With a surge in rooftop solar interest among commercial and industrial (C&I) consumers, banks and other financial institutions are offering loans at interest rates as low as 7.5% to promote green energy adoption.

Rooftop solar projects hold significant financial promise, as they can effectively reduce energy costs and generate a reliable income stream if surplus energy is generated.

Rooftop solar projects can be financed in multiple ways, such as CAPEX mode (a business model requiring capital expenditure) and EMI/lease model. Banks can fund up to 75% of the cost when the consumer invests the capital entirely.

At the recent Mercom India C&I Clean Energy Meet in Coimbatore, Deputy General Manager of IDBI Arulraj said the bank finances all solar and rooftop solar projects. He noted that the Coimbatore region is seeing a lot of interest in small solar projects.

By investing around ₹50-60 million (~$595,553- $714,663.60 million), such projects can become a regular source of income for solar project developers and savings in operating expenses for industries. Experts say solar projects are seen as largely maintenance-free income for 15-20 years.

Arulraj highlighted the flexibility of solar project loans, which are designed to meet investors’ diverse needs. IDBI’s interest rates, ranging from 9.25% to 11.5%, underscore the adaptability of these financing options.

Experts note that a credit rating is required to avail of loans above ₹250 million (~$2.98 million), and an internal rating is required below ₹250 million (~$2.98 million). The internal rating usually depends on various factors, such as the company’s financials and the type of industry. For MSMEs, banks offer Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and hybrid cover for loan applicants; however, the projects’ viability and the investors’ financial background are significant criteria for eligibility.

In the case of CTGMSE cover, loan applicants must pay 0.75% of the cost to avail of the cover. Collateral can reduce the cost of debt, or a hybrid mode can be used.

Arulraj highlighted the popularity of rooftop solar, citing their self-sufficiency in meeting power demands and the government’s frequent power cost hikes.

This insight can guide potential applicants on how to structure their proposals for better chances of approval.

Arulraj added that there is no lending cap, but the power requirement for rooftop solar panels needs to be assessed. Applicants should also have ample sources of revenue from existing businesses to ensure a reasonable debt service cover ratio.

For C&I consumers, adding energy storage with rooftop solar could help them save on peak-hour tariffs.

However, banks are hesitant to fund energy storage projects because the project’s life cycle is unclear.

The life cycle of the storage system plays a vital role in financing decisions. If the project requires a significant investment every 3-5 years to replace the batteries, its viability will decrease.

Small Industries Development Bank of India (SIDBI) has provided green finance, especially for solar and wind projects from the MSME sector. Financing is being extended as term loans and offered at interest rates as low as 7.5%-8.6% for loans up to ₹75 million (~$893,039.13) under an end-to-end energy model.

Venu Madhav, Assistant General Manager of SIDBI, said the bank offers loans up to ₹500 million (~$5.96 million) at an interest rate of 8.6% to 9.2%. He added that ten-year loans with a principal moratorium of a year are being extended for all green technologies.

Projects must be eligible for financing using an internal credit rating system. SIDBI investigates the company’s experience and the power purchasers’ financial background before lending to projects. In the case of captive consumption, the power usage requirements are considered while extending loans.

Additionally, techno-economic viability is mandated for group-captive and third-party sale projects above ₹100 million (~$1.19 million).

The next Mercom India C&I Clean Energy Meet event will be held in Pune on September 20, 2024. You can register here.

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