Failing Indian utilities make Distributed Solar for captive offtakers far more bankable

Financial viability of distributed solar projects in the United States and Europe was initially ensured by way of Feed-In-Tariff (FiT). FiT is a guaranteed, price regulated mechanism under which the local utility buys electricity from the solar producer that is in excess of the producer’s own consumption onsite. This in turn paved the way for  third-party financing, which has led to rapid deployment of distributed solar by the likes of Sungevity, Tioga Energy and SolarCity in the United States and Canada.

Essentially, the FiT mechanism coupled with the utilities’ high credit rating provides an iron-clad security to lenders of distributed solar projects. After all, utilities in these economies are creditworthy because they are guaranteed a cash flow with well-regulated margins in power distribution.

In India, as much as 40% of electricity is not paid for – USATODAY.com

The failure of Indian utilities has wider repercussions for the economy, argues Eurasia Group analyst Seema Desai.

It puts at risk the finances of private companies that sell utilities power, creating a disincentive to investment in a sector that badly needs it.

In India, the situation is unfortunately reversed. Indian utilities are saddled with over Rs. 2 Trilion in debt. Local  banks have already stopped lending to even  traditional coal power plants due to this credit risk. The loan recovery risk is primarily due to the credit risk of the ultimate off-takers of the electricity generated, the utilities that are uniquely burdened by the theft mentioned in the article, populist policies that lead to differentiated tariff and sheer mismanagement.

There is a silver lining to this dismal scenario. The power consumers who pay the highest tariff are also thriving businesses and industries that export, compete globally and have a high credit rating.

Serra Power is executing a business model that enables these businesses to install distributed solar plants for captive consumption. Our lenders are discovering that these businesses pose a far lower credit risk than state-controlled utilities and deem these projects bankable.

Comments

  1. Vishvesh says:

    Very interesting article and highlights a big potential market in India.

  2. Shiva Palancha says:

    We are working on a similar model with our clients, any interests in project report or financing opportunity is welcome..

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