Solar Projects Can Generate Significant Cumulative Cash Flow for C&I Entities
The speakers discussed various financing options available for rooftop solar projects
Mercom India recently organized the C&I Clean Energy Meet 2023 in Bengaluru, which hosted industry experts who provided insights on the lending options available to consumers interested in financing their clean energy endeavors and the key considerations businesses must consider when seeking financing for their solar projects.
The session “Innovative Financing Solutions – Ways to Access Cheap Loans” included participants – Anand Jain, Founder & CEO at Aerem; Harsha Kuntur, Managing Director at EcoSoch Solar; Bhargav Adithya, Regional Manager – Finance at Tata Power; and Nakul Kukreja, Chief Manager at ICICI Bank.
Priya Sanjay, Managing Director, Mercom India, moderated the session.
Kuntur stated that his company ensures that when potential customers contact them, they first assess if the customer has enough finances to fund the project themselves or pay the loan EMIs later on.
Further, the company analyzes the site conditions and the ease of installation to determine feasibility. If the technical checklist looks good, the company works out the structure of loan payments, such as extending the tenure, to make the payments more manageable.
“Overall, it’s important to calculate the ROI and ensure that the project will generate enough power to avoid customer defaults,” he said.
When discussing interest rates, Jain and the other panelists agreed that the rates usually vary between 9%-13% based on the customer’s creditworthiness.
Kuntur prioritized long-term considerations over short-term gains when setting up a solar project. He advised against the sole focus on the tenure of the loan or slight differences in interest rates, as solar projects have a lifespan of 25 years.
Even after the payback period is complete, there are still 20 years left for the project to generate revenue. Kuntur stated that the total cumulative cash flow over the 25 years is significant, and the net present value is almost always positive. Furthermore, some projects can have an internal rate of return as high as 30%.
Jain said another benefit, besides cost savings, is that installing a solar system can cover 50-60% of a company’s power requirements and stabilize costs for 25 years, allowing for easier budgeting. Therefore, it’s best to invest in solar now and not leave money on the table.
“Additionally, there are accelerated depreciation benefits, particularly for manufacturing, where up to 40% can be claimed, resulting in significant savings in year one. There is also the GST credit, which can be taken advantage of, making it a no-brainer to invest in solar,” he said.
Jain emphasized the importance of quality in project installation before any financing is considered. Although it may not involve complex engineering, minor details such as the structure’s joints can significantly impact the project.
“Leaving joints open can cause rust and deterioration within a few years, resulting in breakage. Carbonization must be precisely 80 or 85 microns; otherwise, the system will not last. Exposed cables can also lead to issues. Therefore, it’s essential to consider factors like shadow analysis and other crucial elements when installing a solar project. The first and foremost step is to either find an expert to support you or an installer of high quality with a proven track record of successful execution,” he said.
Kukreja said that while ICICI does not offer solar-specific loan products, MSMEs can apply for a loan of up to 20% of their total turnover value using their corporate credit card. To qualify for the loan, MSMEs must provide their balance sheets, current account records, or GST returns.
The speakers discussed the challenges of obtaining loans for open access solar projects. They noted that utilities and distribution companies often impose additional and unpredictable charges to discourage companies from switching to solar power.
The project should have secured land and connectivity to qualify for a loan. The permitting process and land acquisition are critical because open access permission is required for the 25-year lifespan of a solar project.
After Bengaluru, Mercom will host the next C&I Clean Energy Meet in Mumbai on May 15.
Interested entities can register for upcoming events by sending an email to firstname.lastname@example.org.
Find out more details about the events here.