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Top Things to Know About Commercial Solar Financing
Setting up a solar power project can be quite expensive, with costs reaching up to INR 6 Crores per megawatt. Most of this funding comes from a mix of equity and debt financing. Equity financing involves raising capital from internal stakeholders or external investors, while debt financing—typically accounting for about 70% of the total cost—refers to borrowing money through loans secured against collateral.
Before launching a commercial solar project, it's essential for companies to understand the various **commercial solar financing** options available. This knowledge can help them make informed decisions that align with their financial goals and project timelines.
Here are some key questions we’ll explore:
- How do commercial solar projects get funded?
- What is the most effective way to finance solar energy systems?
- What are the typical loan durations for solar panel installations?
To begin with, let’s take a closer look at the different financing avenues available for **commercial solar projects**.
### Domestic Funding from Banks
Indian banks have long been the primary financiers of **commercial solar projects**, offering competitive interest rates ranging from 11% to 13%. However, they often require full collateral equivalent to the loan amount. Initially, these loans were structured for 7–10 years, but many banks now offer longer terms of up to 15 years. This shift reflects improved regulatory clarity and streamlined procedures for solar project approvals.
### NBFC Financing
Non-Banking Financial Companies (NBFCs), such as IREDA (Indian Renewable Energy Development Agency), also provide low-interest loans for **commercial solar projects**. For instance, grid-connected **solar PV** projects may qualify for interest rates between 10.2% and 11.4%, depending on the project's rating. IREDA typically requires a minimum debt of INR 50 lakhs and ensures the project is both technically and commercially viable. One major advantage of IREDA loans is the relatively low collateral requirement—just 10–33% of the loan amount.
### Documents Required for Solar Finance from NBFCs
When applying for **solar financing** from an NBFC, companies must prepare several important documents, including:
- Details of quality and safety measures
- Evacuation plans
- Component supply contracts
- Permits and compliance documentation
- Operations and maintenance (O&M) contracts
- Power Contract (PC)
- Feasibility studies
- Power Purchase Agreements (PPA)
### International Financiers in India
International organizations like the World Bank’s International Finance Corporation (IFC), EXIM Bank, European Investment Bank, and Asian Development Bank also support **commercial solar financing** in India. These institutions often provide affordable funding, and in some cases, you can import equipment from the country offering the loan for better deals.
However, securing international financing usually takes longer—often between 9 to 12 months—so planning ahead is crucial.
### Due Diligence Costs
Another factor to consider when pursuing **commercial solar projects** is due diligence expenses. These costs play a significant role in the overall budget and project timeline. Key components include:
- Technical evaluation
- Promoter assessment
- Environmental review
- Financial analysis
- Industry-specific assessments
- Legal compliance checks
- Loan approval processes
- Insurance packages
### Conclusion
As you can see, there are numerous **commercial solar financing** options available. Choosing the right financier is critical, as it directly impacts the project’s cost and execution time. While Indian banks and NBFCs are well-suited for large-scale solar projects, international lenders can also be a viable option under certain conditions. Just remember to account for currency risks if you opt for foreign financing.
Whether you're a business owner, developer, or investor, understanding the financing landscape is essential for making smart, sustainable decisions in the renewable energy sector.