The Indian solar sector witnessed a slight dip in lending rates over the last quarter (Oct-Dec 2016). The average interest rates for solar projects came down slightly compared to the previous quarter. Projects with tariff below Rs.5 (~$0.073)/kWh are suddenly becoming viable and banks are now finding it comfortable to lend to the solar sector at lower interest rates. Large corporations with big balance sheets continue to enjoy the privileges of lower lending rates.
Project internal rate of returns (IRRs) are starting to look good mainly due to the fall in module prices, which has significantly brought down the cost of projects. Project developers are expecting project IRRs in the range of 13-20 percent. Even banks, which tend to be conservative in their estimates, are finding project IRRs in the range of 11-19 percent.
Demonetization has led to banks becoming flush with funds, which could potentially lead to lower interest rates.
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