Debt Financing Options for C&I Rooftop Solar PV

Aspiration Cleantech VenturesDecember 6, 2017

Mumbai

About Aspiration Cleantech Ventures

• Solar PV• Solar Thermal

Renewable Energy

An Asset Development and Management platform in the Clean Energy Sector.

Founded and Managed by highly successful entrepreneurs, global business leaders and technocrats with rich experience working in marquee firms.

Aspiration Cleantech Ventures

• Efficient Lighting• Drives(VFDs)• HVAC (Heat Pumps,

Chillers)

Energy Efficiency

• E-Mobility• Electricity and

Thermal storage for Industries

Energy Storage

Asset Base

Solar PV Solar Thermal Energy Efficiency

• Total Portfolio size ~ 1 MW

• Rooftop systems and Carports

• Grid-Interactive and Off-grid

• RESCO/PPA and rental models

• Multiple states(Tamil Nadu, Telangana, Maharashtra, etc)

• Less than 100 Deg C hot water for industrial processes

• Evacuated Tube Collector(ETC) Technology

• Thermal Energy Purchase model

• ESCO Model

• Technology – Heat Pumps

• Long term contracts for Heat Delivery ; Cash Flow from demonstrated energy savings

Agenda

1• Rooftop Solar PV in India – An Overview

2• Debt Funding Options for Solar Rooftop PV

3• Bankability of a Solar Rooftop PV Project

4• Typical Debt Terms and Covenants

5• Takeaways

1• Rooftop Solar PV in India – An Overview

2• Debt Funding Options for Solar Rooftop PV

3• Bankability of a Solar Rooftop PV Project

4• Typical Debt Terms and Covenants

5• Takeaways

Agenda

Rooftop SPV Target – Path to 40 GW

200

4,800 5,000 6,000 7,000 8,000 9,000

200

5,000

10,000

16,000

23,000

31,000

40,000

810

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

Solar PV Rooftop - Target Vs Actual Capacity

Annual(MW) Cumulative Target Capacity (MW) Cumulative Actual Capacity (MW)

Source : MNRE, pib.nic.in Cumulative Actual Capacity as of 31 October 2017

810 MW?

What is the Actual Capacity?

810

1345

1600

0 200 400 600 800 1000 1200 1400 1600 1800

MNRE

Mercom

Bridge to India

Cumulative Rooftop Capacity(MW)

(As of 30 June 2017)

(As of 30 June 2017)

(As of 30 June 2017)

Take your pick!!

Investment requirement for 40 GW

112,000 , 70%48,000 , 30%

Capital requirement(Rs. Crores)

Debt

Equity

Assumptions • Capital Cost per MW - Rs. 4 Crores• Debt-Equity Ratio – 70 : 30

Business Models

CAPEX ModelOPEX Model

Gross Metering (Rooftop Leasing)

OPEX Model Net-Metering

(Power Purchase Agreement)

Source: www.pvrooftop.in

Enablers of Financing

• Public Sector Banks instructed to extend loan for Grid Interactive Rooftop Solar PV Plants as home loan/ home improvement loan

• Priority Sector Lending(PSL) status for renewable energy(upto Rs. 15 Crores) by RBI

• Special loan programmes by IREDA, SBI and PNB

1• Rooftop Solar PV in India – An Overview

2• Debt Funding Options for Solar Rooftop PV

3• Bankability of a Solar Rooftop PV Project

4• Typical Debt Terms and Covenants

5• Takeaways

Agenda

Government of India Enterprise –A Pioneer in lending to Rooftop Solar PV Projects

SBI - $625 million from World Bank

PNB - $500 million from ADB

Key Players

Clean Energy Focused NBFCs

Comparison of some options

Sr.No.

Parameter SBI PNB IREDA

1 Eligibility Criteria Sole Proprietorship, Partnership Firm/ including LLP andCompany/ Special Purpose Vehicle (SPV)/NBFC

Public and Private Sector Companies/ firms

2 Branches identified for handling this business

All Corporate Account Group Branches, Mid-Corporate Group branches, and SME Branches

All Large Corporate Branches/Mid Corporate Branches/Exceptionally Large Branches/identified branches

IREDA, New Delhi

3 Loan amount Upto 75% of project cost. Upto 70% of project cost Upto 75% of project cost.

4 Type of Facility i) Term Loan, ii) Working Capital against receivables (Need Based) iii) Non Fund Based (Letter of Credit/Bank Guarantee) facility

Term Loan

5 Pricing One year Marginal Cost of Funds Based Lending Rate (MCLR) plus spread in the range of 20 bps to 50 bps

One Year MCLR upto a maximum spread of 30 to 50 bps

Interest Rate - 10.05% to 10.90% ; Additional 0.5% till the date of commisioning the project

6 Fixed Asset Coverage Ratio (FACR) in a year

Above 1.25

7 Loan Repayment Period(Maximum)

Upto 15 years Upto 9 Years

8 Moratorium12 months from the date of COD of the project.

9 Primary Security Exclusive first charge on fixed assets (present as well as future ) relating to the project/ program

Equitable Mortgage of immovable properties

10 GuaranteePersonal Guarantee or Corporate Guarantee

Bank Guarantee

11 Debt Service Reserve Account (DSRA)

Equivalent to 6 months principal and interest. Minimum of 3 months principal and interest

Modes and Models

Modes• Program Mode

– Master Line of Credit/loan facility will be sanctioned to the Borrower to execute multiple rooftop solar projects.

– Master Line of Credit is proposed since normally rooftop solar projects would be of small size and it would be difficult for the Borrower to approach for approval of all projects at one go.

• Project Mode– Single rooftop by a single borrower

Models• Capex

– The borrower sets up rooftop solar project with the intent to reduce his own power costs.

– Debt servicing is dependent on the main business activity of the Borrower.

• Third Party– RESCO/OPEX/PPA

• BOOT• BOOM• Rooftop Rental

– AD Model

Source: SBI

1• Rooftop Solar PV in India – An Overview

2• Debt Funding Options for Solar Rooftop PV

3• Bankability of a Solar Rooftop PV Project

4• Typical Debt Terms and Covenants

5• Takeaways

Agenda

Bankability

“Project or proposal that has sufficient collateral, future cashflow, and high probability of success, to be acceptable to institutional lenders for financing”

Source : www.businessdictionary.com

Bankability - Technical Factors

• Shadows/Structural Integrity of Roof

• IrradiationSite

• Optimized for Lifecycle, not just for Capital Cost Design

• Quality of Materials

• Bankability of SuppliersMaterial

• Quality of Construction

• Very little need for refurbishmentBuild

• Very low downtimes

• Ensure generation above estimatesO&M

Direct Impact on Cashflows

Bankability - Financial Factors

• All generated power should get paid - Either net-metering or deemed generation(in case of RESCO model) Dispatch

• Credit Rating of asset owner and off-taker, and the power supplierOff-take

• Debt Service Coverage Ratio(DSCR) of about 1.3Debt-Service

• In case of premature termination of contractTermination Values

• Protection against downward revision of tariff for the contract, in the futureTariff

• A few months payment in the form of Bank GuaranteePayment Security

Bankability - Regulatory Factors

• Cross subsidy charges that might be imposed in the future can reduce returns(IRRs)

Cross-Subsidy Charges

• Very important for the viability of projects , especially in establishments which do not operate on weekends and no deemed-generation provision

Net-metering

• Possibility of Electricity included in GST regimeChanges in

Taxes

Bankability issues specific to RESCO model

• 25 Year PPAs – Business continuity risks

• Deemed Generation, in the absence of net-metering

• Renegotiation of tariff a few years into the contract

• Contract enforceability

• Termination and compensation

• Payment Security/Timely payments

• Access to site

1• Rooftop Solar PV in India – An Overview

2• Debt Funding Options for Solar Rooftop PV

3• Bankability of a Solar Rooftop PV Project

4• Typical Debt Terms and Covenants

5• Takeaways

Agenda

Typical Debt Terms and Covenants

Security Guarantees Covenants(Examples)

Primary• Exclusive first charge on all

fixed assets, receivables, movable assets, and current assets, lease hold rights, and project related accounts, current as well as future relating to the project

• Assignment of Project documents.

• HypothecationCollateral• Conditional Collateral

security if FACR falls below a certain limit(eg. 1.25)

• Personal Guarantee of proprietor/ partners/directors -in case of Sole Proprietorship /Partnership Firm/ Company

• Corporate Guarantee of sponsor - in case of Special Purpose Vehicles (SPVs)/Associates/ Subsidiaries

• Total Debt/EBIDTA <= 2.5

• Total Outstanding Liabilities/Total Net-worth ratio <=2.0

• Minimum Debt Service Coverage Ratio >= 1.10

1• Rooftop Solar PV in India – An Overview

2• Debt Funding Options for Solar Rooftop PV

3• Bankability of a Solar Rooftop PV Project

4• Typical Debt Terms and Covenants

5• Takeaways

Agenda

Takeaways

Rooftop PV Installation Target – 40 GW by 2022

Debt requirement ~ Rs. 1.12 Lakh Crores(~ US $ 25 Billion)

Dedicated Debt for rooftop Solar PV currently available – More than US $1 Billion just between SBI and PNB

Focusing on key Technical, Financial and Contractual aspects will help improve the bankability of the projects

Awareness of typical debt terms and covenants will help new players in the space to secure debt quicker

Key Takeaway

With Millions of Dollars committed, lack of Debt funds unlikely to be a constraint for the right quality of

Rooftop Solar PV projects…

..but!!

Key Takeaway

… the Million Dollar question is

Will the cut-throat competition allow the development of quality projects

worthy of debt funding?

Thank You!!

Madhavan NampoothiriAspiration Cleantech Ventures

madhavan@aspcv.comwww.aspcv.com