy efficiency verticals.
Conclusion
Considering todays scenario of solar power projects, only sponsors equity and private equity can be
tapped depending upon the projects viability. Solar power is still in a nascent stage in India, thus it
will be difficult to generate enough interest in capital markets to raise equity for these projects. Upon
commissioning, if projects show consistent record in terms of planned generation and distribution
companies honour the PPA agreement, solar power will be able to build credibility in the market to be
able to raise funds from capital markets. Till then, it will have to rely on investors own equity or
private equity for meeting its growth targets.
21
22
http://www.vccircle.com/500/news/moser-baer-pv-gets-925m-from-investors-in-second-round
http://www.vccircle.com/500/content/moser-baer-photovoltaic-biz-gets-100m-from-idfc-pe-gic-cdc-group-and-idfc
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Accelerating NSM by exploring new avenues of

financing
Undoubtedly, there is need to explore other avenues of raising finance for solar power development in
India. Some of the international best practices which can be replicated in our case are explained
below:
Green Infrastructure Bonds
Considering the increasing need of renewable energy in India and world as a whole, the conventional
sources of finance may not be sufficient to meet its investment requirements. The need of the hour is
to mobilize funding from global capital markets having investors with significant asset base, such as
pension funds, insurance companies, sovereign funds etc. Generally, nearly 25-40% of their assets are
allocated to fixed income investments. To tap these markets, investment products need to be designed
in a way to appeal to this class of investors. Issue of Green Infrastructure bonds by the government
would help in raising funds from these markets, which is otherwise difficult for a single developer to
do.
Green bonds have ability to provide attractive returns at relatively low risk to foreign institutional
investors. In addition, they bring in benefits of diversification by participating in emerging markets
growth. Green bonds especially lure investors who focus on environment and sustainability in their
analysis and/or have a separate asset class for climate-focused investments. Money raised from these
sources can be lent to low-carbon projects, such as solar power, at lower interest rates.
For example: Green bonds were first introduced by World Bank to stimulate and coordinate public
and private sector activity to combat climate change. Since 2008, the World Bank has issued green
bonds worth over USD 2 billion through 42 transactions and 16 currencies. Since then, World Banks
green bonds have generated significant interest worldwide. The green bonds issued by the World Bank
appealed to large institutional investors who had both significant allocations to fixed income and a
strategic interest in investing in the climate. This helped World Bank to reach investors who otherwise
didnt normally invest in World Bank bonds. These bonds have enabled investors to take advantage of
the rigorous process of appraising and implementing projects followed by the World Bank. It also
helps investors to monitor projects effectiveness in countries that they would not have invested into
without an expensive due diligence process. World Banks projects supported by green bonds include
solar and wind installations.23
In Indian scenario, upon issuing green bonds to institutional investors, Government of India will have
to appoint an agency such as IREDA, or create a new agency to disburse raised money to solar power
developers. As foreign institutional investors will form a major subscriber base for green bonds,
rigorous project due-diligence, project appraisal and monitoring and documentation need to be done
to avoid risk of default.
Lease financing
Solar power developers can also consider the option of leasing equipments for setting up a solar power
plant. Under a lease, the developer (lessee) typically leases the equipments with the explicit intent to
eventually own it and makes periodic payment to the lesser in lieu of using the equipment. At the end
of the term of the lease, the developer has a buyout option usually at a bargain purchase price that is
fixed in advance at the time the lease is established. In other words, the lessee pays for essentially the
full cost of equipments over the lease period, based on the intent to own the system. The depreciation
and tax benefits can be shared by the lesser and lessee depending upon the structuring of the lease
and treatment in accounting system. 24
Lease financing is advantageous from bank finance in broadly two ways:
THE EUROMONEY ENVIRONMENTAL FINANCE HANDBOOK
2010 Green bonds: a model to mobilise private capital to fund climate change mitigation and adaptation projects. By Heike
Reichelt, The World Bank
24 Financing Non-Residential Photovoltaic Projects: Options and Implications Mark Bollinger, Lawrence Berkeley National
Laboratory
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The developer can finance 100% of the equipment using lease financing, which is not possible
in case of bank financing.
Lease financing can also be made available for long term such as 20 years, whereas it is almost
impossible to get bank finance for such a long tenure
Currently, lease financing is not prevalent in India for solar power projects. In fact, in US, which is a
much developed marked for solar power projects, lease financing (operating) is more popular for solar
PV projects than CSP. The accounting system (IFRS and Direct Tax Code) and equipment leasing
industry need to be studied in detail to understand its implications in the Indian context.
Clean Renewable Energy Bonds (US based)
Another new avenue can be Clean Renewable Energy Bonds (CREBs) which is a new form of tax credit
bond in which interest on the bonds is paid in the form of tax credits by the United States government
in lieu of interest paid by the issuer.25 The tax credit derived from a CREB can be used to offset, on a
dollar for- dollar basis, a holders current-year tax liability. Bonds of similar structure can also be
launched in India for development of solar power projects.
International Funding Sources
Power sector particularly renewable has a good chance to see return of profitability in near future.
Many of the projects will start functioning and will probably move towards becoming higher yielding
assets. All this coupled with the attractive valuations at which the companies in the sector are
available, makes it a great time to for the infrastructure and other funds start investing in the sector.
We analysed some of the global infrastructure funds, who are willing to or will be interested in
investing in the Indian solar industry. Once some of the investments are given practical shape, solar
industry would be having series of such investments and the sector would become relatively better
option for such international sources of financing to invest and earn from the growing sector. The
details of same is enclosed in Annexure-III.
Assessing the best combination of funding sources

As mentioned in Chapter before Exploring innovative areas of financing, borrowing 100% of debt
requirement from multi-lateral agencies results in highest equity IRR, followed by export credit
agencies. However, apart from maximizing equity IRR, developers need to take several other factors
into consideration while raising debt. Some of the important factors include developers financial
strength, project features, possibility of importing equipment and country of import, availability of
government guarantee, creditworthiness in international markets etc. Considering these factors and
constraints, we have arrived at the most optimal debt-raising combination applicable for solar power
developers under certain specific conditions.
Solar PV
Small developers
Most of the developers of solar PV projects are small in terms of their financial strength. For these
small developers, raising loan from domestic commercial banks and specialised infrastructure
financing companies is much easier as compared to any other source. Out of these two, raising debt
from specialised infrastructure offers higher equity IRR. Assuming 50:50 ratios between domestic
commercial bank and specialised IFCs, project IRR is 8.76% and equity IRR is 9.42% 26.
Established developers
Established developers can issue domestic bonds or raise debt from external sources. Of these options,
raising debt from export credit agencies and ECBs provide the highest IRR.
An Explanation of Clean Renewable Energy Bonds, Authored By: Edwin Oswald and Michael Larsen
http://www.pionline.com/article/20110418/PRINTSUB/304189979/tiny-green-bonds-market-looking-ready-to-sprout
26 As per our model, assuming D/E ratio of 80:20, periodic payment of principal in equal installments
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In case, a developer is planning to set up imported thin-film or concentrator PV cells based solar PV
plant, it can raise debt from export credit agencies to finance the cost of imported equipment. In the
past, EXIM banks such as EXIM Bank of United States, China Development Bank and Korea have
provided export credit to Indian companies.
Assuming 30% debt from non-convertible debentures, 50% from export credit agencies and 20% from
ECBs, project IRR is 9.49% and equity IRR is 12.69%. IRR will increase if proportion of ECBs and
export credit agencies increases in total debt.
CSP
Established developers
Most of the CSP projects have been awarded to established developers who have proven track record
in power industry. For such companies, it is much easier to tap unconventional sources of financing,
such as ECBs, bonds etc. Most likely, this is the major reason why most of the CSP developers who
were awarded projects under Batch 1 of JNNSM-Phase 1, have achieved financial closure. The most
ideal source of financing for CSP developers are multi-lateral agencies and export credit agencies.
Raising debt from multi-lateral agencies enables maximum equity IRR of 15.35%, owing to long
repayment and moratorium period.
Raising debt from export credit agencies provide high project IRR of 9.76%, but average equity IRR of
12.89% (at D/E ratio of 70:30).It is not possible for CSP developers to finance 80% of capital by export
credit agencies, as JNNSM guidelines mandate them to use at least 30% of domestic content in all
plants/installations (excluding land). This implies that developers can use imported equipment to the
extent of 70% of the project cost.
Assuming 70:30 D/E ratio, and 80% debt financing by export credit agencies and 20% from ECBs,
equity IRR decreases to 12.78%.
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Chapter 9: Policy Guidance for

the Indian Government
Discussions with project financiers and developers in India carried out during the course of this
project identified a number of regulatory adjustments that could help enable greater investment in the
solar energy sector. These suggestions are preliminary but, with the support of the
Ministry for New and Renewable Energy could be taken forward. Building on issues
highlighted in the preceding sections of the report, this section summarizes the suggestions for the
Governments consideration. For clarity these are categorized under the following heads:
Other Interventions
Establish separate exposure limits for renewable energy or solar power. Some
financial institutions in India face a 5% cap on investments in the power sector. Renewable
are a part of this allocation; therefore, investment in solar is limited by lenders investments in
conventional power. In addition, lenders exposure is calculated over a four-year term (i.e., if a
renewable project is on the books in year one, it stays there till year four, even if it is divested
in year two). Discussions suggest that these guidelines could limit solar investment and could
be revisited with a specific focus on how a separate renewable energy allocation allowance
could be appropriately structured.
Support efforts to access foreign pools of capital. As efforts to scale solar continue, the
amount of domestic finance available for investment is reduced by regulations that limit
banks ability to guarantee infrastructure bonds and that set sector limits for renewable
energy. Discussions suggest that policy makers should consider the range of prospective
financing vehicles that could unlock international and institutional capital. These could
include solar bonds and the novel Credit Default Swap markets. Discussions suggest that a
greater degree of dialogue between financiers and regulators would help to identify how these
mechanisms could play a role in the sector and identify the specific regulatory changes that
would enable their effective deployment in the market (tax allowances for bonds etc).
Further, with increasing exposure to foreign funds, the Mission could also benefit from a
foreign exchange hedging facility instituted by the Government. The primary benefit of such a
facility would be to help mitigate foreign exchange exposure risk.
Support emergence of Indian REC market. In this regard, the Mission could benefit
from incorporating a mandatory penalty mechanism for RPO compliance. The penalty clause
could lead to the fostering of the Renewable Energy Certificates market in India as these could
be used to meet predetermined targets. In addition, to further strengthen the REC
mechanism, greater clarity on the trajectory of floor and ceiling prices for RECs should be
provided.
Evolve PPA breach of contract insurance instrument. As also brought up earlier in

the report, the bankability of PPAs is perceived to be uncertain. As such, the availability of an
appropriately priced insurance product to mitigate the PPA risk would eliminate the most
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commonly cited barrier to investment and allow borrowers to project a stable and secure
revenue stream. This would also reduce the cost of borrowing. With PPA risk mitigated, it is
also possible that a larger quantity of international capital could be made available for solar
and other renewable energy projects in India.
Make the case for pre-qualification for bidders. Bidding under Phase I of the NSM was
intentionally structured to allow applications from a wide variety of sources with the intention
of encouraging broad participation in the emergent sector. This was a laudable goal; however
it did lead in some instances to a negative perception of solar technologys viability as
inexperienced developers made uneconomical bids. This in turn has resulted in greater lender
concern about risk. To address this misperception, a more evolved pre-qualification process
could be applied to ensure that bidders are viable developers with a long-term interest in the
solar sector. This could be done by including adding specific criteria for lining up engineering
procurement and construction (EPC) contracts in advance of bidding and/or qualification
only on the basis of submitting an initial due diligence report on project performance. This
pre-qualification may not exclude first time solar developers but could possibly provide
weight to past experience in the power sector to ensure that applicants have the requisite
capabilities and a minimum level of commitment to the sector.
Rework tariff structure. Taking a cue from the Gujarat tariff policy, there is a strong case
for introducing a similar two-part tariff mechanism under the NSM as well. CERC could
consider releasing a two-part benchmark tariff wherein separate levelized tariffs could be
determined for the first 12 years and the remaining 13 years of the projects life respectively.
NVVN could then explore the possibility of inviting reverse bids in two parts, one for
discounts on the benchmark tariff for the first 12 years and the other for discounts on tariff for
the remaining 13 years. This could possibly help address the concern among developers that
tariffs under the NSM might prove to be inadequate during the initial years of operation of the
solar power plant.
Provide contractual flexibility to project developers. As per the current policy, project
developers may not sell power to any other entity or chose any other market model even in
case of default. Providing such flexibility to developers, in their contractual agreement (PPA),
could be considered as a hedge against future defaults from state distribution utilities.
Strengthen the bid bond to penalise non-compliance. Closely related to the issue of
pre-qualification is the issue of bid-bonds. Under the current solar bidding rules, developers
face penalties for failing to complete projects within the allotted time periods. This
mechanism should act as a form of pre-qualification by creating a disincentive for low bids.
However evidence from project financiers suggests that this is not creating a sufficient
disincentive and should be revisited to ensure it is effective in holding developers to account.
Another suggestion here could be to modify the bidding mechanism to penalise or completely
weed out the highest and the lowest bids, as is done in construction contracts. The penalty for
the lowest bidder could, for example, mean a 10 times higher bid bond as compared to the
others. While such a mechanism would discourage overly adventurous bids, it would also
encourage bidders to be bid competitively to stay in contention.
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Extend the time allowed for projects to achieve financial closure. The time
allocated under the NSM for achieving financial closure has been cited by some sector
participants as creating a challenge for the level of due diligence possible and impacting the
ability of developers and lenders to appropriately structure a financing agreement.
Recognising this MNRE announced in September 2011 an extended time period for financial
closure under batch II of the NSM phase 1 (from 180-210 days). This has been broadly
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welcomed by the financial community. However some stakeholders suggest that the benefits
for further extending the completion window (With suggestions ranging from 6-9 months),
would be significant and should be considered further
Other Interventions
Re-affirm the governments commitment to a dynamic NSM review process.

MNRE should be recognized for its proactive, ongoing revisions to the implementing
guidelines for the NSM, as well as its consultation with industry. To address continued data
and perception issues, continued engagement with the financial sector should be encouraged.
One proposal is to facilitate more frequent interactions between the bankers community and
MNRE through a bankers forum that brings together domestic financiers.
Provide quarterly reports on progress. Financiers regularly cited the need for more
transparent, routine dissemination of solar plant performance and ground insolation data.
This would, it is suggested, enable superior market intelligence, thereby reducing investor and
lender risk perceptions. To facilitate this, a nodal agency designated by the Government,
should maintain a repository of non confidential, non proprietary financial and technical
information regarding various solar installations.
Consider allocating money from the coal cess. Funds accumulated within the coal cess
(a tax on domestic and imported coal at the rate of Rs. 50 a ton) provide a potential source of
funds to credit enhance the purchase scheme under NSM or state programs. Policy makers
could re-evaluate the disbursement of these funds (currently earmarked for the National
Clean Energy Fund) to destinations that would support the scale up of solar (e.g., through
tariffs or solar parks).
Build Capacity for effective data collection. We propose that first, a study must be
undertaken to establish the authenticity of data from various sources. The study should
determine the extent of discrepancies in data released by the Indian Meteorological
Department (IMD) and also highlight reasons behind the same. The government should then
designate a central agency to iron out errors in methods or procedures as established by the
study and invest in building necessary infrastructure for data collection through IMD. This
would, over time, build an extensive database and largely help address the concerns regarding
the reliability of solar irradiation data in India.
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Annexure-I: Assignment of
weightages to the identified
risks
Assigning weightages to the risks for plotting the risk matrix has been made on the basis of impact of
the impact of the risk and the probability of occurrence of the risk. For severity of impact, scores are
assigned on a 10 point scale, with the following rating:
1-2: Very Low Impact risks
3-4: Low Impact risks
5-6: Medium Impact risks
7-8: High Impact risks
9-10: Very High Impact risks
Similarly, for probability of impact, scores are assigned as percentages, with the following rating:
1-20%
: Very Low probability of occurrence
21%-40% : Low probability of occurrence
41%-60% : Medium probability of occurrence
61%-80% : High probability of occurrence
81%-100%: Very High probability of occurrence
From the obtained results, a risk evaluation graph has been plotted depicting the impact of risk Vs its
probability of occurrence. Evaluating the plot of graph the significance of risks could be determined
and respective actions could be taken to mitigate these risks.
The following two figures show the risk matrix and the risk evaluation plot.
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Table 36: Risk Matrix
Risks
Impact
Probability of
occurrence
Low
High
Low
High
Contractual Agreement between NVVN &

Tariff Bidding
High
High
Medium
Very High
High
Medium
Political Risk
Medium
Low
High
High
Very High
Low
Scale of projects
Low
Medium
Availability of suitable land and water
High
High
Interest Rate Risk
High
Medium
Currency Risk
High
Medium
Commissioning Risk
High
Medium
Exposure Limit of Banks
High
Very High
Non-fulfilment of timely financial closures
Very High
Very High
Ratings scale for matrix on

10 point scale
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Rating
Very High
High
Medium
Low
Very
Low
Score
8-10
6-8
4-6
2-4
1-2
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Annexure-II: Minutes of meetings

from Major Stakeholder
Interactions
Power Finance Corporation
Overview of Operations
Power Finance Corporation has a total of 7 per cent disbursements to private sector, 65 per cent to state sectors
and rest to the Central government agencies in FY11. Its project-wise loan assets stood around Rs 99,570 crore
in the last financial year. The company has posted a 14 per cent rise in its net profit to Rs 2,618.8 crore in FY11
compared to Rs 2,357.24 crore reported a year earlier. Its total income rose 25.8 per cent to Rs 10,160.55 crore
in the financial year 2009-10.The following is a pie chart of the percentage disbursements of loans made
available to different sectors in 2010-11.
27
2%
8%
90%
Thermal Generation
Hydro Generation
Wind,Solar and Bagasse
Figure 34: Fund Disbursements in 2010-11
Power Finance Corporation in renewable energy space
Power Finance Corporation has established a Renewable Energy and Clean Development Mechanism (CDM)
group to focus and accelerate the development of business in renewable energy generation projects such as
27
Power Finance Corporation Annual Report 2010-11.
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wind, biomass, small hydro, solar etc. In order to provide incentives for this nascent sector in its portfolio,
Power Finance Corporation takes higher exposures in renewable energy generation projects and offers special
interest rates for such projects.
Power Finance Corporation exposure to the renewable energy sector is not new as it had been funding these
projects for the past 7 to 8 years. Although the major focus had been on wind, small hydro and biomass based
projects, lately they also started funding solar based projects based
Power Finance Corporation is planning to float a subsidiary, Power Finance Corporation Green Energy Ltd, to
finance the renewable energy projects in the country. Power Finance Corporation has already received a
Certificate of Incorporation from the Government of India for floating this subsidiary and it is expected to begin
operations soon. Last financial year, Power Finance Corporation had sanctioned around Rs 3,000 crore (USD
600 million) to various projects under the renewable energy segment and disbursed around Rs 1,800 crore
(USD 360 million) during the period.
Power Finance Corporation funded a number of projects under the Gujarat Solar Policy initiatives while under
the JNNSM; only one project of 2 MW under the migration scheme has been funded.
System of funding
Power Finance Corporation restricts its funding to a maximum of 50% of the project cost and its funds are
always made available only against the progress of the project. In terms of fund availability, Power Finance
Corporation asserts that it has sufficient funds to support any project that approaches them since; they dont
have any fixed allocation of funds for funding any particular segment of projects.
For funding any project Power Finance Corporation appoints Lending engineers, who look after the technical
aspects of the projects and the relative fund requirements. Although all the loans are disbursed on market rates
and no subsidies are provided, except for renewable energy projects, as detailed below.
Table 37: Rates of PFC Rupee Term Loans
RUPEE TERM LOANS (other than STL): (Effective from 27.07.2011 as per Policy Circular dated 27.07.2011)
3 Year & 10 year Reset Rates
State Sector
Borrowers
(Category 'A+' )
[AND] Identified
CPSUs [AND] AAA
rated Companies
State Sector
Borrowers
(Category 'A' )
[AND] Central
Sector Borrowers
(Other than
Identified CPSUs &
AAA rated) [AND]
Private Sector
Borrowers
(Generation
Projects with
Integrated Rating
of IR-1)
Private Sector
Borrowers : (a)
Generation
Projects with
Integrated Rating
of IR-2 (b) Entity
Grade : E I & E II
Private Sector
Borrowers : (a)
Generation
Projects with
Integrated Rating
of IR-3 (b) Entity
Grade : E III & E IV
(c) Discom : Grade
A
Private Sector
Borrowers : (a)
Generation
Projects with
Integrated Rating
of IR-4
Private Sector
Borrowers: (a)
Generation
Projects with
Integrated Rating
of IR-5 (b) Discoms:
Grade B. (c) Entity
Grade: E V (d) Nongraded.
12.5%
12.75%
13.25%
13.5%
13.75%
14.00%
Interest Rates for renewable energy projects (as per MNRE) are lower by 25 bps than the rates as applicable for
Generation loans for the respective category of borrower.
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Funding Solar Thermal Projects

Power Finance Corporation has not yet funded any solar thermal project, as they perceive the risks and
uncertainties associated with this technology to be presently unsatisfactorily unaddressed and are waiting for
some projects to come up successfully before starting funding for any solar thermal based projects.
Power Finance Corporation precautions for funding solar projects
Before disbursing the funds to the developers, Power Finance Corporation ensures full promoter
contribution equity has been arranged.
Power Finance Corporation focuses on funding projects with strong parent company backing and
support. At times applications are rejected due to:
Promotes not being able to arrange their equity share.
Past performance and credit history including cases of default, if any
Risk and uncertainties associated with solar thermal projects.
Risks in funding solar projects

The biggest risk associated with solar projects lies with the estimation of solar radiation. The returns of a solar
project are highly sensitive to radiation levels. High quality solar radiation data is a pre-requisite for proper
market assessment and project development. Hence, solar radiation assessment is a very important activity and
typically requires several months for ground measurement of solar radiations. Any error in solar resource
estimation adds an uncertainty to expected outputs. According to Power Finance Corporation, as of now, onground solar radiation data is sketchy and the simulation models are at best at a preliminary stage.
Other risks of concern in a solar project as stated by the organization are:
The high end cost involvement.
Availability of evacuation infrastructure for the projects.
Technological requirements
Manpower
Proper weather forecasting
Final Word
Power Finance Corporation proposes the time lines being provided under the National Solar Mission to achieve
financial closures is very less and should be increased , as the Power Finance Corporation being a government
organization has its own stature of working .It follows its own time in making clearings and disbursing funds
following some set procedure and rules. Hence to encourage participation of Power Finance Corporation in
funding projects under NSM timelines for financial closures shall be increased by the Ministry of New and
renewable Energy
According to the Power Finance Corporation, taking into account the time and administrative due diligence
required for each loan application, especially in the solar sector, which has relatively higher risks and capital
commitment requirements, a larger amount of time should be allocated for projects to achieve financial closure.
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Yes Bank
Overview
YES BANK has been actively funding infrastructure projects in India and has made infrastructure a key focus
area of its lending and advisory operations. The dedicated Infrastructure Banking Group at YES BANK offers
the complete range of financial products for infrastructure - from project conceptualization to financial closure.
The sector coverage includes Telecom, Energy (Power, Oil & Gas and Renewable Energy), Transport (Roads,
Ports and Shipping), Logistics, Manufacturing, Urban Infrastructure, and EPC.
Spectrum of YES BANK offerings in infrastructure include:
Project Conceptualization, Advisory and Appraisal,

Bid Bond Guarantees
Project Finance and Arrangement of Long Term Loans
Performance Guarantees, Underwriting, Syndication, ECA, ECB
Structured Debt/Products like Bond Issuance, Mezzanine Financing, Equity-like instruments such as
CCD and OCD
Trade Products like Buyers Credit, Suppliers Credit, Capex LCs, SBLCs, TRA/Escrow, CMS
The infrastructure focus of YES BANK is also clear from its advances to, and high single- and group-borrower
limits for, the sector:
Advances to Infrastructure Sector equivalent to 20% of total bank-wide advances
High Borrower Limits: Single Borrower Limit of Rs. 10.50 Billion (USD 210 million)and Group
Borrower Limit of Rs. 26.00 Billion(USD 520 million)
Exposure to Renewable Energy sector

Yes Bank has been providing loans to renewable energy projects to various technologies including biomass,
wind, solid waste, solar PV and solar thermal based projects. Yes bank has been a pioneer in funding solar
based projects in India. Recently they have funded
50Mw of solar projects in Gujarat

10 Mw of off grid projects in Madhya Pradesh, Rajasthan and Uttar Pradesh co-founding with IREDA.
Two solar thermal projects of different capacities.
As of now, Yes Bank has not funded any solar PV projects under the Phase I Batch I of the JNNSM, but
perceives an optimistic scenario for solar projects in India in the next few years. The Bank also expresses its
willingness to fund on-balance sheet solar projects, but is not as comfortable lending to stand alone projects.
All loan disbursements are made on market rates and the loan tenure varies between 12-14 years for solar PV
projects.
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The integration of concentrating solar thermal power plants into the electricity grid requires both day-ahead
and intra-day forecasting of the energy production. Direct solar irradiance forecasting is needed together with
temperature and wind speed forecasts. Yes Bank feels that the biggest risk associated with solar projects lies
with the estimation of solar radiation. The returns of a solar project are highly sensitive to radiation levels. Any
error in solar resource estimation adds an uncertainty to expected outputs. As of now, on-ground solar
radiation data is sketchy and the simulation models are at a preliminary stage.
As per the bank, other risks and concerns relating to solar projects are:
The high initial investment
Availability of evacuation infrastructure for the projects
Technological requirements
Till date, Yes Bank has never availed any grants for funding renewable energy projects but has nonetheless been
a key institution funding renewable energy based projects in India. The Bank has also not funded any off grid
projects as on date, as they express concerns regarding the commercial viability and sustainability of such
projects.
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Axis Bank
Axis Bank is currently involved in funding discussions with many project developers .Bank suggests solar to be
a non- viable option without considering the government subsidies. Reverse bidding undertaken to start up
with is not being considered as a viable option.
Tariff fixing and assurance on the power sale agreement. For the first phase, the single-buyer model is a
concern.
Technology yet to be proven on the real grounds.
Uncertainties in the implementation of the project as per schedule.
Inadequate evacuation facility and clearances on land and other statutory clearances.
Non-assurance of repayment from the utilities may result in repayment risk to the developers/financial
institutions.
Changes in fixing of unallocated power with respect to change in political system
Assurance of long-term policy with greater accuracy and uncertainties in the department of the solar
sector.
Availability of long-term guarantee and warranty from technology providers for new technology.
Separate Window for funding RE Projects

Axis bank claimed that most of the banks are already full with their stipulated power sector exposure .Hence
will not be much interested in funding further projects where much more risks are associated. They proposed
that a separate window shall be created for funding of the Renewable energy projects and that too particularly,
solar taking in consideration the higher risks associated. To encourage the banking community to participate
and boost up solar sector funding a mechanism should be build in place where in the separate guidelines
regarding all the financial aspects of solar shall be considered and put forward.
Such a system would help in fulfilling the appetite of solar financing sector.
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Srei Infrastructure Finance Ltd.

Srei forayed into power sector in 2003 with the incorporation of India Power Corporation Limited (IPCL) which
operates and maintains windmills in Gujarat (10.4 MW) and Karnataka (24.8 MW). IPCL has further
contributed to the development of renewable energy by way of expansion in Rajasthan (60 MW) and is
contemplating setting up additional capacities in the adjoining states. Srei is also actively involved in increasing
its financial exposure in the sector with a 450 MW thermal power plant in Haldia, West Bengal through India
Power Corporation (Haldia) Limited, scheduled for commissioning in 2012 end. With the pacing up of the Sreis
mega power projects in Bihar and Gujarat of 1320 MW each, Srei is fast evolving as a key player in power
generation in India.
According to Srei Infra, investment in wind energy is a safe bet; however investments in solar energy are highly
risky due to local regulation and high tariff rate. According to them, only a promoters level comfort and short
term corporate secured loan can be thought of at this stage. However their company has invested heavily in
renewable energy including wind, bio-mass energy and hydro power projects.
Loan schemes initiated by your institution for financing Solar PV and Solar Thermal
projects
Srei provides Corporate loans for Solar industry, the current allocation to solar sector being in the range of Rs.
300 crores and the interest rate for the provided loan is in range of 10-11%, while the name of beneficiaries
could not be disclosed, Srei seems to be highly motivated to invest in solar sector. Although no fixed allocation
has been made for solar, all the loans are initiated on case to case basis.
They have also availed certain grant facility previously from different bi-lenders of Europe. Only important
term involved was the fund should be used for green/renewable projects strictly and Srei had been religiously
following this condition.
Reasons for rejection of certain loan applications for Solar PV/Thermal
Bad Credit Rating

Market risk
Financial Risk
Interest Rate
Technology Risk
Environmental & Social Incompliance
Government Support can improve the credit worthiness of your borrowers for Solar
Projects
Organization is of view that to boost up the investments in solar sector, government should come up with some
lucrative options in the financial sector involved in solar such as:
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Interest rate reductions

Subsidizing principal repayments
Subsidizing Tariff Rate, RBI regulation making environmental lending mandatory in the
range between 20%-25% for all Banks and NBFC
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Risks involved in Solar

Biggest risk in developing and operating a solar project is the uncertainty about domestic solar energy policy,
high cost of power generation and high technology cost .These can be only overcome by adopting a long term
commitment to clean energy development.
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L&T Infrastructure Finance Company Ltd.

L &T Infrastructure Finance Company Ltd. is amongst the leading financial institutions to actively seek and
finance Solar Power projects in India.
Sanctioned 96 MW of solar projects using Solar PV Crystalline as well as Thin film Technology under
various Feed-in-tariff schemes
Long tenor Financing
Customized and Efficient financing structure as per requirements of the project
End to end financing solutions including Underwriting, syndication, senior debt, EPC financing,
structured finance
L&T ECC provides EPC services for solar PV as well as solar thermal power plants.
Challenges in Financing Solar Power Projects

Considering Indias growing power deficit and dependence on international coal, we believe that Solar Power
has great potential with decreasing capital costs and active interest/support by the government.
Key Challenges:
Sustainable Policy Framework

PPA Issues
Financing Issues
Solar resource assessment
Project Specific Challenges
PPA issues
L&T seeks the PPA to be a major roadblock in the financing of NSM seeking:
Financial health of state Discoms

Grid Availability
Bankable framework
Step- in rights for Lenders
Termination Clause
Re-inventing the wheel by various state governments.
Table 38: Difference between Gujarat and NVVN solar schemes
Gujarat
NVVN
Termination
Clause
3 times the revenue

of first year
None /only Merchant

Power
Step in Rights
for Lenders
Yes
Yes
Payment
security
Mechanism
1 month revolving
LC
1 month revolving LC +
Rs. 486 Cr of budgetary
support
Grid Availability
Assurance
None
None
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Asian Development Bank

In our discussion with Asian Development bank, following major points came out, which need to be addressed
at policy levels. This provides us with the view point and the considerations of a multilateral agency towards
NSM:
How do we manage payment risk for expensive power?

Will new technologies or lower cost modules lead the off taker to renege on the PPA? How to manage?
Payment security mechanisms.
Will solar RPOs (and enforcement of penalties) stand up?
Will the state grid be available to evacuate my energy and strengthened to handle variability?
In addition to other risks, seasonality and uncertainty of solar resource leading to variability of project cash
flow.
On the financial perspective ADB has following major concerns:
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Finances could be arranged by maximizing the leverage to meet investor expectations.

Agency is also considerate about the optimal balance of debt to equity for both parties?
What is debt servicing capacity of the tariff? Can you sculpt amortization to meet target DSCRs?
Are the promoters to bring in equity up front?
Share retention, cash sweeps, dividend blocks, other covenants
Guarantees from promoters or third-parties, to be involved.
For cost and time overruns; plant performance; debt service (e.g., corporate finance)
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International Finance Corporation (IFC)

World Bank and International Finance Corporation (IFC) have mentioned that they will double loans given to
renewable energy projects to $2 billion (Rs. 9,103 crore) in the next three years in India. Further, the lending
will primarily be for power generation and energy efficiency projects. The World Bank largely funds
government projects while the IFC caters to the private sector.
IFC has been one of the most active investors in the Renewable Energy space in India in terms of both equity
and debt funding. International Finance Corporation (IFC), the investment arm of the World Bank, announced
its plan to set up $55 million debt-equity investment (about Rs 248 crore) in Simran Wind Project, the clean
energy arm of Kolkata-based listed firm Techno Electric and Engineering Company.
IFC had announced corporate equity financing of up to $15 million (around Rs 69 crore) to Andhra Pradeshbased Shalivahana Green Energy Limited (SGEL), a privately owned entity producing power based on biomass.
The fund would be used by the company for its projects.
In India, the National Solar Mission is heating up interest in the sector. In markets with a huge need for power,
renewable energy is taking off.
The major issues at the policy levels highlighted by IFC:
PPA risk risk of realization.
Risk of return to the investors is a major issue of concern, as reverse bidding had brought down the
tariffs to much lower levels, the tariff will further decrease in the next phases, if such competition
perceives, but the returns for the equity investors had to be ensured by some way, in order to encourage
equity investors to enter the sector.
Another issue of concern being, solar technologies are at a nascent stage in India and there are
considerable risks in execution of the projects. Crystalline cells and modules are comparatively easier to
execute and less risky as manufacturers generally guarantee the products for 20+ years. However newer
technologies like thin-film and concentrated PV, may provide lower up-front costs, but are unproven
and therefore considered more risky.
Political risks associated to projects were also highlighted.
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Baring Equity
Following are minutes of meeting we had with a Delhi based equity fund (Baring Equity). The minutes contain a
topic wise account of the conversation
Their take on involvement in Solar Power Projects

The fund showed good interest in funding solar sector projects focusing more on CSP based projects. Funding is
provided to the equipment manufacturers as well as the EPC contractors involved in the solar business.
Funding by the equity player can be made for a company identifying good projects or direct project based
funding can also is made. The minimum funding for a project would be of the order of $ 15- 20 Million. As such,
it is unlikely that they would fund smaller projects. Further they would not finance more than ten or twelve
projects of the aforementioned magnitude.
The equity player showed their major concern to be the PPAs and PSAs to be involved in the NSM. As, they
raised concerns over the creditworthiness of the institutions involved in PPA/PSA particularly the state discos.
Further solar tariffs being too much regulated being another concern for the equity players to move forward
with the funding options. As equity players consider regulated tariffs cant make more money as the Return on
Equity is capped hence not willing to invest in developers and rather consider funding equipment
manufacturers and EPC contractors as a more viable option.
For any Private Equity (PE) firm, the total Return on Equity (Roe) is an important parameter that helps them
decide whether a proposition would be profitable. As such, they would be comfortable owning and operating a
power plant only if the project with a good expected Internal Rate of Return (IRR) as per their standards. They
also raised concerns regarding the present status of Renewable Purchase Obligations (RPO) on the discoms and
recommended strong regulations to be made and brought forward to implement the whole operations by fixing
the players to buy the solar power. REC mechanism should also be used and made more of a variable option to
implement the whole business of arranging the funds and cash flows.
Raised concerns regarding the indigenous manufacturing of equipments as Chinese manufacturers had already
developed huge capacities in PV and wafers and hence are able to provide much cheaper solutions than their
Indian counterparts.
Patented technology in case of Solar Thermal projects is another concern which increases the costs involved, as
of now no popular examples of solar thermal technologies being successfully run across the world.
Another option that was brought forward by the player would be providing the initial equity requirements to a
project developer and then quit later when the operation of the plant is underway.
A new point which came forward was equity players considering funding an entity, which is further buying up
the licences from a number of players say 3-5 smaller developers and forming a bigger unit more in number of
MW, say there being 5 players who are having licences to develop 5MW projects, then an entity paying
premium to these licences and buying out their licences and hence adding up their capacity to be 25 MW. The
equity player shared such a scenario being prevalent in Chhattisgarh where licences were given by CREDA.
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IREDA
IREDA is a Public Limited Government Company established in 1987, under the administrative control of
Ministry of New and Renewable Energy (MNRE) to promote, develop and extend financial assistance for
renewable energy and energy efficiency/conservation projects.
IREDAs point on NSM funding:
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IREDA feels the reverse bidding procedure followed in the Phase I batch I, is a good initiative, but such
mechanism takes their own time to develop and mature in the newer markets like Solar in India.
Till date IREDA has not financed any solar project under the NSM scheme.
IREDA showed concerns regarding the quality aspects of materials being used to bring down costs, and
suggests a firm check should be made on the same. In fact they suggested consultants to be appointed
to view the quality of plants under construction.
Economic health of SEBs is another major concern for financial institutions going forward with solar
project financing.
IREDA also forwarded the concept of demonstration projects to be undertaken under NSM.
They feel strong policies can be a much greater push in advancing solar sector as on whole.
Viability of projects on exceptionally low tariffs is also under question.
IREDA also proposes timeframe for achieving the financial closure to be increased.
For pitching in the banks in financing tariff should be more realistic in nature
Government should focus on tapping the international funds at lower rates for the solar projects.
Standardization, publication of data will encourage financial institutions and bankers to start funding
the sector.
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Moser Baer Solar Limited

Moser Baer Solar Limited erstwhile PV Technologies India Limited is a subsidiary of MBIL and was launched
between 2005 and 2007 with the primary objective of providing reliable solar power as a competitive nonsubsidized source of energy.
They had a Global presence with products sold in more than 82 countries. Present across the entire value chain
and investments in multiple PV technologies. Current production capacity of 100 MW Crystalline Cells, 90 MW
Crystalline Modules, and 50 MW Thin Films with expansion plans in place.
Moser Baer Clean Energy Limited (MBCEL), a subsidiary of Moser Baer Projects Private Limited (MBPPL) has
commissioned Indias largest and the first 5 MW solar power project at Sivaganga in Tamil Nadu. The technical
expertise for commissioning was provided by the EPC (Engineering Procurement Commissioning) arm of
Moser Baer Solar Limited. The International Finance Corporation and the IDBI bank has provided debt for the
project.
The panels installed at Sivaganga Project were procured from Moser Baer Solar Limited. These panels were
used as they are best suited in ramping up grid connected solar farms in high ambient temperature region like
India.
Apart from providing the companys successful initiatives, Moser Baer seemed one of the most optimistic
organizations seeking the success of NSM.
They are quite satisfied with the Phase I Batch II guidelines which have increased the size limits of the solar
projects. Although Moser Baer does not favour the process of reverse bidding as at the competition skews down
the tariff to a very lower range that makes projects unfeasible under many circumstances.
They also raised their concerns regarding the high bank guarantees to be paid to the NVVN as they suggested it
a huge blockage of money for players like them who are already investing big amounts in Germany and Italy.
They had already raised this issue with the government and want certain favourable steps to be taken on this
aspect.
Over all, they are working very hard to trap this opportunity to become leaders in the country in coming years.
As far as grid parity is concerned they again showed high optimism and suggested the achievement of grid
parity even before 2020.
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Welspun Energy
The following are minutes of our meeting with Mr. Rajesh Peddu, General Manager Business Development,
Welspun Energy Limited. The minutes contain a topic wise account of the conversation we had.
Current Portfolio
Welspun Energy has a two Solar PV projects under implementation. One of them is a 15MW plant in Gujarat
and is likely to be commissioned by October, 2011. This plant is set up under the Gujarat State Policy on Solar
Energy. The second plant is a 5MW facility in Andhra Pradesh being developed as per policies set out by the
Jawaharlal Nehru National Solar Mission (JNNSM).
Comments on Tariff policy under the JNNSM

As per their point of view, the tariff policy adopted by the JNNSM, which offers the same tariff over the entire
period of 25 years, is not in the best interest of developers. It was pointed out to us that solar power projects
require maximum investment upfront and cash outflow in terms of loan repayments is also high. Consequently,
a constant levelized tariff would be insufficient in the initial years and would contribute almost entirely to the
profits of the developers later. He further opined that this constant tariff mechanism could in fact, be a
deterrent for many lending agencies as it would be difficult for them to foresee an assured cash flow from the
project during the first few years of operation.
Gujarats tariff policy was cited as a possible alternative to the JNNSM tariff mechanism. As per the Gujarat
tariff policy, a tariff of Rs 15 per unit would be applicable for the first 12 years of operation and a tariff of Rs 5
per unit would be applicable for the next 13 years. The levelized tariff, therefore, works out to about Rs 12.50
per unit over the entire period of 25 years. This is comparable to the levelized tariff of Rs 12.64 per unit that the
company would receive for its 5MW project in Andhra Pradesh under JNNSM. The only concern for the
company, however, is that while they would be able to cover initial costs easily for their Gujarat project, they
may not be able to do so for their other project under JNNSM. Therefore, it was suggested that the tariff
disbursed must start from a high figure and follow a decreasing trend thereafter.
Expected trends in Capital Expenditure required for Solar PV plants

As per information shared with us, the western and European markets are near a saturation state as far as
demand for Solar PV equipment is concerned. Germany, for instance, has already set up 10GW of solar power.
Further, the European financial crisis has led to an even more pronounced fall in capital expenditure on Solar
PV. As such, the rapidly growing Indian economy offers an attractive market for Photo Voltaic (PV)
manufacturers. Given the fact that the Indian market is extremely price sensitive and that competition is likely
to be intense, prices in the most likely scenario will come down in future. The cost of generation is also likely to
come down as a consequence of lower capital expenditure and higher Plant Load Factors (PLFs) in future
through technological advancements.
Besides, they foresee grid parity being achieved by 2020. In fact, as per their estimates, it could easily happen
by 2018-19 also.
Overemphasis on use of Indigenous technology in the JNNSM

As per opinions expressed, the likelihood of Indian manufacturers meeting the imminent steep demand for
equipment is low. The industry is not well developed at this stage and resources are limited. Moreover, prices
offered by Chinese manufacturers, who are content with realising a profit of as low as 5-6% in order to sustain
their business, would be tough to match anyway. Therefore, a complete ban on importing foreign equipment
might be risky. The developers do not see any harm in importing technology if it enables them to offer power at
a relatively lower tariff. To further this argument, they pointed out that EXIM funding is also available at a
relatively low cost. Besides, protectionism could be harmful for the economy as well.
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Qualification requirements for bidders

The developers feel that, a minimum technical qualification is essential for the success of the mission. As per
them, a mere net worth qualification would be inadequate. From their perspective, a rich farmer or for that
matter, even a diamond merchant could be a competitor. An interesting insight highlighted was that among 301
bidders during the reverse bidding process initiated by NVVN, as many as 70 bidders had submitted a discount
offer of Rs 0 on the CERC benchmark tariff of Rs 17.91 per kWh. This clearly reflects the lack of seriousness
among bidders.
Role of Banks
The developers foresee an important role for the banks in financing the mission. However, at this stage, they do
not entirely fault them for not financing projects more aggressively. In their opinion, banks do not have enough
data or experience to fall back on as a means to verify claims made by project developers. Project developers
themselves find it difficult to substantiate their claims through verifiable data or proven track record. An
interesting suggestion put forth was that, the government could impose obligations on banks to
lend a specific fraction of their entire portfolio to renewable energy/solar power projects. The
mechanism could be similar in nature to the RPO mechanism embodied in JNNSM.
RECs
It is indeed imperative for banks to ensure payment security. The fixing of REC prices for a period of five years
instead of declaring prices for a given year, therefore, is welcomed by the project developers. This would
definitely give the banks a better idea about developers revenue stream. However, they pointed out that RECs
are generally traded only at the end of the year to meet the compliance requirements. Therefore, the cash flows
remain scant during the rest of the year and developers may still find it difficult to pay their quarterly or halfyearly instalments.
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Lanco Solar
Current Portfolio
The presence of Lanco group is widely spread across the country, major achievements of the group can be
stated with 3290 MW of Installed Capacity (Thermal, Hydro, PV), 8000 MW Power Plants under construction.
It is also the largest private sector power trading company with strong EPC capabilities with overall 7000
employees. Hence Lanco has potential to be a major developer for participation in the NSM.
Along with other major players, Lanco is also satisfied with the Phase I Batch II guidelines which increased the
size limits of the solar projects.
According to Lanco Solar the major challenges faced by solar power projects are:
Sustainable Policy Framework

Issues with PPA
Financing Issues
PPA issues, organization seeks the PPA to be a major roadblock as both developer and financial
community are not clear of the guidelines and future
Financial health of state Discoms
Evacuation Infrastructure unavailability
Strict norms from the government side to be imposed on the financial community to participate in
funding of the solar industry
Over all, they are also working very hard to trap this opportunity to become leaders in the country in coming
years. As far as grid parity is concerned they again showed high optimism and suggested the achievement of
grid parity even before 2020
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Acme Tele Power Ltd.

ACME was first to introduce the cutting-edge modular Solar Thermal technology in India. The group has an
exclusive agreement with leading technology provider eSolar of USA.
Current Solar Portfolio of ACME group:
2.5 50 MW modules for power generation

First 10 MW plant is under implementation and first module is likely to be ready by March
2010 in Bikaner
50 MW plant to be ready by Dec 2010 in Gujarat
150 MW being developed in Rajasthan for Northern regional states (Delhi, Haryana, Punjab,
Rajasthan)
100 MW MOU signed with MP Govt
5 MW allocated by Maharashtra Government under MNRE scheme
Take on Solar Industry and NSM
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India has got huge potential for development of MW class Solar Thermal power projects.
Technologies are credible, reliable & simple.
Biggest deterrent is high initial cost due to the fact that all critical components of solar block are
imported government support is expected to overcome this scenario.
Certain level of installed capacity in order to achieve economies of scale, critical components being
imported can be localized 100%; hence unlike others organization favors the concept of indigenous
manufacturing in the solar industry.
Capital cost of Solar Thermal Power Project can be brought down by localization. Government support
by means of setting up of R& D centers is taken up in order to develop Solar Thermal technologies in
the country and making India as a leader in the area.
ACME has similar concerns in promoting National Solar mission as seen by other major developers
being difficulty in obtaining finances, need of government support.
Better policy levels level initiatives to be promoted at central government level, will pitch in more
developers who had been initially excluding themselves from participation in the NSM.
Better RPO mechanism should be brought in place which will further support the NSM.
Cheaper loans and government support is always invited to encourage the private sector participation.
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KVK Energy Venture Pvt. Ltd.

KVK Energy & Infrastructure Pvt. Ltd. is developing a 100 MW Solar thermal power project in Rajasthan
through KVK Energy Ventures Pvt. Ltd., which had participated in bidding for development of solar thermal
power project under Jawaharlal Nehru National Solar Mission for supply of power to NTPC Vidyut Vyapar
Nigam Limited (NVVN), the nodal agency designated by Government of India. The Project is scheduled to be
commissioned by March 2013.
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Organization proposed Single Window Clearance with the government acquiring land and providing
evacuation to the same and then transferring it to the developers
The evacuation network to be strengthened and guaranteed availability of transmission line to be
provided by the utilities.
Solar thermal power plants need detailed feasibility study and technology identification along with
proper solar radiation resource assessment. The current status of international technology and its
availability and financial and commercial feasibility in the context of India needs to be strengthened.
Resource assessment, technological appropriateness and economic feasibility are the basic requirement
of project evaluation.
Issues pertaining to raising of equity domestic / International sources are of major concern.
Issues pertaining to raising of debt domestic / International needs further discussions and
propositions.
Organization also proposes to increase the time frame for achieving financial closures.
Impact of foreign exchange variation on project economics / viability should be concerned at macro
levels.
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Abhijeet Group
Abhijeet Projects is the special purpose vehicle of Corporate Ispat and Alloys Ltd, which won the 50 MW project
through the bidding process under the Jawaharlal Nehru National Solar Mission.
Abhijeets is the first project to announce the finalisation of EPC contract among the seven winning bidders of
solar thermal projects under the Mission. Award of EPC cost of Rs 640 crore for a 50 MW CSP project to a
domestic company is a welcome development and affirms our belief that Indian engineering companies are
competitive and ready to absorb new technology cost of Rs 12.8 crore/MW, the project cost is likely to be
around Rs 13.5-14.0 crore depending upon the source of finance and financing cost.
Abhijeet Group won the project by bidding a tariff of Rs 12.24 per unit, the highest tariff amongst the seven
developers who won the thermal projects. They claim, at this price, it is unlikely that there will be any
significant margins for them
Organization is highly optimistic regarding the NSM, and plans to increase their portfolio in near future.
Solar Project financing is difficult because lenders perceive the solar energy industry as highly risky, policy
interventions shall be made to encourage the investment scenarios.
The main risk associated with this industry is lack of reliable solar irradiation data, which makes it difficult to
estimate the return on investment. For JNNSM projects, banks are particularly wary of the heavily discounted
tariffs resulting from the bidding process. Current tariffs are among the lowest in the world for solar, and banks
are concerned that project risks have been underestimated in order to win bids. Lenders are also wary of the
small margins that projects are looking to operate on, in order to be viable at low tariffs. In addition, the small
size (5 MW) of solar photovoltaic (PV) projects (in phase I, batch I) is resulting in high transaction costs for
large banks.
But on the whole, group seems to be satisfied with the advances in the National Solar Mission.
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Sunborne Energy
SunBorne Energy has tied up funds to the tune of Rs 140 crore from domestic banks for its 15 MW solar
photovoltaic plant in Gujarat.
State Bank of Patiala, the lead bank, with three other banks Export-Import Bank of India, Canara Bank and
State Bank of Travancore participated in the debt programme. The debt advisory was led by SBI Capital
Market Ltd.
Indian commercial banks are lending cautiously to projects in the solar sector because large-scale projects are
being commissioned for the first time in India but the company appreciates the support from Indian banks at
this stage and are very optimistic about their future plans .The company plans to commission the project before
the end of this year. The plant will provide 15 MW of photovoltaic power, producing enough electricity annually
to power more than 10,000 households.
The project is expected to be operational by December 2011 and falls under the solar programme of Gujarat that
provides a stable and favourable business environment for the development of renewable energy generation
facilities. India has just commenced on an ambitious solar power development programme and one of the key
success criteria for developers is to be able to attract equity from both Indian and global investors.
Sun Borne Energy has joined hands with Europe-based IPP Epoxies Energy for executing the 15 MW solar
photovoltaic (PV) projects being built in Gujarat. According to an official statement here, this is Eoxis' first
investment in India and demonstrates its strong commitment to the country. Eoxis has ambitious plans to
reach 300 MW of installed capacity in the next three years and intends to make several further investments in
wind and solar generation plants.
With rising coal prices, there is now a significant thrust on solar power. Company views Jawaharlal Nehru
National Solar Mission programme (NSM) as a huge opportunity for serious players in the market
The company has set a target of developing projects of over 1,000 MW in the next five-seven years, and
commissioning over 200 mw plants by 2014.
Apart from NSM, SunBorne is also looking at state-level solar power programmes as potential opportunities.
States such as Gujarat, Maharashtra, Karnataka and Rajasthan have already initiated policies to meet
renewable energy purchase commitments.
Concerns for NSM:
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Payment mechanism should be further strengthened

RPO mechanisms to be implemented with force.
Separate window for bankers to fund solar projects.
Single window clearance mechanism to be brought in figure.
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Anand Gupta, CEO,Editor EQ International

Mr. Anand Gupta had been looking into the various aspects of NSM since the inception of the program. He
shared his views and the interviews they conducted with various participants of the mission.
What are the prospects do you foresee in Indian market?

The Solar potential of India is huge and with the government policies becoming more liberal and open, we see
great potential in the grid and off-grid markets. All of India is gearing up for adoption of greener forms of
energy. From a solar energy company point of view - In India, given the power problems and low electricity
connections, off-grid projects with smaller capacities are more favourable. Hence, India would be the best place
to start off-grid development. (Off-grid capacities can be as low as 5-10 KW as compared to at least 20 KW in
grid connected systems). Where there are caps on applications, we work as technology partners for various
organizations.
For developing Solar PV plant in India, NVVN suggest to rely on domestic content. How
does the domestic content issue impact the overall financial structure of the plant?
We believe that developers should be given the flexibility to execute the project in the most economic manner.
While we are in favour of developing a domestic eco-system for the solar industry, we also believe that in the
short run there should not be stringent norms on domestic content.
How we can reduce per unit cost of generation?

As technology matures and we achieve economies of scale, reduction in the cost of generation is imperative.
Added to this is the fact that government of India has created a regulatory environment that encourages
industry. The competition that this will lead too, will also contribute to driving down the cost.
What is your take on payment security mechanism?

We believe that the payment security mechanism could be further strengthened and dishonouring the PPA
should attract significant penalties.
What would be your response to grid interconnection?

We are of the opinion that grid interconnection is best provided by the distribution companies. States like
Gujarat and Rajasthan have been proactive and have taken excellent steps in this regards and other states
should emulate the model.
A few major concerns quoted by Mr. Gupta:
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Creditworthiness of PPAs.
Competition from the Chinese and Taiwanese manufacturers who had already achieved economies of
scale.
Strong Payment mechanism should be in place.
Arrangement of funds for the projects.
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Annexure-III: International
Funding Sources
India aims to emerge as one of the biggest player in the Asian Solar market along with China and Japan. With
the ambitious National and State programs on Solar, India is expected to have a considerable chunk of Solar
Power Generation capacity. One of the biggest hurdles that Solar faces in India is that of financing.
With higher interest rates and conservative roles being played by banks to finance the new investment model of
Solar Power Projects, is adding to the woes of the developers. One way to solve the funding problem is to go for
international financing, which are typically lending at lower rates. Such kind of funding makes the projects
financially feasible. Following is the list of some international funds which could be tapped for boosting
international funding for Indian solar industry:
ADIA
Country: Abu Dhabi
Established: 1976
Government of Abu Dhabi wholly owns a globally diversifies investment institution by the name of The Abu
Dhabi Investment Authority (ADIA). ADIA has a diversified global investment portfolio, across more than twodozen asset classes and sub-categories, including quoted equities, fixed income, real estate, private equity,
alternatives and infrastructure. ADIA is governed by a well defined governance standard, processes and
systems. ADIAs management comprises of the Board of Directors including the Chairman and Managing
Director who, together with other Board members, are appointed by a decree of the Ruler of the Emirate.
According to the Law (5) of 1981 of the Emirate of Abu Dhabi, the board holds primary responsibility for the
implementation of ADIA's strategies, financial performance and the activities of management. Although no
involvement of the board is there in the investment and operational decisions, all such decisions comes under
the preview of the Managing Director. The investment programmes of ADIA are independent of the
Government of the Emirate of Abu Dhabi or other entities that also invest on the Governments behalf. ADIAs
Managing Director is vested under the law with responsibility for implementing ADIAs Policy and the
management of its affairs, including decisions related to investments, and Acts as its legal representative in
dealings with third parties.
In order to tap the attractive returns from the investments in the infrastructure sector for the long term
investors, ADIAs Infrastructure Group was created in 2007. Main aim of this Infrastructure Group is on assets
with strong market-leading positions and relatively stable cash flows, including utilities, such as water, gas and
electricity distribution and transmission companies, as well as transport infrastructure, such as toll roads,
ports, airports and freight railroads. The group aims to acquire minority equity stakes alongside proven
partners, with an emphasis on developed markets but an ability to look at emerging markets on an
opportunistic basis.
Investments in India
According to the latest news reports , the meeting between the Commerce and Industry Minister Anand
Sharma and Abu Dhabi Investment Authority (ADIA) Managing Director Sheikh Hamed bin Zayed Al Nahyan
in New Delhi ,ADIA world's largest sovereign wealth funds plans to invest in the $90-billion ambitious Delhi
Mumbai Industrial Corridor (DMIC) and other infrastructure funds. Keeping in mind the worsening investment
climate in developed nations, both leaders agreed that the UAE and India should work towards a greater level of
engagement.
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Alaska Permanent Fund Corporation

Country: United States
Established: 1976
The state of Alaska established the Alaska Permanent Fund, managed by a semi-independent corporation.
Investments by the fund are fully diversified to both the public and private asset classes. The fund aims that all
the investments made either in Alaska or around the world must be produce income with a certain perception
of risk involved. This fund does not invest in the activities focused on the economic and the social development.
Hence it is a purely business oriented fund.
Some of their asset allocation consists of:
Equities
Private Equity
Fixed Income
Infrastructure
Real Estate (Funds or Direct Investments)
Absolute Return Strategies
Achieving an average annual real rate of return of 5 % over the long term is the investment goal of the Board of
Trustees. In order to achieve the target return, investments are yearly target returns are set, on the basis of
which the types and proportion of investments are decided. Over thirty years the Trustees have gradually
guided the Fund from a portfolio entirely in bonds to a portfolio that is diversified across asset types. Whenever
the new investment opportunities appear, they are evaluated by the trustees in order to decide whether or not
they fit into the Funds risk and return targets. To reduce the level and amounts of risks involved investments
across the sectors are made after due diligence with an aim to reduce the overall risks.
Investment in India
The fund had been investing highly in the sectors such as real estate sector, bonds, private equity and
infrastructure. It can be a good opportunity for both Indian Solar industry as well as the fund making
investments in the Indian industry. Government and industry both can play their roles encouraging the fund to
make investments in the sector.
Temasek Holdings
Country: Singapore
Established: 1974
Temasek Holdings owns a $193 billion diversified portfolio as on 31st March 2011. With its headquarters in
Singapore, it has 12 affiliates and offices in Asia and Latin America. In Temaseks portfolio there are a broad
category of industries where in the investments are made, including financial services, transportation, logistics
and industrials, telecommunications, media & technology, life sciences, consumer & real estate, energy &
resources.
Fund holds stakes in many large foreign companies including Standard Chartered, Bank of China, China
Construction Bank, ICICI Bank, Global Crossing, as well as many of Singapore's largest companies, such as
SingTel, DBS Bank, Singapore Airlines, PSA International, SMRT Corporation, Singapore Power, Neptune
Orient Lines and Mediacorp. Although 75% of Temasek's holdings are in Singapore, it has set a target of
eventually reducing this to only one-third. Another one-third will be in developed markets and the final third is
planned for investment in developing economies.
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Investment in India
With its plans to make investments in developing economies Temasak Holdings provides a good opportunity
for the Indian solar industry to approach the fund and encourage them making investments in the up growing
sector. With strong government support and policies attached, solar industry can be an encouraging sector for
the fund to make investments in India.
Kuwait Investment Authority
In order to manage the funds of the Kuwaiti Government in light of financial surpluses after the discovery of oil,
The Kuwait Investment Authority (KIA) was formed. It is Kuwait's sovereign wealth fund which specialises in
local and foreign investment. KIA manages the Kuwait General Reserve Fund, the Kuwait Future Generations
Fund, as well as any other assets committed by the Ministry of Finance.
As of fiscal year 2004/2005, the annual contribution to the Kuwait Future Generations Fund was valued at
896.24 million Kuwaiti dinars (USD$3.07 billion). The Minister of Finance heads the KIA's board of directors ;
in its board the other major members include the Energy Minister, Governor of the Central Bank of Kuwait,
Undersecretary of the Ministry of Finance, and 5 other nationals who are experts in the field, 3 of which should
not hold any other public office.
KIA is estimated to hold in excess of $200 billion of assets, and is reportedly one of the largest Sovereign
Wealth Funds in the World. KIA invests in the Local, Arab and International Markets with its main office
located in Kuwait City and a branch office in London, UK.
Investment in India
With its huge investment capital and interests to invest in global energy sector, the fund could be tapped by
Indian solar industry for funding the various aspects of the sector.
Terra Nex Group
As an International Wealth Management Company Terra Nex Group based out in Switzerland is involved in
consulting governments, institutions and ultra high net individuals in the field of private equity investments,
value creation, wealth structuring, project development and asset management.
In collaboration with the Middle East Best Select Fund (MEBS), Terra Nex, recently announced its plans to
invest US$2bn to develop a solar energy value chain project in the sultanate of Oman, which includes a solar
panel factory, a factory to produce aluminium frames for panels, an educational institution for the renewable
energy sector and a series of solar power stations to generate a total of 400MW electricity annually.
Terra Nex Group also acts as project and business developer in the Middle East and in Europe maintaining
partnerships to Institutional Investors in Europe and to Industries in various sectors. Terra Nex provides
Project Management services to European Institutional Investors by developing renewable energy projects in
the Middle East for direct investments.
Investment in India
With its plans to invest in renewable energy sector particularly solar, the upcoming Indian solar industry could
serve as a major booster providing opportunities for Terra Nex Group for investing in solar sector. Indias most
ambitious plans to achieve 20000 MW solar by 2020 could be another opportunity for the fund. Both Industry
as well as government can play their roles tapping investments from the group to Indian solar sector.
Berkley Energy
Berkeley Energy specializing in renewable energy infrastructure investments is having offices based out in
London and Delhi and a presence in Manila. It is authorised and regulated by The United Kingdom Financial
Services Authority authorises and regulates the Berkley Energy fund. Berkeley Energy is the trading name of
Berkeley Partners LLP, an English limited liability partnership.
Berkeley Energy was founded in 2007 to tap the private equity investment opportunities and yield higher
returns from the attractive yet relatively untapped opportunities for renewable energy infrastructure in
developing markets, with an initial focus on Asia. Berkeley Energy seeks to make equity investments into
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development stage renewable energy projects and project developers, mature and consolidate these
investments into operating portfolios and generate superior returns through successful exits.
According to Berkeley Energy, the Renewable Energy Asia Fund (REAF) invests into post-permitted projects
and project developers with a technology focus is wind, small hydro, biomass, solar, geothermal and landfill gas
and a primary geography focus of India and additional target markets including Philippines, Sri Lanka,
Thailand and Vietnam.
Investment in India
According to the news reports, in an announcement, OPIC has approved $62 million in financing to this fund,
which targets renewable energy projects and project developers in Asia, primarily India and the Philippines.
The fund focuses on mature renewable technologies, such as wind and small hydro, to help close the sizeable
electricity demand-supply gap in its target markets. Currently the fund has $125 million under management,
which would increase to $187 million with the OPIC financing.
Olympus Capital
Established in 1997, Olympus Capital Holdings Asia is a leading independent middle market private equity
firm. Since inception, Olympus Capital has invested approximately $1.5 billion in a varied portfolio comprising
of nearly 35 portfolio companies throughout Asia, including China, India, Japan and South Korea.
Areas of investment for the Olympus Capital include the sectors such as agribusiness and resources, clean
energy and environmental services, and financial and business services.
With the experienced team of investment professionals Olympus Capital has its offices located in Hong Kong,
New Delhi, New York, Seoul, Shanghai and Tokyo. This extensive regional infrastructure gives the firm a
decided advantage in identifying, structuring, monitoring and adding value to its investments. Olympus
Capital's global investor base comprises of the leading pension funds, financial institutions, endowments and
family offices from North America, Asia, Europe and the Middle East.
Good Energies
Founded in 2001, Good Energies Capital is one of the private equity fund focused on investments in the Energy
Industry. Good Energies is a leading global investor in renewable energy and energy efficiency industries. The
firm invests in solar, turbine-based renewable, green building technologies and other emerging areas within
clean energy with its mission to accelerate the global transition to a low-carbon economy, Good Energies
manages the renewable energy portfolio of Netherlands-based COFRA Holding, a family owned and managed
group of companies. The firm operates globally from offices in London, New York, Toronto, Washington, D.C.,
and Zug, Switzerland.
Major areas of investments for Good Energies are:
Wind Power
PV Solar
Concentrated Solar Power
Natural Gas E&P
Natural Gas Generation Development
Transmission Development
Biofuel Plant Development
Natural Gas Distribution
Energy Service Businesses
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The Good Energies fund size is estimated to be 4 billion pounds. It invests about 350 million pounds per year.
Good Energies and its portfolio companies have shown outstanding growth in recent years, and this trend looks
set to continue as the world transitions to cleaner and more efficient energy sources. As one of the earliest and
most active movers in the renewable energy space, Good Energies offers a proven track record, strong in-house
technology and financial expertise, and a broad network in the industry.
Investment in India
With Good Energies' expansion into the green building technology, developing world, and game-changing
technology clusters, Good Energies is now a global industry leader with a team of more than 30 employees,
bringing outstanding financial and industry expertise.
As a vertically integrated renewable energy company, Good Energies offers both technical and financing
expertise, and seeks to apply these skills to assist developers as a long-term partner and owner of renewable
energy generation assets. The expansion plans of Good Energies in developing renewable energy sector seems
in line with the NSM, which could offer certain opportunities for the fund for making investments in Indian
solar sector and develop the renewable energy sector.
First Reserve Corporation
First Reserve Corporation has been a front runner amongst the global energy-focused private equity firms and
infrastructure investment firms. Firm has raised nearly $23.1billion since its inception since January 1983. The
firm has developed a global platform by investing in the energy industry, having invested more than $18 billion
in equity since inception. First Reserve has invested in over 100 platform acquisitions and First Reserve
portfolio companies have completed more than 300 add-on transactions since inception.
Main areas of investment for the firm includes sectors as oilfield services, equipment and manufacturing,
energy infrastructure and reserves, renewable and alternative energy, and energy-related insurance and
financial products. First Reserve's investor base is primarily made up of corporations, endowments,
foundations, governments, and public retirement funds. Over the years First Reserve has invested more than
$12.5 billion. Reserves investor base is predominately institutional and consists primarily of corporate and
public retirement funds, sovereign wealth funds, endowments and foundations.
Investment in India
Firm has focus on making investments in energy sector, can serve as an opportunity for Indian solar industry if
investments in certain related areas could be made by the firm.
Macquarie SBI Infrastructure Fund
Macquarie SBI Infrastructure Fund (MSIF) is a $1.2-billion fund and MSIT is a joint venture of State Bank of
India (SBI), Macquarie, the Australian financial conglomerate, and the International Finance Corporation, the
private sector lending arm of the World Bank, for investments in infrastructure projects in India.
MSIF is an unlisted fund with approximately US $910 million of committed capital. MSIF is an unlisted private
equity style infrastructure fund and provides its investors (located outside India) with access to the growing
number of investment opportunities available to the private sector in Indias infrastructure and infrastructurelike assets. The manager of MSIF is Macquarie SBI Infrastructure Management Pvt. Limited. IFC, a member of
the World Bank Group, is a minority shareholder in MSIMPL. MSIF has now invested over half its capital in
businesses across power generation, telecom tower infrastructure and airports creating an investment portfolio
that is well diversified by sector.
MSIF has made several major investments. There was the recent $310-million deal in Viom Networks, $125
million in Moser Baers power project, $30 million in Adhunik Power and a proposed investment of $200
million in GMR Airports Holding Pvt Ltd. The fund has raised $1 billion and is set to close after raising another
$200 million by this month.
Global Energy Efficiency and Renewable Energy Fund (GEEREF)
European Commission proposed to form The Global Energy Efficiency and Renewable Energy Fund (GEEREF)
in 2006 by the European Commission. The fund is administered by the European Investment Bank (EIB)
through a fund management team from the European Investment Fund (EIF).
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It is a Public-Private Partnership (PPP) fund. GEEREF invests in private equity funds (sub-funds) that
specialise in providing equity finance to small and medium-sized project developers and enterprises (SMEs).
Energy efficiency and renewable energy projects will be implemented in developing countries and economies in
transition.
Investments by the fund till date are nearly EUR 47.8 million (USD 64.08 million) which has been approved as
of January 2012.
GEEREFs beneficiaries are small and medium size renewable energy and energy efficiency projects and
enterprises in developing countries and economies in transition. These projects and enterprises often suffer
from lack of capital financing despite potentially attractive returns of the sector.
Investments by the fund would be majorly providing risk capital to different types of sub-funds. This will
amount to 10%-20% of the total fund size depending on the actual needs for capacity building which is likely to
be larger in less developed economies.
Basically, the investments would comprise of:
Small hydro and biomass with on-shore wind also offering significant potential.
Co-firing solutions (e.g. co-firing coal and bagasse)
Manufacturing, energy service, trading and micro finance ventures
Photovoltaics only for middle and high-income contexts because too costly.
GEEREF will provide technical assistance under the EU Commission mandate. The financial support from the
support facility will be channelled to the regional funds or to promoters of the regional funds. The support can
be in the form of grants, bridge financing or seed capital and can be provided both during the pre-operational
phase of a regional fund and during the operational phase.
GEEREF will only invest in equity and quasi-equity in the eligible regional funds. This investment is structured
as a typical fund of fund private equity funding but it also takes under consideration strict social and
environmental aspects.
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Copyright
PricewaterhouseCoopers Private Limited. All rights reserved. "PricewaterhouseCoopers" refers to
PricewaterhouseCoopers Private Limited. As the context requires, "PricewaterhouseCoopers" may also refer to the
network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate legal entity.
Each member firm is a separate legal entity and PricewaterhouseCoopers Private Limited does not act as agent of
PwCIL or any other member firm nor can it control the exercise of another member firm's professional judgment or
bind another member firm or PwCIL in any way.

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Financial Engineering as a means to support Jawaharlal Nehru National Solar Mission

Financial Engineering as a means to support Jawaharlal Nehru National Solar Mission

Financial Engineering as a means to support Jawaharlal Nehru National Solar Mission

Financial Engineering as a means to support Jawaharlal Nehru National Solar Mission

Financial Engineering as a means to support Jawaharlal Nehru National Solar Mission

Chapter 1: Jawaharlal Nehru National Solar Mission - A sound beginning

Institutional Framework for JNNSM

State Distribution Utilities

NSM (Phase I Batch I)

State Level Initiatives and Development Targets

NSM Solar projects (Phase I Batch II)

Highlight of Phase I Batch II bidding results

Overview of Manufacturing Scenario

Chapter 2: Present Status of financing for NSM

JNNSM Tariff and policy framework

Funding Options and Risks

Conclusion: A current assessment of financing

Chapter 3: Challenges to advancing the NSM

Policy and Regulatory Risks

1. Past track record of bidders

2. Delays in getting clearances and approvals

Generation & Operating Risk

Financial Engineering as a means to support Jawaharlal Nehru National Solar Mission

Payment security and default mitigation mechanism

5. Indigenous Manufacturing base - Supply Crunch

2. Specific issues with relation to land

3. Specific issues with relation to water

1. Reliability of Solar Radiation Data

2. Risks associated with Quality and Service

Focus on long-term reliability of PV modules

Challenges during system integration

1. Interest Rate risks

Impact on expected returns

Past track record of bidders

Limited exposure of banks/FIs to RE sector

Delay in getting clearances and approvals

Interest rate risk

Chapter 4: Risk Mitigation Measures

Policy and regulatory Risks

Past Track record of bidders

Over Aggressive Bidding

Indigenous Manufacturing Supply crunch

Financial Engineering as a means to support Jawaharlal Nehru National Solar Mission

Reliability on available Solar Irradiation Data

Lack of performance data for Indian conditions

Interest Rate Risks

Chapter 5: Year-wise investment / funding requirements for NSM

Renewable Energy Year Wise Capacity Addition till 2022

Investment Required for other Renewable Energy till 2022

Solar Capacity Addition under NSM

Different Scenarios for the National Solar Mission

Estimating Investment Required under the Different Scenarios of NSM

Scenario 1: Base Case of 20,000 MW of Solar Power by 2022

Scenario 2: Twice the Base Case- 40,000 MW of Solar Power by 2022

Scenario 3: Thrice the Base Case- 60,000 MW of Solar Power by 2022

Chapter 6: Solar Power Plant Simulations

Simulation model assumptions

Analyzing the effect of various risks

Optimal combination of capital cost and tariffs

Chapter 8: Potential sources of funding

Options for debt financing