Ground Mounted Solar Project Financing | Uttarakhand Case Study
The solar industry is returning back to normalcy and work has picked up on multiple projects around the country to meet the MNRE’s extended timeline of 31st March 2021.
One such ambitious project was a 200MW capacity to supply power to Uttarakhand Power Corporation Ltd (UPCL), an A+ rated distribution company, tendered out by Uttarakhand Renewable Energy Development Agency (UREDA) in 2019 last year.
The tender was specifically designed to encourage participation for Uttarakhand (UK) domicile residents and landowners, allowing bidding between 100KW to 5MW capacity on individual net-worth basis. There is a further capital incentive provided upto 30% of the project value provided by UREDA to the project developer. The tender was oversubscribed by 30MW and is especially lucrative during this time as prices have fallen over the last year. The winning the bid was just the first step towards availing the benefits of high capital returns from renewable energy - the winners must now overcome the financing challenge to be able to fund the projects.
Typical Project Financing Terms
The standard covenants for project financing for debt projects for small-mid scale solar ground mounted projects involve 30:70 equity to debt ratio, where borrowers may avail many attractive schemes with low interest rates and long tenors specifically tailored for solar projects.
Lenders for these products typically prefer promoters with a solar background but it is not a mandatory criteria. The standard covenants depending on the profile of the borrower and product offered by lender could be described as follows:
Debt : Equity Ratio | 70 : 30 |
Door to Door Tenor | 5 - 14 years |
Interest Rate | 8.5 - 11% |
Collateral | 0 - 100% Value Collateral |
Challenges in Project Financing
Yet despite such products being available, bidders are finding it difficult to avail low collateral loans with attractive interest rates and long tenors that can boost their project return and cash flows. Regional lenders are unable to match the attractive financing offered by multilateral funded institutions, yet the requirements by these institutions require a much detailed technical and commercial evaluation of the project beyond just the borrower financials.
As most bidders lack the technical background, they face challenges while approaching the lending institutions. Furthermore, lenders are taking additional time to process applications due to the interruptions caused by COVID-19 resulting in a delay in financial closures for projects that are hard pressed to be commissioned in the next 5 months.
A Digital Platform for Project Financing
Altier is presently facilitating financial closure for 30MW projects for the bidders under the tender and has been able to close one of the transactions in a record 45 days with a leading lender.
As a leading solar financing platform, Altier’s core expertise lies in renewable project funding with its proprietary credit grading algorithm confirming project loan eligibility within 24 hours and matching the project with lenders meeting eligibility criteria. The platform further provides end to end technical and financial advisory support from application submission to project sanctioning and disbursement.
The entire process is simple, fast and completely paperless. Altier’s processes are designed to reduce due diligence costs for lenders and speed up application processing allowing for faster disbursements for project owners and EPCs.