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BRAZILCHINAEUROPEINDIAINDONESIAUNITED STATES

Office #210-211, DLF South Court Saket, New Delhi 110017climatepolicyinitiative.org

Rooftop Solar Projects and Finance

Possibilities in India

November 2017

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Agenda

1. Distributed Renewable Energy in India

2. Rooftop Solar- Current Scenario

3. Financing Lines for Rooftop Solar

4. Barriers and Solutions

5. About USICEF

6. About USICFP

7. About Climate Policy Initiative.

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Distributed Renewable Energy in India

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India’s renewable energy sector is an attractive market to invest

in…

solar potential: 750 GW;

wind potential: 300 GW

2nd in Renewable Energy Country

Attractiveness Index

100% transport electrification by

2030,

Installation target of 175 GW by 2022 (100 GW-Solar, 60 GW-

Wind)

Significant investment of about $189 bn to

be mobilised to achieve targets

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Role of Distributed Solar Energy in India

Distributed Solar Projects- Rooftop Solar (RTS) and Off Grid Solar (OGS), including mini-

grids and off-grid solar products, offer a promising alternative to improve quality energy

access in India

– Extensive load-shedding and erratic electricity supply compels people to resort to use of local,

private and expensive solutions such as diesel generators, which raises both environmental and

health concerns

40% of the Govt. of India’s solar installation target for 2022 to be met through RTS

– 10 GW target to be met through residential and institutional rooftop consumers

– 30 GW target to be met through industrial and commercial consumers

OGS to play a crucial role in Govt. of India’s “Power for all” programme

– Programme aims to provide electricity access to every household by 2019

– 41 million households yet to be electrified in India

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Rooftop Solar- Current Scenario

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Rooftop Solar- Current Scenario

India added 678 MW of rooftop

solar capacity in FY 2016-17

Total installed rooftop solar

capacity reached 1.7 GW as of

August 2017

Commercial and industrial customers (C&I) remains the

biggest market segment

Public sector segment is also

expected to show robust growth in

the coming years because of a

strong government push

combined with 25-30% capital

subsidy.Source: Bridge to India

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Rooftop Solar: Business Models

OPEX model has been gaining market share,

doubling from 12% in FY 2014-15 to 24% last

year. Large public sector procurement programs will drive further growth in this

market in the next few years

Fairly consolidated market as access to

capital remains tight and on-the-ground

execution is challenging. Top five

developers account for over 60% market

share.

Govt. enablers/ Incentives- 30% capital subsidy on system cost (residential)

- benefits of accelerated depreciation of 40%

- encouraging financing of systems under the priority

sector

- lower interest rates.Unit FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Source: Bridge to India

Unit FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

An

nu

al c

ap

ac

ity

in

sta

llatio

n, M

W

CAPEX (Ownership

Model) – bids invited on

project cost

OPEX (PPA Model) –

bids invited on tariff

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Rooftop Solar: Economics

• Rooftop projects are marked by high initial capital investment and low operating costs

• Typical rooftop project

– Typical size < 200 KW (C&I space).

– Average life of the project 25 years.

– Debt equity ratio 70:30

– Capital costs

• INR 5 million per 100 KW

• Installation time less than 3 months ( inclusive of the time required for the structure and the various

permissions)

– Marked by moderate debt coverage

• DSCR of 1.2x

– Moderate but constant returns to the investor

• Equity IRR > 12%

• Which with proper bundling, higher ratings and track record can attract investors looking for constant

flows

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Financing Lines for Rooftop Solar

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Financing Lines

• SBI- World Bank Line ( $ 625 million for grid connected solar rooftop)

– Door to door tenor of 15 years

– Cost – One year MCLR + ( 20 Bps to 50 BPs)

– Credit rating required ( Investment grade i.e. BBB and above)

– Fixed asset coverage ratio above 1.25x

– Average DSCR • at P75 > =1.35 & P90 >= 1.15

• PNB-ADB line ( $500 million multi-tranch facility by ADB)

– Door to door tenor of 15 years

– Cost – One year MCLR + ( 30 Bps to 50 BPs)

– Credit rating required ( Investment grade i.e. BBB and above)

– Fixed asset coverage ratio above 1.25x ( No collateral for loans < INR 1 million)

– Average DSCR • at P75 > =1.35 & P90 >= 1.15

• IREDA

– Cost – Cost of domestic borrowing +( 80BPs to 175 BPS) ~ 9.80 % to 10.75%

• RBL ( guaranteed by USAID)

– cost ~ <11%

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Barriers and Solutions

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Barriers and Solutions- Rooftop Solar

Rooftop Resource Assessment and Off-taker Credit Assessment

Limited information and validation on bankability and impact of business

projects.

Small ticket size investments leading to high transaction costs

Fin

an

cia

l b

arr

iers

SOLUTIONS (Market needs)

Technology-driven

platform to enable

technical and off-taker

credit risk assessment

Project Preparatory

Support

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Barriers and Solutions- Rooftop Solar

Concerns on the credit quality of off-takers

Lack of project financing options for small ticket sizes due to which collateral

requirements are high

Shortage of long-term capital with Indian financial institutions makes funding for this

sector more difficult

Limited equity investments due to small ticket sizes and high return expectations

Fin

an

cia

l b

arr

iers

SOLUTIONS (Market needs)

Portfolio level guarantee

constructs to provide

comfort to lenders.

Financial facility to drive

inflow of long-term foreign

capital

Blended Equity Model

Payment security mechanism

to address liquidity concerns.

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USICEFIndia’s first Distributed Solar Energy focused portfolio

preparation facility sourced equally from US

foundations and MNRE with Overseas Private

Investment Corporation (OPIC) of US as the anchor

lender for distributed solar projects to address the

early-stage project capital gap

Instruments through which these solutions can be implemented

USICFPUSICFP is a $40 million joint commitment

focused on the provision of catalytic finance made between the government of India and

a consortium of US foundations during Prime

Minister Modi’s 2016 visit to the US

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About USICEF

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USICEF: Process Flow

India’s first project preparation facility to scale up distributed solar power projects

and drive long-term financing

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Key objectives:

Increase prospects for getting debt financing from OPIC and other DFIs/

lenders

Enable critical mass of projects to

unlock access to capital from public

and private sources

US Investors

…USICEF, managed by CPI, provides a suitable partnership

for investing in this sector…

Keystone of the commitment made between the Indian and US governments at COP21 in Paris to mobilize finance for Indian

distributed clean energy projects

USICEF

OPIC/IREDA/other lenders

Project Developer(RTS/ OGS)

Target segments:1. Mini-Grid & Micro-Grid Power

Generation

2. Market-Based Solutions3. Renewable Energy Infrastructure

Catalyzers

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About USICFP

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...USICFP, advised by CPI, provides an opportunity to engage

in risk mitigation in this sector

US-India Catalytic Finance Program (USICFP) is a $40 million joint commitment focused

on the provision of catalytic finance made between the government of India and a

consortium of US foundations during Prime Minister Modi’s 2016 visit to the US.

These instruments will serve as a tool for joint decision making for ICFP, between the

Government of India and the consortium of US foundations.

Catalytic financing interventions selected for detailed design and

structuring for ICFP: Rooftop Solar Financing Facility

Foreign Exchange Hedging Facility

Rooftop Solar Payment Security Mechanism

Venture Debt Facility

Small and medium-sized enterprise support facility

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Role of CPI in USICFP

CPI will be serving as a communications liaison between the Government of India(GOI) and the consortium of US foundations.

Providing analytical support, preparing a report identifying the potential market development, best implementation methods and the risks associated with it.

As a facilitator

CPI will be supporting the program to achieve its objectives. That is, providing flexible financing to attract commercial capital from domestic and international financing sources into high impact projects and mobilize capital flow in the distributed solar sector in India.

As an overseeing agency

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About Climate Policy Initiative (CPI)

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A global team of analysts and advisors

Climate Policy Initiative (CPI) works to improve the most important

energy and land use policies around the world, with a particular focus

on finance. We support decision makers through in-depth analysis on

what works and what does not.

We work in places that provide the most potential for policy impact,

including Brazil, China, Europe, India, Indonesia, and the United States.

Our work helps nations grow while addressing increasingly scarce

resources and climate risk. This is a complex challenge in which policy

plays a crucial role.

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CPI India’s clients and stakeholders

Policymakers

• Ministry of

Finance

• Ministry of

Power/MNRE

• Central

Electricity

Regulatory

Commission

• NITI Aayog

Multilateral/

bilateral

organizations

• World

Bank/IFC

• ADB

• USAID

Public sector

banks

• RBI

• IREDA

• IIFCL

Research partners:

Indian School of Business, New

Climate Economy, ICRIER, Shakti

Sustainable Energy Foundation

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CPI’s program to enable and scale up investment to India’s

renewable energy targets

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Annexure

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The India Innovation Lab for Green Finance

www.greenfinancelab.in

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Lab Members use experience and expertise to help develop

instruments

Secretariat:

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Innovative and implementable financial instruments launched

by the India Lab can drive investment Loans4SMEs (endorsed)

• Peer-to-peer lending platform to help

small and medium enterprises operating

in renewable energy and energy

efficiency raise debt finance

• Potential to mobilize $2.20 billion of debt

to the SME sector for renewable energy

and energy efficiency initiatives by 2022

• Has closed transactions with a total

deal size of $5.7 mn, 80% in support of

SMEs in renewable energy and

infrastructure.

Rooftop Solar Financing Facility (endorsed)• Financing facility to provide long debt

financing at a reasonable rate to rooftop

solar developers through aggregation of

loan pools and securitization

• Potential to mobilize USD $32.3 billion of

capital to the rooftop solar sector, and

create an additional 20,000 jobs by 2022

• A $100 mn pilot requires $30 mn of

concessional finance at 8% INR; the pilot

can support in adding 168MW capacity

of rooftop solar

FX Hedging Facility (endorsed)• A customizable currency hedging product that lowers currency hedging cost,

allowing allocation of risks to suitable parties and eliminating the credit risk premium• Can reduce cost of currency hedging by ~30%

• In discussions with three foreign institutional investors/lenders to facilitate hedging of a

total of approximately $900 mn.

Thank you!www.climatepolicyinitiative.org