There are three main categories of solar power plant developers in India:
- Super duper companies such as Sun Edison, Welspun Energy etc that are both large and financially well-heeled, as well have real professional expertise in putting up solar power plants, both large and small
- Small-medium companies that are existing business keen on solar power, but not well versed with putting up MW solar power plants
- Individuals (usually high net worth) who are perhaps experts in some other profession (doctors, software professionals…) but know next to nothing about solar power plants.
This post is not for the first category, though who knows, anyone can improve!
This post is for categories 2 & 3 – folks who are keen, and can afford, to invest in MW solar power plants, but know little about these.
For many of them in this category, it is important that they understand the Dos and Donts of putting up MW scale solar power plants. Such an understanding can make a big difference between making a few additional crores of rupees – or LOSING THOSE FEW ADDITIONAL CRORES!
This post is for them.
I’m not going to give you the do-s and dont-s by the busloads. Just 3 of them in each!
DON’Ts
- Do not invest on anything tangible without a PPA. This must be obvious, but we find that a number of prospective developers start keenly investing in land especially without a PPA in hand. Don’t. Focus your energies on getting a PPA.
- Do not go for an EPC based on your friends’ or relatives recommendations. How many of your friends or relatives could really be experts in solar? I would bet very few or hardly any. So why would you go with a non-expert’s recommendation on such a vital selection as an EPC? Don’t. Do your research or talk to industry experts before deciding on an EPC.
- Do not skimp on costs and end up with lousy panels, inverters or other BoS. This is an old warning, and one presumes that every solar developer worth his salt would be knowing this. But surprise, surprise, we still find some developers’ first question being “is this the cheapest product?” instead of “is this the best product?”
DOs
- Ensure you are bidding at a tariff that will provide you a decent financial return. The country has seen some ridiculously low bids from companies that most likely are not in a position to bid those prices – we are not talking about Sun Edison or Softbank who probably can bid at low prices and still make money because of their scale and access to competitive financing. Unless you have the AD (accelerated depreciation) benefit, make sure that your bid tariffs will give you project IRRs of at least 12% – see this post for guidance on tariffs for solar power plants in the scale 1-5 MW.
- Get an expert to be with you from beginning until the first unit of power is generated. All right, we definitely are doing a bit of self-promotion here!, but seriously you don’t have to necessarily appoint a consultant like us, at least make sure that there is someone in your friends or close business contacts someone who can handhold you throughout the process. Don’t try to avoid getting professional help because of the few lakhs you could be spending on this.
- Consult with more than one bank, and include consultations with IREDA as part of your financing. We have seen that most banks start negotiating tough, but we have also seen they had come down on their rates once the clients were able to prove they can bring good collateral security and also show that other banks or financial organizations such as IREDA are able to fund at much lower rates. Spend enough time researching other banks and bargaining for the best deal.
Hope I made some sense, and hope these 3 dos and don’t are indeed useful to you. I look forward to your questions and comments.
And all the best to your solar power plant efforts!
I am interested in getting to know more about Solar Power generation. My background is in Finance and not in power. However the little that i have understood about Solar power is that if i can assemble a team to set up and operate a power plant with proper PPA in place it can be an earning generator for the next 20 years with positive environment impact.
Assuming i am able to put together the funds, which state should i be looking at from the point of view of generation, securing PPA, obtaining land etc.Is it worthwhile buying out a project with pre-existing PPA but no funds to take it forward.
Finally instead of EPC, are there any any outfit which can do this on Build and Operate basis?
My target is 10 MW.
Hi,
I think we both have a same goal.I have basic technical knowledge on solar but not in finance. Hope it would be good if we can work together.
Which is the best bank for getting loans for solar power plants?
Most nationalised as well as commercial banks have started lending for solar.
As such, I doubt if there is any best bank.
A more appropriate suggestion would be to request you to approach the bank you are already having transactions with – if this bank has already done many solar related transactions, go with them.
But bargain for good deals.
I know that many banks are providing loans for solar at less than 12% (11.5% and in select cases slightly less), 50-60% collateral security and 12 year repayment period (excluding 1 year moratorium). These could get even better in 2016, so bargain hard on these numbers
How can we say that the EPC is good quality? Many EPCs say the same things about their quality, customers and Prices…
Is there good method for evaluating the EPCs?
Dear Narsingha
Thanks for your query
You might find this useful – http://www.solarmango.com/blog/2015/12/14/choosing-the-right-epc-vendors-for-mw-scale-solar-power-plants/
Thanks again!
What is the lowest cost for a 1 MW without compromising on quality? CERC has given Rs6.1 crores, is this realistic?
Why are Indian banks not giving soft loans for solar after all this is a high priority sector isnt it?
Also in Don’ts” Don’t think of solar power plants like you think for buying a laptop, which is a 3-4 year investment, Think of solar as a 25 year investment
I think the first DO is to make sure you have a good PPA.
Without a good PPA that can Provide attractive returns, and from an offtaker who has the financial stability to continue giving the tariff to you for 25 years, all the other Dos or Donts are of no use.
What I find in the Indian market right now is that many businesses are running around and wasting the time of everyone – vendors, consultants and others – without having a PPA or without even a clue of how to get a PPA.
Indian Banks do not lend for solar power as the system is not yet Ironed out for giving loans. Example if you take real estate: there is a certain market with values based on location, available nearby amenities, resale values etc. These are important for banks as the investment will guarantee them a safe return. In Solar Power system the power purchaser should be clearly available. He should not back out come what may be the production. ups and downs. Multiple PPA (Power Purchase Agreements) will be an added advantage. There are many technologies which claim mine is the best go for it words. Remember words don’t produce electricity. They can often lead you down a dangerous financial path. If there is no buyer having a storage system added to this is terrible cost addition. Batteries are storage devices which can be charged and this battery storage system has again differing capacities, efficiency, types etc. Now banks cannot lend to a system that is not perfected out in the market. If they do they will be risking lifelines to a host of their base and secondary supporters who are dependent on the bank in one way or the other.
Dear Suri
Many thanks for the detailed comments
To a large extent, I agree with you.
Banks are still not fully convinced about solar projects, but they sure are dishing out loans – of this, I am certain as we ourselves have helped several of our clients close loans for small scale solar power plants in the last few months.
Sure, most of these require collateral security, but the collateral % has come down to 50% in some cases from a strict 100%.
The government lending agency IREDA gives loan with less than 30% security for solar power plants.
Solar panels are there which is differing in technologies by a great degree. Basically a solar panel converts sun’s light and non visible radiation spectrum into electricity. There are different variants in this solar cells technology which is good at different regions of the overall spectrum. Some are good at converting visible spectrum light and some are good at converting, Ultraviolet and some others at infrared spectral bands. Some convert multiple regions of the spectrum using thick film solar cells and some just rely on cheapest conversion of one bulk part of spectrum. Unless the system is tested out for results over a guaranteed time there is an element of doubt and surprise (both types, pleasant ones and not too pleasant ones). No one comes forward for lending their monies in such a scenario. Surface cleaning (part of maintenance) also affects the efficacy of solar cells. Adding reflected mirrors can also increase the outputs. World record is 42 to 43Watts per square foot of solar panel. Lows of outputs are around 2 to 12Watts per Sq.ft. of solar cells. (without use of and mirrors or other reflectors). There are a host of varieties in this solar cells. Hence systems are open to many to gain and become specialists in each type. Comments are welcome including criticism on my above info
Hi Mr. Sreenivas.Merry Christmas. Thanks for your inputs. Can you please share some more technical part and price in India of these high efficient solar modules like Sunpower’s X series solar panels and HIT solar modules.
I want to put up a 5 MW solar power plant please suggest a good EPC
Dear Sreenidhi
Thanks for your query
Rather than providing the name of an EPC, I would request you to review this post at Solar Mango that guides on how you can go about choosing the right EPC.- http://www.solarmango.com/blog/2015/12/14/choosing-the-right-epc-vendors-for-mw-scale-solar-power-plants
Hope this helps
How can I get a private ppa for my solar power plant? Can an epc help me to get private ppas?
Dear Mr Santhanam
Can I make a suggestion?
Solar Mango should develop some kinds of standards for the small and medium solar developers who do not have a clear idea of the dos and donts. This standards checklist can be used by the developers at various stages of the solar power plant development. Right now, they are doing many things blindly based on advises and recommendations from uncles and aunts. They also choose EPCs without doing proper due diligence which will end in disaster.
I do hope that your team is able to do something in this context and help this sector prosper
Many thanks sir
Sharma KS
Delhi