There is a need for financial de-risking instruments to keep up the momentum of the country's progress in solar energy.
India's progress in the field of solar energy by now has been phenomenal. However, perceived risks by investors have increased manifold in the recent past on account of various reasons. These include cancellation of tenders, lack of clarity on the impact of the Goods and Services Tax (GST), imposition of safeguard duty on the panels imported from China and Malaysia for a period of two years, among others. This has dampened investors’ sentiments as substantial capacities are under implementation and the recourse left to the project developers for seeking compensation is through ‘change of law’ provision of power purchase agreements (PPAs), which is time consuming and results in cash flow issues with them. In order to ensure continuity in growth of the solar sector with downward trend in tariffs, it is important to understand risks and initiate de-risking measures.
Public de-risking measures are usually in seen in two categories viz.:
- Policy de-risking instruments seek to remove the underlying barriers that are the root causes of risks. These instruments may include, for example, design of bid conditions to provide level playing field to all investors, adhering to bid provisions post the culmination of transparent selection process, introducing steps to handle delays in which developers have no control (such as, construction of transmission and evacuation infrastructure and land acquisition/availability) in a reasonable and timely manner. In the time of fast evolving, highly competitive solar bids with margins thinning bid-by-bid, it could be worth looking at the relevance of going back to have a net-worth kind of criterion for the bidders to have a measure of their capabilities for completing the projects within stipulated timelines.
- Financial de-risking instruments which may cover to provide robustness to revenue receipts of the projects, like, sufficient provisions to avoid delays in payments from procurers, to handle loss of generation due to non-availability of grid, and dealing upfront with the provisions related to ‘exit’ either by the procurer or the generator. Development banks may also be roped in to enhance bankability of projects through specially designed instruments to help loan guarantees and co-investments, and bringing in cheaper financing and global experience for new technology options.
It is recognised that de-risking measures assume significance as they have a strong influence on the financing costs, affecting the competitiveness of discovered tariffs and thus the attractiveness of solar power. Several of the risks mentioned herein are already addressed to some extent in the bidding process by the Central agencies and the recently announced standard bidding guidelines by the Ministry of Power. However, the process should be seen as a dynamic one and needs to be continued in consultation with stakeholders.