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Top Things to Know About Commercial Solar Financing
Setting up a commercial solar project can be quite expensive, with costs reaching up to INR 6 Crores per megawatt. Most of this capital is sourced through a mix of equity and debt financing. Equity involves raising funds from internal stakeholders or external investors, while debt—accounting for about 70% of the total cost—typically comes in the form of loans secured against collateral.
Before launching a solar power project, it's crucial for companies to understand various **commercial solar financing** options available. This knowledge helps in making informed decisions that align with financial goals and project timelines.
Here are some common questions we aim to address:
- How do commercial solar projects get funded?
- What is the most effective way to finance solar energy?
- How long can solar panels be financed?
Let’s explore the different avenues for funding a **commercial solar company** project.
### Domestic Funding from Banks
Indian banks have historically been the primary financiers of **commercial solar projects**. They offer competitive interest rates ranging between 11% to 13%, although they often require full collateral (up to 100% of the loan amount). Initially, banks provided loans for 7–10 years, but many now offer terms extending up to 15 years, reflecting increased confidence and regulatory clarity.
### NBFC Financing
Non-Banking Financial Companies (NBFCs), such as IREDA (Indian Renewable Energy Development Agency), also play a significant role in **commercial solar financing**. These institutions provide low-interest loans, typically between 10.2% and 11.4%, depending on the project’s rating. For example, grid-connected **solar PV** projects can benefit from these favorable terms.
IREDA requires a minimum debt amount of INR 50 lakhs and ensures the project is both technically and commercially viable. One advantage of IREDA loans is that **commercial solar projects** may only need 10–33% collateral, which is significantly lower than traditional bank requirements.
### Documents Required for Solar Finance from NBFCs
To apply for solar financing from an NBFC, the following documents are usually required:
1. Quality and safety measures followed
2. Evacuation plans
3. Contracts for supplying components
4. Permits and compliance documentation
5. O&M (Operation and Maintenance) contract
6. PC (Power Contract) agreement
7. Feasibility study report
8. Power Purchase Agreement (PPA)
### International Financiers in India
International players also contribute significantly to **commercial solar financing**. Institutions like the World Bank’s International Finance Corporation (IFC), EXIM Bank, European Investment Bank, and Asian Development Bank offer attractive financing options. Additionally, several international green energy funds provide affordable rates for solar projects.
One unique benefit is the possibility of importing materials from the country offering the loan, which could lead to better pricing and terms. However, the application process from international lenders can take 9–12 months, so planning is essential.
### Due Diligence Cost
Companies must also consider due diligence costs when pursuing **commercial solar projects**. These costs can significantly impact the project budget and timeline. Key areas of due diligence include:
- Technical appraisal
- Promoter evaluation
- Environmental assessment
- Financial review
- Industry-specific analysis
- Legal evaluation
- Loan approval process
- Insurance package selection
### Conclusion
As you can see, there are numerous **commercial solar financing companies** available, both domestic and international. Choosing the right financier is critical, as it directly affects project costs and execution time. While Indian banks and NBFCs like IREDA are often the best fit for utility-scale solar projects, international financiers can also be considered if needed. Just keep in mind the risks associated with currency fluctuations and longer approval times.
Understanding these financing options thoroughly can help businesses make smarter decisions and ensure smoother project execution.