Securitization emerges as New Funding Model for Capital Intensive Solar Energy Projects

Securitization has emerged as New Funding Model for Capital Intensive Solar Energy Projects.In India Welspun Energy which is a solar developer with a solar plant in Gujarat has managed to securitize the project.Securitization in finance refers to pooling of various cash flows generated from different assets such as mortgages,recievables etc.Note Securitization has become a dirty word in finance as subprime property mortgages  in the US were sold as AAA security products.However in case of Solar Energy they may prove to be a boon.Note financing of debt has become a big problem in building solar farms.Securitization can be an ideal way forward as it spreads the risks and allows the loans to be given to solar developers.

Securitization according to Wikipedia

Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly

 

Indian Banks Reluctant to Lend to Solar Projects

Indian Banks have raised concerns over lending money to Solar Projects in India.The main problem arises from the fact that State Electricity Boards (SEBs) are counter-parties to the P0wer Purchase Agreements (PPAs) signed by the developers.Most of the State Electricity Distributors are in poor financial shape and have been known to frequently default on their financial obligations.This means that the cash flows of the Solar Project will depend on entities with poor financial reputation.Note the debt financing of the projects is non-recourse which means that Banks have only the Financed Project as collatarel.With the Solar Energy still being almost 3-4 times more expensive than normal Electricity Prices,it means the banks will  suffer a big loss.With almost 70-75% of the estimated $2.2 Billion in the first phase of the PV projects to be financed by debt,this represents a big hurdle for the success of Solar Energy.The government needs to come out with some sort of arrangement of guarantees for the smooth functioning of the Solar Mission and instill confidence amongst investors and Banks.

Welspun Approached to Sell Security Backed by Solar Revenue

Welspun Energy Ltd., India’s biggest solar photovoltaic developer, was approached by a bank proposing to use revenue from its first plant to create a security of the kind often used to raise funds for projects such as toll roads. The company, which won bidding for 55 megawatts of solar photovoltaic capacity in two central government auctions, more than any other company, completed its first 15-megawatt plant in Gujarat in October with financing from ICICI Bank Ltd. (ICICIBC)

“When you compare a wind, solar or road asset, you know what the toll is if your car passes through, you know what the solar or wind price is for every unit that’s delivered,” he said in July. “It’s like an annuity. What’s your variable? It’s the amount of wind or sun or traffic flow on a highway.”

Other Innovative Funding Models

While Standard Debt and Equity have normally been used to fund solar projects,Sunpower has also sold bonds backed by a large solar plant.These bonds were backed by the collateral of the solar plant.Note most solar farms are built using project finance in which the debt is not backed by the solar developer but the solar project is given as collateral for getting the debt financing.

SunPower closes €195.2m bond for Italian solar power plant

SunPower Corp has closed its €195.2 million solar bond issuance associated with the company’s 44 MW Montalto di Castro solar park in Italy.The proceeds will be used to pay for the development and construction of the solar park, which is now complete and connected to the local electrical grid.

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