Top 5 Challenges for Solar Financing in India

While the tide has clearly turned in favour of more and better financing for solar, it’s instructive to understand just why it was not happening till now. We listed down all the top reason cited by financiers, to build this list of top 5.

Understanding Solar. A key issue is the limited understanding of solar plants among financiers. Banks, and other institutions that offered collateral backed funding, or asset based funding, do not see a solar plant as a very safe asset. Not an odd perspective, when you consider the fact that a rooftop solar plant offers both access issues in case of default, and even the resale value of such assets, should they be seized in case of defaults. Thus, many firms considered retail solar loans like personal loans, leading to higher rates.

The Paperwork. Perhaps an issue almost as big as understanding solar. Even where firms have been keen on financing solar, they can run into very long delays caused by red tapism and onerous conditions across states. In many cases, these conditions have been copied wholesale from utility scale plant conditions, or larger solar setups, even for residential rooftop solar. That can mean total time taken of six months or more from application to plant commissioning. Keep in mind that actual time taken to install the system can be as little as three days or less. That makes it a surefire way for financiers to lose interest. 

The Terrace. Be it ownership, quality or risk of accidents, home terraces can be beset with multiple issues that complicate a deal. For a financier, seeing clear ownership rights is just the start of the process. Sometimes, the solar installer will declare the quality of the terrace floor unfit for a proper solar plant. And of course, one has to keep in mind the risk of accidents, and even unexpected damage from monkeys etc in many Indian cities.

Maintenance. While maintenance of residential solar is relatively simple, or at least in practice, most equipment makers are loathe to admit it. Installers rarely if at all stick to their once in six months or annual check ups, based on the experience of financers we spoke to. A well maintained plant, versus a poorly maintained but functional plant, can show output differences of over 30%.  That has made many financiers a little wary of backing solar plants wholeheartedly.

Quality of Installers. It goes without saying that the quality of installers matters massively. And not just for the quality of their work, but another critical reason. Keep in moind that at the end of the day, integrated as it is into your house’s power system, a poorly installed solar plant can cause a lot of damage due to fires, and other related issues. But shockingly, that is not the number one issue with installers. The no. 1 issue is installers simply folding up and disappearing. This is an issue that has customers and financiers alike, and even in developed markets like the US, remains one of the most cited reasons for a poor solar experience.

Conclusion. We believe there is a reason why the government has taken such a long time to come out with a clear number 10 million and funding for rooftop solar. While they have blamed ‘vendor capacity’ for previous failures, it has taken them this long to design a policy and an enabling environment that will tackle most of these issues. From cost of panels, to higher subsidies to reduce financing dependence, to mandating faster processing of applications and better monitoring of vendors/installers. Innovations like apps to track even the smallest plant/system performance will also help track matters better today. Which is why we remain optimistic, that despite these challenges, we will see positive movement ahead this time.