For the last few years, availability of funding for Indian solar projects has not really been a challenge, rather finding 'quality solar projects' for investors has been the difficulty. India over the years has become an attractive destination for global investors in the solar space. Some of the reasons for this has been: green mandates of the investors (both domestic and foreign), our solar irradiation levels, greater awareness of the benefits India offers as the largest democracy, supportive government policies, well established regulatory regime and presence of strong rule of law.
Though, its not been all rosy and the phenomenal growth the solar sector has seen since 2011 has come with its fair share of challenges. Some of the issues which stakeholders in this sector have been grappling with are procuring land, evacuation arrangements, construction risks (ensuring timely commissioning along with quality of equipments and the construction quality), domestic procurement of modules (on account of government policy push to promote domestic manufacturing of solar modules), performance risk and offtake risks.
The inception of the solar power in India was with the government supported feed in tariff and thereafter over the last decade or so the tariff for utility scale projects has seen a steep fall (to say the least). The developers and the investors over the course of development of this sector realized that it was critical to focus on sustained generation and minimal downtime in order to maintain the required returns despite falling tariffs. The experience of some of the developers (both backed by domestic promoters and international funds) got them to optimize costs without compromising on quality, control financing costs by refinancing post the construction phase, improve the project design and standards. In addition, they realized the importance of ensuring a strong, steady and quality supply chain for setting up solar projects.
This learning has come from a number of solar projects in the Indian market performing at lower performance levels (as against initial estimates) on account of suboptimal execution. With these experiences, the developers, investors and lenders have come to acknowledge that higher construction standards, quality of solar equipment and efficient execution are essential ingredients to ensure that a solar project can generate stable cash flows. And, thereby being crucial to get a higher return on investment.
There is no dearth of liquidity (from both global investors and lenders) in the Indian market specifically for solar project in India. However, the investors have realised the importance of durable assets which can operate sustainably for the life of the project and provide good returns. The Indian solar market has indeed evolved substantially and now you see investors providing equal (or greater) importance to quality of the solar assets in addition to the credibility of the offtaker (preference to SECI/NTPC projects as against discom projects), capacity of the project, etc. And, thus in addition to legal and regulatory due diligence also conduct a detailed technical due diligence on inter alia: (a) performance ratios; (b) equipment quality and degradation; (c) plant design and installation quality; (d) operations & maintenance (O&М) practices.
It seems that the investors have now recognized that the quality of the solar assets in fact may be the distinguishing factor for evaluating good solar projects which make them more attractive for investment.
Originally published by SolarQuarter, May-June Issue 2025
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