COVER STORY: Increased Govt Thrust Set To Give Rooftop Solar Financing A Fillip

COVER STORY: Increased Govt Thrust Set To Give Rooftop Solar Financing A Fillip

Days after the announcement of PM Suryodaya Yojana on January 22, its impact was felt in different parts of the country. Several states, ministries, energy regulators and companies seem to be in a race to enable faster adoption of rooftop solar. 

Union Minister for New and Renewable Energy already announced increasing subsidies for residential rooftop solar from 40% to 60% for systems upto 3kW. The MNRE on January 25 issued a notice mandating the Central Public Sector Enterprises (CPSEs) like NTPC, SJVN and others to take command of faster adoption of rooftop solar in the country along with the private players, with specific states under each PSU mandate. 

The implications were also felt beyond the power corridors of the Union government. Delhi Chief Minister Arvind Kejriwal announced free electricity for rooftop solar users besides giving them generation-based incentives for surplus solar generation. The Rajasthan Electricity Regulatory Commission (RERC) also increased its net-metering capacity for rooftop solar from 500 Kw to 1 MW, citing the government’s thrust. 

Jaipur’s local discom JVVNL also promised to reduce the time for net-metering connections to 18 days. Union Territory Chandigarh announced free rooftop solar installations under the RESCO model. Like a virtuous cycle, even as the government focuses on smaller systems up to 3kW, the wider impact will also be felt in higher capacities, where even as subsidies are lower or non-existent, easy financing can further add a multiplier effect. However, even now, there is no mention of any subsidy or support for energy storage, for instance,  which can drive even faster solar adoption. That is where a broader emerging financial market will help. 

Financing and rooftop solar

With the expected rise in demand in the light of the mega push, India is all set to see a rise in the demand for financing of rooftop solar consumers. Several experts we talked to talked about the plummeting module prices, technological advancements and simpler paperwork, which can cumulatively push the struggling segment of India’s solar segment. Currently, solar rooftop segment comprises only about 11.08 GW capacity out of India’s 73.32 GW capacity. 

Preeti Bajaj

Preeti Bajaj, MD and CEO of Luminous Power Technologies told Saur Energy that, with the likely reduced cost of solar module technology and increased demand, solar financing would play a key role in the mass adoption of rooftop solar.

“Solar financing can drive economies of scale by increasing demand for solar installations. As more individuals and businesses choose to go solar, the cost of solar technologies is likely to decrease, making solar energy even more affordable and attractive to a wider audience. This positive cycle of increased demand leading to lower costs could further accelerate the growth of solar energy and help transition towards a more sustainable and environmentally friendly energy system,” Bajaj said.

The financing for rooftop solar is already transitioning with an increase in financiers. From a bare handful of financiers three years back, as per the latest update from the National Rooftop Portal managed by MNRE, the residential and MSME sectors have access to around 18 lenders who are offering rooftop solar loans with different packages with various tenure, Rate of Interest. Beyond these listed players are many enterprising EPCs who have tied up with banks in their own areas to offer financing options to credit-worthy customers. The entry of fintechs among the non-banking financial institutions (NBFCs) has also made the lending sector richer and more interesting.

Entry of Fintechs 

Saptak Ghosh

Bangalore-based Saptak Ghosh, Group Lead (Renewable Energy and Energy Efficiency) at the Centre for Study of Science Technology and Policy (CSTEP), told Saur Energy that in the last 1.5 years, several fintechs have ventured into the rooftop solar loan market, which has increased the lending options and made the lending for smaller segment users like residential and MSME faster too.

Ghosh’s statement is borne out by the MNRE’s listed financiers for rooftop solar. The National Portal has listed fintechs like CreditFair, Ecofy, Metafin Cleantech, Electronica Finance, and PayTM, among other fintechs, as lenders for rooftop solar projects that the new applicants can choose among the list of a total of 18 financiers. The market has also been unofficially divided among two categories.

While the bigger lenders like the State Bank of India (SBI) and others are more focussed on lending bigger rooftop solar projects of larger amount and project size, the smaller NBFCs are easily adopting the risks associated with financing MSME and residential rooftop solar loans, which many banks are still reluctant to. Even though several banks like SBI, Canara Bank, IDBI, Bank Of Maharashtra, Bank Of Baroda and others claim to offer small rooftop solar loans to MSMEs and the residential segment. 

“Fintechs have now proactively entered the lending business for residential and MSME sectors. They are now coming up with very strong packages compared to conventional banks of bigger size. They are coming up with lending facilities of upto Rs 100-Rs 200 crore at 9-10% ROI over five years. Many times, their ROIs are cheaper than that of banks. Most of them are confined to MSME and residential sectors, though. They have mostly risen in the last 1.5 years,” Ghosh said.

Ghosh said that the only concern for the fintechs is their limited lending capacity. “They can support projects upto 40MW-50 MW. If we plan to use them for GW scale funding, we need more use of bigger private funds or more funded fintech.  In case the fintechs can go from Rs 200 crore to Rs 1000 crore in lending, we can expect an appreciable rise and faster adoption of rooftop solar, and for that, they would also need more funding,” he added. 

However, these fintechs are currently financing rooftop solar projects with a ceiling in their project size. For example, CreditFair says it finances rooftop projects upto 100 Kw in size. Metafin Cleantech claims it can finance rooftop projects upto 150 Kw in size.

Vikas Agarwal

Vikas Agarwal, Co-founder of Mumbai-based, green energy-focused digital lending NBFC  ‘CreditFair’, told Saur Energy that though the firm started lending for rooftop solar projects in 2019, it started aggressively pushing for rooftop solar loans in Sept 2022. He said that now, out of the total approved loans, 50 percent of them come from rooftop solar loans alone. CreditFair finances only rooftop solar projects in its solar financing. But how do NBFCs like CreditFair get their clients and leads?

Agarwal explained that Credit Fair is in B2B2C business model. It onboards solar module manufacturers and EPC players. Through them, they get end consumer leads and offer rooftop solar financing to them. 

“We have now onboarded several top solar module makers and with their help, we have tied up with around 700 solar vendors (EPC players) in 16 Indian states. We have already disbursed loans for around 2,300 rooftop solar projects while another 700 projects are under process for disbursement,” Agarwal said.

CreditFair claims that around 40-50 percent of the rooftop solar projects in India, on average, need financing support. Agarwal said that out of the proposed one crore new rooftop solar installations under Pradhan Mantri Suryoday Yojana, CreditFair targets to grant loans to around 1 percent of them in the next three years, which it estimates to be fresh orders of around Rs 2,500 crore.

Most solar developers we talked to said that in the residential and MSME sectors, the majority of the rooftop projects are CAPEX-based and require loans either due to lack of capital or lack of liquidity flow. However, besides banks and NBFCs, the newly appointed PSUs, mandated to boost rooftop solar, are also set to set up several rooftop solar projects on the campuses of communities from weaker sections under the RESCO model. 

Besides dedicated solar loans, several banks like SBI, Canara Bank, IDBI Bank, Punjab National Bank and Bank of Baroda also give top-up loans along with housing loans to encourage new house buyers to go for solar rooftops.  As per sources in the fintechs, many of them are in touch with the Indian PSUs like IREDA and others, where these fintechs can co-lend with the government entities to boost rooftop solar financing in the coming days.

MSME Sector An Issue

Researchers studying different models of the economics of green projects claimed that one of the major concerns in financing rooftop solar projects comes from the MSME sector. 

Shantanu Srivastava

Shantanu Srivastava, Sustainable Finance and Climate Risk Lead at the Institute of Energy Economics and Financial Analysis (IEEFA) told Saur Energy that the majority (around 70%) of the total rooftop solar projects in India belong to the Commercial and Industrial (C&I) segment for which there are several lending options. However, the problem is more complicated for smaller segments like MSMEs due to the lack of bankable models that financial institutions can trust. 

“There is availability of financing options for rooftop solar even for MSME. However, the problem comes from lacking a successful bankable model that financiers can trust. There needs to be an alternate way to improve MSME creditworthiness. This could be through a ‘blended finance’ model where some entity like a government support or a philanthropic organization can guarantee payments in case of default,” Srivastava advocated.

Regarding rooftop solar financing for the residential segment, Srivastava said that the segment needs more outreach and awareness to boost adoption. “It is the golden time for residential consumers to invest in rooftop solar with the plummeting module prices, improved efficiency of modules and higher subsidies and government support. We just need more awareness and outreach programme to boost its adoption now,” he said.

Many EPCs and financiers also add that in smaller sizes, the savings are visible monthly in terms of generation from solar plants, which can even be equal to the EMI in such cases, making it an easier sell. 

A September 2021 report by IEEFA said that for the major C&I solar energy companies (EPCs) with good ratings, the four major options for rooftop solar financing included equity investments, debt loans, acquisitions & mergers and international concessional credit lines. The report also said that while the number of rooftop solar loans was lesser under the OPEX model than the CAPEX model in terms of the size of loans, OPEX model loans accounted for most of the loans. 

EPC collaborations

Several EPC players in India have also worked out different plans to offer financing for new rooftop solar consumers. For example, in 2022, with the help of SBI, Tata Power Systems started a ‘Surya Shakti Cell’ in Mumbai to finance solar rooftop projects below 1 MW for residential and business properties.

Another solar developer, MySun, also provides its clients ‘zero EMI loans’ where solar consumers get zero EMI interest if she can pay the full amount in three months. Similarly, another solar vendor Solarsquare, engages its ‘solar consultants’ to get the solar loans approved digitally within 10 minutes and offer zero EMI loans. Many of these EPC players either have their small packages of zero EMI loans or collaborations with the banks and NBFCs to make the financing part hassle-free. 

Vikas from CreditFair said that faster approvals of loans digitally with less paperwork have made FinTech a popular choice for solar consumers who want less paperwork and faster disbursals. 

Vineet Mittal

Vineet Mittal, Director of the module manufacturer and EPC Navitas Solar adds that rooftop solar consumers who want to utilize green power have two financing options –leasing the rooftop to a third party for solar power generation, leading to reduced cost. On the other hand, he said that the users can take loans to own those solar panels completely.

“The benefit of taking solar loans for rooftop projects is that the users can claim tax benefits and also resell it when they want, unlike in the lease model. In the lease model, the users can’t claim ownership of the assets but enjoy reduced electricity bills with the solar power generated from the solar panels installed at their properties.  

Conclusion 

With just the PM Suryodaya Yojana needing over Rs 150,000 crores, mostly from the government and related firms, the big financing opportunity will be beyond the 3 kW segment. Also, as firms benefit from the government push, their balance sheets will enable them to leverage more effectively to drive in segments like solar plus storage etc.  

The solar financing market is like the auto financing market over 25 years ago, with both the customers and firms only waking up to the possibilities now. This is a market that can easily be a Rs 25,000 crore annual market as it evolves. Bundling assets for securitization, raising funding through green bonds and other avenues, and greater confidence in the segment with the ‘seasoning’ of older loans will all add up to a strong momentum push. 

Along the way, this newly found experience will also support the ‘repowering’ of older solar plants as owners seek to expand to larger sizes and higher efficiency, considering the huge improvements on the policy front and technology since 2018. However, India will do well to avoid the sort of runaway dependence on solar loans that the US has seen, for instance. Third-party ownership (TPO) models in the US, where the finance firm leases the panels to the homeowner, have enabled fast expansion but also mis-selling on a significant scale that will hurt the market going ahead.