Rooftop Market Needs SBI World Bank Funds to be Disbursed Quickly in Tough Times

The rooftop solar has struggled to catch on in India with just over 4 GW installed compared to the government goal of developing 40 GW by 2022. The market declined by 33% in 2019, and 2020 is forecasted to be another tough year considering the difficulties posed by the COVID-19 pandemic.

The rooftop solar market has been challenging due to a lack of general awareness, financing woes, and the unwillingness of distribution companies to help. Financing has always been a challenge when it comes to rooftop projects, especially after the NBFC (Non-Banking Financing Companies) crisis. Financing will become even more challenging post COVID-19 as banks struggle to cope with tough economic conditions.

In 2016, the World Bank came forward to help the government’s rooftop solar program by lending $625 million to the State Bank of India (SBI).

Then in 2017, the government-owned SBI and the World Bank announced $357 million (₹23.2 billion) in credit facilities for seven Indian solar companies to develop grid-connected solar rooftop projects with an aggregate capacity of 575 MW. But most of these funds are still unutilized.


In these challenging times, we decided to explore the status of the World Bank funds, which could be critical in supporting the rooftop market.

According to the World Bank, despite the energy shortages and the high cost of backup supply, rooftop solar PV systems have not yet become popular in India. The lender says that it is primarily due to the lack of adequate financing, unfamiliar technology, and low awareness among the consumers.

The World Bank’s Clean Technology Fund (CTF) loan supports several solar PV business models to expand the rooftop PV systems to a variety of customer groups. A range of options are available to investors under the SBI Rooftop PV Program, including third-party ownership, leasing, rooftop rental, as well as direct end-user ownership.

Amit Jain, senior energy specialist, World Bank, said that the project includes a $12.93 million (₹981.4 million) technical assistance component, through which the World Bank, in cooperation with the Ministry of New and Renewable Energy (MNRE), is supporting 17 states to build an ecosystem for a sustained rooftop solar market.

“It includes raising consumer awareness through several outreach programs such as media collaterals that are helping raise awareness about rooftop solar, its economic benefits, government incentive programs, and application process so that consumers can make informed decisions for installing rooftop solar,” he added.

However, the SBI has only disbursed approximately $211.42 million (₹15.99 billion) of the $625 million (₹46 billion) so far.

Asked if this is a satisfactory result when SBI has lent only one-third of the fund, Jain said, “33% of the project funds were disbursed in the first three years of the five-year program. We have seen a 91% compound annual growth rate (CAGR) in the rooftop solar capacity addition under the program during this period. There are around 210 loan accounts under the program, with up to 80% of the disbursed funds accessed by RESCO (Renewable Energy Service Company) players. The program has been instrumental in supporting new business models, for instance, RESCO/OPEX.”

Addressing the situation from a rooftop installer perspective, Vikram Dileepan, co-founder and director, residential and small commercial business at Sunedison Infrastructure Ltd, a rooftop solar development company said, “SBI – World Bank line I believe has done a fairly good job of deploying debt against large-scale solar portfolios for rooftop thus far, but deploying debt over smaller portfolio would increase their transaction costs significantly higher. They find it prudent to fund either developers or NBFCs who have a 10 MW+ size of assets on their books towards rooftop solar for the next phase of deployment.”

C&I customers with good credit ratings would find it easier to access the fund compared to small businesses, which leaves a large segment unserved. Mercom had earlier reported that to fast-track the growth and adoption of rooftop solar, the country needs to create avenues to tap into the micro, small, and medium enterprises (MSME) segment. But their low to non-existent credit rating makes it tough for a developer to raise debt from financial institutions.

According to one the SBI official managing the fund, “the regulatory hurdles and lack of interest from the distribution companies (DISCOMs) in creating a conducive environment have certainly not helped. Payments from DISCOMs are a problem while Blue chip companies pay on time. If banks get payments on time, we are encouraged to lend more.”

The official also pointed out that the level of awareness among customers is less. At the same time, there is another set of customers who would want 100% assured supply and least interference from DISCOMs, which is not possible unless energy storage becomes affordable.

The cumulative rooftop solar installations in India has reached 4.4 GW, according to Q4 & Annual 2019 India Solar Market Update released by Mercom India Research.

Rooftop installations declined for the first time in five years. According to the report, the slowdown in the economy in 2019 was a significant factor along with liquidity issues in the market following the NBFC crisis, which made it difficult for installers to finance rooftop projects.

Jain pointed out that one of the results at the end of the program is 250 MW of rooftop capacity connected to the grid. Against this, the program has already achieved 218 MW. The capital cost of the rooftop systems has plummeted since the inception of the program in 2016. Hence, disbursements seem to be lower.

Speaking about this fund being disbursed by SBI, rooftop solar developers who have been beneficiaries of the fund commented that the interest rate of 8% is very attractive compared to the market rate of 10-10.5%. One of the developers used the benefit of this low cost of borrowing to win government bids at extremely competitive rates. 

On the other hand, solar companies think that despite the massive potential of rooftop solar, the adoption of rooftop solar in India has been slow, and one of the primary reasons is the lack of finance. They believe that though public sector banks such as Punjab National Bank (PNB) and SBI have tied up with the Asian Development Bank (ADB) and World Bank, the adoption on the ground has been extremely slow.

According to Jain, “It is a balancing act between the revenue impact on utilities due to the adoption of rooftop solar by higher tariff consumers and the transition to clean energy.”

“However, an energy transition to cleaner resources is the future; eventually, we will see distributed renewable energy gaining ground,” Jain opined.

He also pointed out that an attempt has been made to support the harmonization of the regulations at the state level by providing clarity on specific parameters central to the spread of rooftop solar. For instance, new energy accounting and settlement mechanism, innovative business models, increased hosting capacity, and delinking of project capacity with sanctioned load, among others.

Installers informed Mercom that, along with the interest rates being attractive, the procedures for securing a loan from SBI is far simpler. The bank officials understand the nuances of lending to clean energy, especially solar, as the bank is one of the largest lenders to solar projects. 

Shyam Sharma, CFO, Amp Energy India, a renewable energy project developer, said, “SBI has been making a diligent effort as compared to other lenders. However, we believe as every scheme has its share of learnings. It could consider optimization measures in the future, including; treating a non-metered project as a grid-connected project to enable bigger projects to be covered in the line; allowing refinancing of bridge loans from World Bank line taken to complete the projects; capital structuring to be left to the independent power producers.

Sharma added, Let the projects having government subsidy become eligible for funding under the line and allowing subsidy also to be funded in debt-equity ratio, treat behind the meter projects installed on factory surplus land to be covered in the credit line, and set targets for rooftop disbursements under the line for its branches and project finance teams to be incentivized through cash bonus for approvals.”

The C&I segment has been the worst affected segment in the solar industry owing to the lockdown, and the ripple effect of the pandemic as businesses are finding it extremely difficult to spend on solar when they are not sure what the future holds. Ramping up the World Bank SBI fund disbursement in these times, along with relaxing the funding criteria to match the current situation on the ground, will go a long way in helping the rooftop solar market.

 

Image credit: SiguteInkagency / CC BY-SA