financial structures for solar energy - yes bank · · 2018-04-30data or information, ... create...

Financial Structures forSolar EnergyFinancial Structures forSolar Energy

Prepared by Knowledge Partner

YEAR April, 2016

COPYRIGHT

DISCLAIMER

CONTACTS

YES BANK Ltd.

Registered and Head Office

th9 Floor, Nehru Centre, Dr. Annie Besant Road, Worli, Mumbai - 400 018

Tel : +91 22 6669 9000Fax : +91 22 2497 4088

Northern Regional Office

48, Nyaya Marg, Chanakyapuri, New Delhi – 110 021

Tel : +91 11 6656 9000Email : [email protected] Website : www.yesbank.in

TITLE Financial Structures for Solar Energy

No part of this publication may be reproduced in any form by photo, photoprint,microfilm or any other

means without the written permission of YES BANK Ltd.

This report is the publication of YES BANK Limited (“YES BANK”) and so YES BANK have editorial control over the content, including opinions, advice, statements, services, offers etc. that is represented in this report. However, YES BANK will not be liable for any loss or damage caused by the reader's reliance on information obtained through this report. This report contains and places reliance on third party contents and third-party resources, where ever it expressly so provides. YES BANK takes no responsibility for third party content, that are printed on or through this report, nor does it take any responsibility for such third party content or the goods or services provided by third party sources or its advertisers or for any error, omission, inaccurancy, deletion, defect, theft or destruction or unauthorized access to, or alteration of, any such third party content. Further, YES BANK does not assume any responsibility or liability for any loss or damage, including personal injury or death, resulting from use of this report or from any content for communications or materials available on this report. The contents are provided for your reference only.

The reader/ buyer understands that except for the information, products and services clearly identified as being supplied by YES BANK, it does not operate, control or endorse any information, products, or services appearing in the report in any way. All other information, products and services offered through the report that are offered by third parties, are not affiliated in any manner to YES BANK.

The reader/ buyer hereby disclaims and waives any right and/ or claim, they may have against YES BANK with respect to third party information, products and services.

All materials provided in the report is provided on “as is” basis and YES BANK makes no representation or warranty, express or implied, including, but not limited to, warranties of merchantability, fitness for a particular purpose, title or non – infringement. As to documents, content, graphics published in the report, YES BANK makes no representation or warranty that the contents of such documents, articles are free from error or suitable for any purpose.

In no event shall YES BANK or its content providers be liable for any damages whatsoever, whether direct, indirect, special, consequential and/or incidental, including without limitation, damages arising from loss of data or information, loss of profits, business interruption, or arising from the access and/or use or inability to access and/or use content and/or any service available in this report, even if YES BANK is advised of the possibility of such loss.

Preface

Rana Kapoor

Managing Director & CEO

Chairman

The most important recent development in global climate efforts was the landmark agreement at the

United Nations 21 Conference of the Parties (COP21) in Paris last December. The world agreed on a

fundamentally new path to take forward climate actions including limiting global temperature increase

well below 2.0 degree Celsius (above pre-industrial levels) and committing towards “intended nationally

determined contributions” (submitted by more than 180 countries producing more than 90% of global

emissions). While measures towards climate change mitigation and adaptation will have many facets,

Solar Energy, in this respect, presents itself as the most widely available, adaptable and rapidly scalable

source of clean and renewable energy, for the world to embrace.

One of the key focus areas of International Solar Alliance (ISA), formed as an alliance of 121 solar resource

rich countries, is to accelerate investments in solar through development of innovative financial

mechanisms for reducing cost of capital and enhancing investor confidence and commitment to the

sector. This report is an attempt to acquaint a reader with both financial & non-financial mechanisms and

structures being successfully deployed to enhance investment and availability of funds for Solar Energy

while at the same time encouraging us to think beyond the “notions” for discovering innovative

approaches towards this global endeavor.

I would like to thank the Ministry of New and Renewable Energy (Government of India), Indian Renewable

Energy Development Agency Limited (IREDA) and USAID, for their valuable inputs and suggestions that

have immensely contributed towards this report.

Table of Contents

A. Overview

B. Financial Measures

C. Non-Financial Measures

...................................................................................................13

.....................................................................................15

1. Direct Incentives....................................................................................16

a. Generation Based Incentives ..............................................................16

b. Feed-in-Tariff ..................................................................................16

c. Capital Subsidy ................................................................................17

d. Viability Gap Funding (VGF) ................................................................18

2. Indirect Incentives .................................................................................18

a. Accelerated Depreciation ...................................................................18

b. Sovereign Guarantee.........................................................................19

c. Tax Free Bonds .................................................................................19

d. Tax Incentives..................................................................................19

..............................................................................21

1. Strengthening Policy Structure ................................................................ 22

a. Hedging .........................................................................................22

b. Insurance .......................................................................................23

c. Gross Metering ................................................................................23

d. Net Metering ...................................................................................23

e. Priority Dispatch (for Solar) ...............................................................24

f. Priority Sector Lending (PSL)..............................................................24

g. Renewable Purchase Obligation...........................................................25

h. Renewable Energy Certificates ............................................................26

2. Market Creation and Development .............................................................26

a. Alternate Investment Funds or Private Equity.........................................26

b. Bank Debt .......................................................................................27

Table of Contents

c. Buyers Credit/Suppliers Credit ............................................................27

d. Community Pooled Power Projects........................................................28

e. Credit Guarantee Schemes..................................................................28

f. Crowd-Funding Platform ....................................................................29

g. Equity Participation (by Module Supplier/EPC Contractor) ........................30

h. Green Bonds....................................................................................31

i. Green Climate Fund (GCF)...................................................................32

j. Multilateral/ Bi-lateral tie up..............................................................34

k. Municipal Bonds...............................................................................34

l. Renewable Energy Debt Funds.............................................................35

m. Securitization..................................................................................36

n. Solar Park Financing Vehicles..............................................................37

o. YieldCo...........................................................................................38

.................................................................................................41D. Conclusion

OverviewA

OverviewA

ISA aims to achieve 1,000 GW of deployed solar capacity by 2030 across its member countries,

which is expected to require investments to the tune of at least USD 1 Trillion. Though this may

sound challenging, it seems very much achievable when compared to USD 286 Billion of global

renewable energy investments in 2015 with addition of 59 GW of solar capacity globally. ISA would

also facilitate accelerated solar technology deployment in all member countries representing

“emerging” and “frontier” markets, which would significantly add to the existing investment and

growth potential in the industry.

The Year 2015 has been remarkable for renewable energy investments, with majority of global

power generation capacity addition (53.6%, Frankfurt School of Finance & Management gGmbH

2016) coming from renewable energy. The year also saw investments in renewable energy in

developing countries exceeding that in developed countries. This also augurs well for investors,

who are looking to identify newer investment destinations with dual objective of stable return and

positive environment and social impact investments.

This report provides some of the existing and innovative financing structures which can be utilized

towards channelizing finance available at global and national levels towards investments in

renewable energy, particularly, solar energy. From a policymaker's point of view it is important to

categorize these financial mechanisms into financial and non-financial measures. The financial

measures would require financial support in the initial years for the industry to accelerate adoption

of solar technologies, whereas, the non financial measures would require market development and

creation of institutional structure, for smoother solar transition. The financial measures have been

further categorized basis (a) Direct Incentives in form of subsidies or viability gap funding and (b)

Indirect Incentives in form of tax incentives, sovereign guarantee etc. The non financial measures

have also been broken down into the changes which can be incorporated in policy framework and

the measures required for market creation and development.

ISA member countries come from varied economic and social background who have come together

to promote the use of solar energy to be self reliant on energy and reduce carbon emissions. The

countries also vary in their energy mix as well as their per capita energy consumption. Renewable

and solar energy deployments in these countries will be therefore hugely dependent on the local

conditions. It will be important for all the member countries to choose the right financial as well as

the non financial measures for effective and fast paced adoption of solar energy.

02 | FINANCIAL STRUCTURES FOR SOLAR ENERGY

Financial MeasuresB

Financial MeasuresB

Large scale deployment of new technologies such as solar requires more and more participants to

adopt such technologies. But such adoption is difficult because the initial cost of technology is

very high and the low number of off takers of such technology does not provide scale. Therefore,

some financial incentives need to be provided to the industry for it to consider the new technology

as an alternate and start investing in the same.

The financial measures, if adopted, require financial allocation/support at the sovereign level

which will allow large scale adoption of solar technologies in the economy. These measures can

create a large market for solar energy with financial incentives like capital subsidy and tax

exemptions from the government which can be phased out slowly after the markets become self

sustaining.

These financial benefits develop the market by attracting the investors but involve direct

financial outgo/commitment from a government. The government support is very measured

and policy-specific and is intended to continue till the market reaches the self-sufficient phase

without these incentives.

a. Generation Based Incentives

Generation based Incentives (GBI) is an incentive which is paid over and above the tariff paid

under the Power Purchase Agreement (PPA) and is intended to incentivize higher operational

performance of a solar energy project. GBI has a direct impact on the profitability of a solar

power plant and has historically been successful in attracting the interests of investors.

It may be noted that GBI is used an incentive measure only in case of Feed-in-Tariff and the

total amount of benefit available to an entity is capped both in terms of annual incentives and

aggregate incentives over lifetime of a project.

b. Feed-in-Tariff

While auction route has been able to successfully bring down the solar tariffs in many

countries, Feed-in-Tariff (FIT) is useful in initial phases of development of Solar Sector, in order

to enable investors to determine their returns with higher level of certainty. Feed-in-tariffs are

1. Direct Incentives


determined after taking into account the prevailing cost of implementation along with pre-

specified return on equity capital. The feed-in-tariff can be topped up by GBI (as covered

above) in case increased development is contemplated for a section of applications.

In Germany, the FIT mechanism which was modified in the early 2000 to allocate higher

tariffs for solar PV technologies has been so much successful that it catapulted the country

to no. 2 in the list of countries with installed solar PV capacity (~40 GW capacity in 2015 from

a mere ~1 GW in 2004). This incentive of assuring the investors of a guaranteed reasonable

return has also simultaneously brought down installation costs of solar projects on account 1

of the large economies of scale having being achieved .

c. Capital Subsidy

Capital subsidy is an effective measure to allocate funds to a specific section of a sector which

is not able to grow either due to unavailability of funds or where the prevalent capital cost of a

project doesn't leave attractive returns for the project proponent. Capital subsidy is generally

not targeted at the investors but is meant for the end-users at the small scale level. In order to

make capital subsidy more transparent, it is generally disbursed once the application has been

commissioned and is paid-out in the form of reimbursement.

A successful subsidy scheme entails clear ear-marking of funds towards the scheme so that the

end-user is in no doubt about the reimbursement of expenditure and is also able to raise short

term funds against the expected subsidy inflows, thereby, minimizing its upfront equity

commitment requirement. While the subsidies does have an impact on the finances of a

government, a well-calibrated subsidy scheme can kick-start a process which not only creates a

self-sustaining sector but also has indirect benefit in terms of employment, environment etc.

Recently in India, the subsidy budget for the solar rooftop scheme was scaled from

to INR 5,000 cr (~USD 750 Mn). The funds for the solar rooftop scheme are

earmarked from the National Clean Energy Fund (NCEF), which is a corpus formed through

the levy of Clean Energy Cess of INR 400 (~USD 6) per tonne of coal produced domestically

and imported to India. Such clear distinction provides the end user comfort on the

availability of funds for the scheme.

Under the roof top scheme in India, a capital subsidy of 30% is provided for solar roof top

systems installed for residential projects and for installations on government, social and

institutional buildings. While the scheme provides a 30% subsidy for implementation in

general category states, the subsidy can go up to 70% for implementation in special

category states.

INR 600

Cr (~USD 90 Mn)

FINANCIAL STRUCTURES FOR SOLAR ENERGY | 17

1http://resourceirena.irena.org/gateway/dashboard/?topic=4&subTopic=18

d. Viability Gap Funding (VGF)

Infrastructure projects normally have a very high gestation period and may not be financially

viable, at prevailing capital cost. In view of national importance, such projects can be

completed on PPP (Public-Private-Partnership) model with a grant coming from the

government to make the project financially viable. Following are the key characteristics of a

standard VGF model:

(i) The amount of VGF is determined through a competitive bidding process so as to minimize

the requirement of outflow from government exchequer;

(ii) In line with other subsidies, VGF amount is disbursed only upon successful commissioning

of a project so as to avoid diversion of funds. Certain percentage is generally deferred and

is disbursed over a number so as to ensure high quality of solar systems and continued

interest of the developer in the project.


India in 2013, launched the VGF scheme for Solar Energy under the aegis of the Jawaharlal

Nehru National Solar Mission Phase –II, Batch-1. The scheme entailed purchase of power

from developers at a fixed tariff of INR 5.45/unit (~8 cents/unit) (INR 4.75/unit (~ 7

cents/unit) in case benefit of Accelerated Depreciation was availed by developer) and

deferred payment of VGF to the developers as per their bids, limited to a maximum of INR 25

Million/MW/project.

Bids for 750 MW of solar projects (reverse bidding on the VGF) were invited by a government

nodal agency in October, 2013 and PPAs signed by March 2014. As of June 19th 2015, 555 MW 2of the 750 MW was already commissioned .

2. Indirect Incentives

The indirect cost brings in other stakeholders with the government and government bodies to

reduce the cost for the investor either by boosting revenues or enabling the investor to source

financing at lower rates. It generally doesn't include capital outgo from the government but

may have opportunity cost in terms of revenue (generally tax revenue) foregone

a. Accelerated Depreciation

Accelerated Depreciation means allowing an entity to account higher depreciation in the year

of commissioning, thereby, reducing taxable income earned from other sources of business.

This benefit has been extremely useful in broadening the investor base to introduce profit

making entities to the solar sector and at the same time, it doesn’t entail long term loss of

revenue to the national exchequer as lower depreciation in subsequent years means higher

taxable income.

2http://seci.gov.in/content/innerpage/phase-ii--batch-i.php

b. Sovereign Guarantee

Success of deepening the reach of solar applications will depend upon the easy availability of

finance and at very cheap rates. Given the inflation level and prevailing interest rates in most

of the emerging and frontier economies, it is not possible for commercial institutions to lend at

cheap rates, therefore, Government can facilitate its premier institutions to raise overseas

funds at low rates, baked by its sovereign guarantee, subject to utilization of funds for a

scheme or for projects that are deemed to be in the public interest.

For instance, solar lanterns are required for people living in far-flung areas and are below the

poverty line. Such arrangement can be utilized to make the solar lanterns available to them at

nominal rate of interest without burdening the premier institutions.

Given the stretched financials of emerging and frontier nations, it is important that Sovereign

Guarantee is utilized only when cheap funding is not otherwise available and only the credit

risk in undertaken by a government and not transactional, legal and other related risks.

c. Tax Free Bonds

While institutional investment in the solar sector can be raised through a number of ways as

discussed in this report, mobilizing retail investment towards solar sector is also important to

meet the high investment requirements.

For this the government can allow its premier financial institutions to raise Tax Free bonds

which provide incentive to retail investors of higher return on their investment in form of tax

free income. While such bonds decrease the potential revenue of the exchequer, they can be an

effective tool to mobilize retail investment and broaden the stakeholders in the sector.

d. Tax Incentives

While the grants & subsidies by a government incentivizes deployment of solar applications

only, tax benefits can additionally be customized to promote improved operational efficiency

of a project as each unit of additional generation means a higher tax benefit for an enterprise.

There can be numerous models of how tax incentives can be utilized to channelize development

in a specific sub-sector or to benefit a particular section of solar application developers.

Tax incentives have been useful to attract financial investors (including foreign direct

investment) as it ensures higher return on each unit of equity invested and is also considered

to be a statement of intent of a nation towards its priority sectors.

Since tax incentives have an opportunity cost for a government in terms of potential revenue

loss, therefore, it is critical for policy makers to clearly understand the benefits and costs of a

tax scheme and also the duration of a benefit should be clearly communicated in order to

increase the ability of an investor to determine their returns with certainty.


1. In United States of America (USA), an Investment Tax Credit (ITC) in the form of a 30 %

federal tax credit is provided for installation of solar applications made on residential

and commercial properties. This credit can be availed by residential homeowners on the

net installed cost of the equipment i.e., after deducting state rebates (if any), and for

the commercial establishments on the gross installed cost of the solar system ( however,

the businesses are subject to tax on the rebate received also). This credit can be availed

only on account of purchasing a solar system directly on an outright basis (not available

if they are taken on lease/PPA).

2. In India, section 80 IA of the Income-tax Act, 1961 provides for a 10-year tax holiday in

respect of profits & gains arising from undertaking & set up for generation/ distribution

of power along with other eligible infrastructure projects. This sunset clause has been

applicable for projects which have been developed/commenced on or after April 01,1995,

and will continue to do so for projects before March, 2017.


Non-Financial MeasuresC

Non-Financial MeasuresC

These measures, as against the financial measures, are the 'Low Hanging Fruits' which the

government may undertake with zero or limited costs borne by the exchequer. However, these

measures also become very important in terms of facilitations of investments to the sector.

Non financial measures include removing policy bottlenecks, making solar a preferred industry,

creating level playing field for solar energy with other energy sources, and enabling the industry

and the markets to take up opportunities on its own.

The right policy structure goes a long way in creating a roadmap towards adoption of solar

technology. It also provides a framework for all stakeholders to come together based on their

expertise and collaborate to achieve the desired objectives.

The policy structure needs to be designed in a way to boost solar power in the countries

through special guidance for the stakeholders to take a solar focus. The range of stakeholders

include electricity producer to the consumer who could contribute towards supporting solar

within their domain of production, supply and use through voluntary or obligatory methods.

a. Hedging

Financial markets in emerging and developing economies are not adequately developed for

local businesses that require longer term cheap funding. This leads to businesses looking at

more mature markets for cheaper foreign currency financing. This may lead to a currency

mismatch, where the developer may earn their revenue in local currency but undertake an

obligation to service the debt in the foreign currency, thus getting exposed to currency risk.

Hedging markets in developing economies are insufficiently developed to counter this currency

risk effectively. At times, if the foreign currency exposure is hedged within the local country,

the all in cost after hedging may be similar to the cost of local debt, thereby wiping out the

advantage of low cost foreign currency financing.

There is a need to develop a market for hedging instruments in these developing economies, to

the effect that more local borrowers therein get access to fully hedged foreign currency

financing at a rate cheaper than what they may get in their domestic currency.

1. Strengthening Policy Structure



The Currency Exchange Fund (TCX Fund) in Europe has 22 investors including the Dutch and the German Governments that provided the risk capital to facilitate participation by other investors. The fund hedges against exchange rate risk in some 60 different currencies in developing countries by providing simple risk-mitigation tools, such as cross currency swaps.

Under a cross currency swap, TCX effectively commits to compensate its counterparty client for a loss that such counterparty may suffer as a result of depreciation of the counterparty's domestic currency against the developed country currencies.

TCX presently hedges transactions across Africa, Asia, Latin America, Eastern Europe and Central Asia. The Fund has hedged approximately USD 1.5 Bn worth of loans provided by its

3shareholders to borrowers in emerging markets and developing countries .

b. Insurance

Insurance products can be an effective mechanism to mitigate the risks in certain pre-defined

circumstances and enhance investment in the sector. Insurance Products can further lend

comfort to investors and lenders to invest in the solar financing space. Insurance products

which will take care of construction delays, technology issues, performance issues, force

majeure risks and off taker risks provide comfort to investors and lenders. Successful launch of

insurance products can be a landmark attempt to ensure availability of cheap finance as it will

allow the generational risk to be priced downwards.

An example of insurance provided by multilaterals is Multilateral Investment Guarantee

Agency (MIGA). MIGA is a member of the World Bank group whose aim is to promote foreign

direct investment (FDI) into developing countries to help support economic growth, reduce

poverty and improve the lives of people. MIGA provides risk insurance guarantees to private

sector investors and lenders. MIGA's guarantees protect investments against-non-4

commercial risks and enables investors to raise financing at more favorable terms .

c. Gross Metering

The government can also involve the domestic and commercial electricity consumers to start

producing their own electricity. This would allow a more distributed generation of solar

avoiding the large scale land and other regulatory requirements. Allowing the consumer sell

power to the grid will open the market for small scale solar producers.

Gross metering takes the production of solar and consumption of power by the users as two

different parameters and generates revenues for the rooftop owners at differential prices. For

example, the consumers are billed at the local electricity rates and get feed-in-tariffs for the

power produced. This mechanism remains a complicated but more robust method of metering.

d. Net Metering

The government can also look at implementing the net metering facility for incentivizing the

rooftop solar producers. This mechanism has similar benefits to the gross metering explained

above but is a much simplified way of billing the consumer after netting their electricity use

with the electricity produced from the rooftop system.

3The Currency Exchange Fund- https://www.tcxfund.com/about-tcx/faq4Multilateral Investment Guarantee Agency- https://www.miga.org/who-we-area


Power deficit

Power Excess

e. Priority Dispatch (for Solar)

To augment the incorporation of solar energy in the national energy mix, Governments could

include solar energy as the priority power for the power distribution companies (discoms). This

could be achieved by incorporating smart grids which could directly interact with the power

sources and signal them for the power production to be managed based on the demand for

power.

Through priority dispatch of solar power, which is produced mostly during the day time, gets

utilized the first. Based on the need for other power sources the grid signal other power

producers which can be increased in capacity based on demand of power. This methodology not

only utilizes 'in firm' sources of power effectively by reducing wastage and also allows saving

on other sources of power for which the inputs can be controlled.

Department of Energy, Philippines has set forth a 'must dispatch' for renewable energy

sources in 2015 through a circular. It has also instructed the Wholesale Electricity Spot 5Market (WSESM) to make appropriate rules to comply with the same .

f. Priority Sector Lending (PSL)

ISA comprises of nations located at varying stages of development, economic and social

spectrum. Different instruments are utilized in countries to channelize funds towards the

priority area of a nation, which can be marginal section of a society, agriculture, citizens

belonging to a specific tribes/castes, small-scale industries etc. Such instruments ensure

direct benefit for the concerned category and is assumed to have maximum socio-economic

impact on the growth of marginal class/priority area of a nation.

Funds channelization can be done by giving incentive to the funding institutions, either in

form of relaxed reserves requirement or by making it obligatory for the funding institutions to

earmark a certain percentage of their lending for the priority sector. Given the priority sector

classification, it enables a sector to attract funds at concessional rates which also reflects in

increased deployment of solar applications and higher return on equity invested in the

project/application.

5http://www.doe.gov.ph/doe_files/pdf/Issuances/DC/dc2015-03-0001.pdf

g. Renewable Purchase Obligation

Renewable Purchase Obligations (RPOs) are obligations imposed on distribution companies or certain category of consumers to purchase a certain amount of energy from renewable sources. RPOs are necessary to develop the market especially in the formative period of solar power (in a country) so as to assure renewable energy producers about off-take of the electricity produced.

RPOs also boost confidence of renewable energy producers who produce electricity at a higher cost and may not be able to compete with conventional sources in terms of price.

Renewable Generation Obligations (RGOs) are purchase obligations which are imposed on the conventional energy generation companies to buy/generate a certain amount of power from renewable energy. Under RGOs, conventional energy producers can be mandated to bundle renewable energy and conventional energy together while supplying power to distribution companies. Through this process of bundling, the average unit cost of electricity supplied is decreased from the high cost of electricity supplied only through renewable sources.

Such obligations can be put forward as a regulation for all power purchasers/ discoms or can be taken up by some proactive companies by themselves.


RE 100 initiative by group of international NGOs call 'we mean business' which asks

companies to take up the target of sourcing all their energy from renewable sources. Till

date, 58 companies globally have taken such a commitment under this initiative.

Growth in taxes and incentives for renewable energy start

Countries with policy targets 48 144 164

States/provinces/countries with feed-in policies 34 106 108

States/provinces/countries with RPs/quota policies 11 99 99

Countries with tendering/public competitive bidding n/a 55 60

Countries with heat obligation/mandate n/a 19 21

States/provinces/countries with biofuels mandates 10 63 64

Start 2004 2013 2014

Source: REN 21 Renewables 2015 Global Status Report

PSL can also be a great to promote growth of a specific sub-category of a sector. In India,

Reserve Bank of India (RBI) has allowed aggregate debt funding of less than INR 15 Crores

(USD 2.2 Million) for execution of a renewable energy project, to be classified as a Priority

Sector Lending. It has encouraged Indian commercial banks to extend finance for

distributed solar applications or small size renewable projects, which otherwise were facing

challenges in accessing financial markets.


h. Renewable Energy Certificates

Renewable Energy Certificates (RECs) also known as Green Tags, Tradable Renewable Certificates in certain countries are certificates that are issued to producers in a renewable energy generation facility for production of a certain quantum of power from a renewable energy resource.

These are awarded to the producer once the electricity has been fed into the grid which can then be put up for sale at a designated marketplace by the producer. These certificates are subsequently purchased by federal/state distribution companies when they are running short of their respective RPOs or by industries which purchase renewable energy in order to reiterate their commitment towards consumption of clean/ renewable energy. These certificates once bought are made non-transferable, in order to ensure that there is no double sale of the benefit.

The growth of global economy has been built upon foundations of market based development. A market is the place where the key stakeholders of a project come together and in the process, various innovative structures are created to satisfy the requirements for all. Replication of the structure leads to development of market and increased participation means deeper depth, with decrease in transaction and information costs.

While markets create structures within the regulatory boundaries, it is important for policies and regulations to update and be consistent with the changing times and sector requirement. Policies should also promote innovations and their quick dissemination within the market to efficiently reap the maximum benefits.

a. Alternate Investment Funds or Private Equity

Alternative Investment Funds (AIF) or Private Equity wealth flows into solar energy projects through creation of funds which are either purely renewable energy focused or have a diversified investment philosophy. These funds can invest in one of the following ways:

i. Private Equity Funds can create their own platforms to develop solar projects and grow by Greenfield development and acquisitions. The tenure of these funds is between 10-13 years and generally they look to exit the platform through an IPO (Initial Public Offering). Most of the development in this case is done on a turnkey basis by an EPC contractor. The maintenance of the project is also done separately by an O&M contractor, and the role of the funds is to arrange for both equity and debt financing for the project. Eg. Riverstone Holdings, Goldman Sachs Fund.

ii. Private Equity funds can take non-strategic minority stakes to create a platform with a local partner specializing in development of solar assets. Eg Green Investment Bank, IFC.

iii. Alternatively, there are infrastructure funds which are more yield focused. Eg IDFC Alternatives, Morgan Stanley Infrastructure Partners.

Private Equity funds can raise capital from various sources including:

i. Pension and Insurance Funds: Solar energy sector is suitable for retirement funds because they are generally steady PPA based long term cash flows. Sometimes these funds also invest directly in solar platforms, typically with non-strategic stakes. Eg. Allianz Capital

2. Market Creation and Development


Partners, Borealis Infrastructure, British Columbia Investment Management Corporation, Canadian Pension Plan Investment Board, PSP etc.

ii. Family Offices: Portfolio managers of rich families across the globe invest in these funds for supporting climate change and cleantech innovations.

b. Bank Debt

Bank debt has been the traditional form of part financing Solar Projects in most developing countries. However, given the long tenor of solar projects significant constraints on lending are faced by the banking sector like asset liability mismatch, maximum exposure cap and increased capital requirement under Basel III norms, which may restrict funding to these projects.

It is important for the Central Banks and Governments in different countries to work collaboratively to develop policy which attracts investment in the solar sector. Policies such as a certain percentage of funds of a Bank need to be deployed for solar projects will enable lending in the sector.

c. Buyers Credit/Suppliers Credit

These are short to medium term financing arrangement which provide for the importer of components in a developing economy to gain access to an overseas lender or a financial institution based on a letter of comfort (generally in the form of a bank guarantee) which is issued by the importer's bank. It helps the importer to avail the benefits of cheap overseas funds as foreign bank sets the interest rate of the facility primary basis credit quality of letter of comfort issuing bank.

In the context of solar projects, wherein the majority of the cost of setting up a project is hard cost i.e the module cost, this means of financing becomes all the more crucial as the importer of the components i.e the developer does not have to incur huge interest obligations on the domestic funds, which improves the overall return on the project. Although, hedging may be required as currency risk is involved.

Buyer (importer)

Lender

Insurer

Credit disbursement in favor of the Seller

Seller (exporter)

Insurance policy covering credit risks

Delivery of goods and/or services

Commercial contract for the delivery of goods and/or services

Credit Agreement

Credit Repayment

Buyers/ Supplier Credit


d. Community Pooled Power Projects

Community energy covers aspects of collective action to reduce, purchase, manage and

generate energy. Community energy projects have an emphasis on local engagement, local

leadership and control and the local community benefiting collectively from the outcomes.

Community financing plays a vital role especially in case of community energy through means

of distributed power generation like small hydro, biomass, etc. It involves community

participation through equity, land/space, fuel sourcing etc and provides sense of ownership of

the project at local level. Many developed countries have adopted such a model and are

successfully operating power projects.

i. Department of Energy & Climate UK has issued a guiding framework for development of community energy. There are atleast 5,000 community groups in UK undertaking energy initiatives including renewable electricity installations such as solar photovoltaic (PV) panels, wind turbines or hydroelectric generation, use of renewable heat source such as a heat pump or biomass boiler etc.

There is also support from State Departments which run special programs such as Rural Community Energy Fund (RCEF) which has capital pool of £15 million for development of renewable energy projects which provide economic and social benefits to the

6community .

ii. In India, during 2014 Mankulam mini-hydroelectric power project with capacity of 110 KW was developed by local panchayat in Idukki, Kerala. The village has around 3,250 families including those living in seven tribal villages. One-third of the population is made up of tribal people. The village lacked connectivity and the pace of development in the area was very slow. Power generated from the grid was not only utilized within the village area, but the excess power was also sold to the grid. With the Energy Regulatory Commission fixing the rate at INR 2.94/unit, the panchayat was set to earn gross revenue of around INR 1.4 million annually.

Key benefits of community financed projects are as under:

üProfits generated out of power projects are kept within the community

üDirect investment opportunity in clean energy assets

üDeepens relationships with community members

üUtilize all clean energy resources

e. Credit Guarantee Schemes

While banks have been the primary source of funding for greenfield projects, they may be

constrained by prudential limits restricting exposure in a single sector. One of the primary

mechanisms to release the banking limits in a renewable project is take-out finance through

issuance of structured bonds, backed by (partial) Credit Guarantees. Credit Guarantee assumes

the lenders' default risk on a part of the debt provided for the project.

6https://www.gov.uk/guidance/community-energy


Due to inherent risks of an infrastructure project, standalone non-recourse project bonds will not be able to obtain satisfactory credit rating, thereby, restraining the ability of a project to access bond market. Credit Guaranty Schemes can enhance the credit rating of the bonds, thereby, improving their liquidity and marketability.

Credit Guarantee Schemes also enable access for solar projects to long term sources of funds like pension and insurance funds which are otherwise regulatory constrained to invest in highly rated debt instruments only. A country can work with various multilaterals or form its own sovereign fund, which may be used to provide a credit enhancement/ credit guarantee/ partial guarantee to various renewable energy projects. Most multilaterals have partial credit guarantee products, with a few examples given below.

Sponsor

Project CompanyFinancial Institution

(Debt Provider)

Credit Guarantee Agency

Equity

Debt

Interest + Principal Repayment

Credit Guarantee Fee

Provides credit guarantee (Pays in case of default by project company)

i. USAID through their Development Credit Authority (DCA) has various partial guarantee

schemes such as Loan Guarantee Scheme, Loan Portfolio Guarantee Scheme, Portable

Guarantee Scheme and Bond Guarantee Scheme which guarantee up to 50% of the loans

extended to borrowers. From 1999-2015, the DCA has made available USD 4.3 Bn in 7

credit in 75 countries .

ii. In India, Hindustan Power and Renew Wind Energy raised INR 3.80 Billion (~USD 58

Million) and INR 4.50 Billion (~ USD 68 Million) respectively through infrastructure

bonds which were partially guaranteed by India Infrastructure Finance Company Ltd and

counter guaranteed by Asian Development Bank. Through this partial guarantee the

rating of the Hindustan Power bond was increased from BBB to AA+, thereby increasing

the marketability of the bonds. YES BANK and IDFC Ltd were the sole underwriter and

arranger to the bonds issued by Hindustan Power and Renew Wind Energy respectively.

f. Crowd-Funding Platform

In spite of high socio-economic benefits and focused interest from global multilateral agencies

and endowment foundations to promote decentralized solar projects in developing economies,

the success has been limited due to challenges related to appraisal and assessing the unique

risks of each individual transaction. Further, financing of such projects has also been impacted

due to untested long term business model, lack of data/payment history of the off-takers.

7USAID website - https://www.usaid.gov/sites/default/files/documents/1865/DCA-One-Pager_for_Financial_Partners.pdf


The tariffs of distributed Solar Projects are generally attractive, thereby, having potential to access funds from myriad sources including Crowd-Funding Platform. Crowd-Funding is a form of alternative finance wherein large number of people come together to fund a project/venture either on specific or ongoing basis.

Crowd-Funding platform with strong appraisal and advisory capabilities, backed by supporting regulatory framework, holds the potential to channelize funds to small size projects and actualize the efforts of global institutions. Crowd-Funding is unique in a sense that it can be customized as per the requirement of a project and can be structured to meet both debt and equity requirements of a project.

Success stories of Crowd-funding till now have been primarily limited to USA and Europe with total amount of money raised by the 'Big 5 Crowd Funding platforms' quadrupling in one year's

8time from Euro 31 million in 2014 .

Some of the available/potential Crowd-Funding structures are as following:

i. Investors earning interest over their commitments to a platform with repayment over long tenor. The interest rates are generally high to compensate for the incremental risks assumed by the investor;

ii. Investors earning fixed percentage of the revenue generated from the sale of electricity; and

iii. Specific group or community members pooling in their funds to set up a solar project, primarily for captive utilization of the community or to benefit from the electricity produced.

There are technical, social and cultural factors that need to be in place to have a vibrant crowd-funding market. The most critical factor will be strong enforcement of digital contracts, including, minimizing the chances of deceit and misrepresentation by project developer.

Crowd-funding has also been impacted by lack of regulatory clarity especially in emerging economies, thereby, creating a doubt in the investor community about long-term security of their investments. Further, crowd-funding platforms need to evolve to provide a wider bouquet of services to help out potential investors in distinguishing the various proposals and to have an ability to appraise and provide the credit score for a potential investor.

g. Equity Participation (by Module Supplier/EPC Contractor)

While investors in emerging economies appreciate the solar potential, the funding is often constrained by lack of basis to validate the generation/operational assumptions. The concern can be mitigated by having Module Supplier/EPC Contractor own significant minority stake in the project.

This model has been successfully able to ensure the highest quality of the project systems by linking the investment returns of Module Supplier/EPC Contractors to satisfactory operations of the project. The structure is also useful for deployment of equipments which are otherwise successful but have limited local history.

8www.recrowdfunding.eu


Advantages:

i. Lower equity mobilization by project sponsor while ensuring high quality of solar

systems;

ii. Incentivize timely execution of the project; and

iii. Highest standard operations & maintenance of the project

Equity Return/ Incentives Equity Return

Power Purchase Agreement

Project Loan Long term O&M contract

Equity Stake

Project Contractor Turnkey contract

Equity

Project

SponsorEPC Contract/ Module

Supplier

Lenders Operator

Cash flows escrow/Debt Servicing

Off-taker

The model is being successfully implemented in India, including in a 60 MW solar power

project funded by YES BANK wherein solar module supplier contributed significant equity

during implementation of the Project. The project was also commissioned prior to scheduled

implementation date and has been performing to the highest standards with operations &

maintenance being carried-out by separate contractors.

h. Green Bonds

A green bond is a medium to long term debt instrument whose proceeds are utilized towards

implementation of renewable energy projects. Green Bonds have emerged as an effective

channel to mobilize the debt capital markets for funding climate solutions. Green Bonds have

also opened up additional avenues for institutions/funds which have mandates to invest only in

clean energy or sustainable projects.

Currently, there is not much to distinguish between a standard corporate bond and a green

bond and even their bond yields have largely been observed in the similar range. However,

Green Bonds may benefit from the exemptions/incentives available to long term infrastructure

bonds in various countries, including in India wherein, Reserve Bank of India has exempted

long term infrastructure bonds raised by Banks from the mandatory regulatory norms of

Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR) and Priority Sector Lending (PSL).


Such benefits/exemptions, along with commitment of investors towards promotion of

sustainable development, will support promoting a separate class and characteristics for Green

Bonds.

Source: www.Climatebonds.net

Total Issuances (USD Billion)

- 10.00 20.00 30.00 40.00 50.00

Total Issuances (USD Billion)

As can be seen from the graph, the amount of green bond issuances in the first four months of

2016 have already surpassed the total issuances in 2013. This shows that the green bond

market has developed at a fast pace over the last four years.

Type of Green Bonds

Proceed raised by the Bond Sale are

Debt Recourse Example

Green " Use of Proceeds" Bond

Earmarked for Green Projects

Standard full recourse to the issuer; therefore same credit rating applies as to issuers of other bonds

1) EIB Climate Awareness Bond

2) YES Bank Green Bond

Green " Use of Proceeds Revenue" Bond

Earmarked for Green Projects

Revenue streams from the issuers through fees, taxes etc are the collateral for the debt

Hawaii State (backed by fee on electricity bills of state utilities)

Green Project Bond Ring fenced for the specific underlying green project(s)

Re-course is only to the project's assets and balance sheet

Alta Wind Holdings LLC (backed by Alta Wind Project)

Green Securitized Bond

Either 1) earmarked for green projects or 2) go directly into the underlying green projects

Re-course is to a group of projects that have been grouped together (i.e. covered bond or other structures)

1) Northland Power (backed by Solar Farms) or

2) Solar City (backed by residential solar leases)

Source: www.Climatebonds.net

i. Green Climate Fund (GCF)

The GCF was established under the United Nations Framework Convention on Climate Change

(UNFCCC) to support projects, programs, policies and other activities in developing countries in


the year 2010. After the Paris agreement at COP21, the GCF has emerged as the apex

international fund for climate action with strong commitments by the developed world

amounting to USD 100 Bn annually. The GCF has eight mitigation and adaptation results areas

in which it seeks to have strategic impact towards the reduction of emissions and increase in

resilience through projects and programs. Solar energy, especially through distributed

generation potential, forms a very important component to drive these result areas as it

provides energy access as well as livelihoods to the local communities making it important

for both reducing emissions and increasing resilience.

Source: Green Climate Fund

Energygeneration and access

Transport

Buildings, cities,

industries and appliances

Forests and land use

STCAPMI CIGETARTS NOITAGITI

M

Health,food and

water security

Livelihoods,of people andcommunities

Infrastructureand built

environment

Ecosystemsand

ecosystemservices

Increasedresilience

of

Reducedemissions

from

The GCF being a large international fund needs to be utilized judiciously by mechanisms that

can multiply the quantum flowing through the involvement of the private sector. It also has the

option to use a variety of financing instruments including grants, concessional loans,

subordinated debt, equity, and guarantees financing. GCF can play a key role in providing

affordable capital to the sector by leveraging its risk bearing potential.

The GCF has started disbursements with 8 initial projects which focus on the most pressing

climate challenges. It could further look at the following instruments which leverage its

important position to help provide financing to the right sectors:

üCredit enhancement products with guarantees from the GCF that can be utilized by the

renewable energy developers and other banks to reduce their cost of capital for renewable

energy

üThe GCF being a multi-currency fund can also help act as a hedging mechanism for

providing local currency funds to projects


j. Multilateral/ Bi-lateral tie up

Multilateral Development Banks have both strength and mandate to actualize the socio-

economic potential of emerging and frontier nations. The credit ratings and the balance sheets

of Multilateral Development Banks must be leveraged to ensure increase infrastructure

investment in poor countries.

While few multilateral institutes invest directly in Projects (viz. IFC), many do not have the

mandate to take on direct credit risks. However, multilateral financing institutions can act as

secondary sources of funding in such cases where local country banks are extending credit lines

/ second loss guarantee lines which can onwards be used to provide financing to clean energy

projects. This reduces financing costs and improves the viability of such projects.

As the involvement of multilateral agencies increases, countries may look at direct negotiations

with such agencies for providing funding to clean energy projects basis sovereign guarantees.

These can be at terms much better than commercially available and will help improve the

market for clean energy significantly and also help meet the policy goals of these institutions

In April 2016, New Development Bank has approved USD 811 million for four green renewable

energy project split into $300 million to Brazil, $81 million to China, $250 million to India

and $180 million to South Africa.

Each loan has been customized based on project specific features and local considerations

including borrower preferences. Government approvals etc. The loan to India is in form of

Multi-tranche loan of USD 250 million to India based Canara Bank for lending to renewable

energy projects.

k. Municipal Bonds

Municipal Bonds can be potentially a good source of funding for clean energy projects.

Financing raised by municipalities from the capital market can be deployed to promote roof top

solar and waste to energy projects where the local market has largely not yet developed.

Municipal Bonds can be raised for specific end uses viz. conversion of street lights to solar,

integrated solid waste management plants, roof top solar etc. and may be secured with

specified cash flow streams to ensure timely repayments.

As an example of the community development program, rich municipalities could be allowed to

raise money on their balance sheets to invest in renewable energy. They can use the proceeds

to invest in rooftop solar and small scale waste to energy projects. The same can be secured by

way of property tax to be charged by these municipalities to the properties in the area.


l. Renewable Energy Debt Funds

Renewable Energy Debt Fund is a Special Purpose Vehicle (SPV) incorporated to raise funds

from diverse set of investor, with an objective to invest the proceeds into renewable energy

projects. Renewable Energy Debt Funds can be structured in line with investment objectives of

target investors and have exposure across various projects with varying yields and credit

ratings.

Renewable Energy Debt funds can potentially open up an alternative avenue for risk-averse

investors, by virtue of diversification over multiple projects. Such funds are particularly useful

in take-out financing as funds don’t specialize in appraising construction risks of a project but

can refinance the project loans, once the project has achieved stabilized operations and is

generating a steady cash flow.

In order to propagate the usage of debt funds, incentives such as low to nil withholding tax for

international investors should be considered and the units issued to investors in debt funds

should be made tradable and liquid by listing them on exchanges.

Residential Property Owners

Municipality

Commercial Property Owners

Project Company(Small Scale Projects)

Financial Institutions

Property Taxes

Funds through Municipal Bonds

Payment of Interest +Principal

Funds from Bonds used to set up Project

Another example of municipal bonds is the Commercial Property Assessed Clean Energy

(PACE) program which is currently being implemented in United States on pilot basis. Instead

of requiring companies to fund solar installations by themselves, state and local

governments (funding can be done by local appointed agency/specialized financial

institution) can choose to use a PACE program to finance energy-efficiency and renewable-

energy enhancements up front. Then business owners pay back the governments over time as

part of their property taxes. For the business owners, it allows for the secure financing of

comprehensive projects over a longer term, while for the financial institution, it will 9guarantee certainty of payment irrespective of actual performance of solar system .

9http://standardsolar.com/blog/is-this-the-future-of-commercial-solar-financing/


Renewable Energy Debt Fund is a Special Purpose Vehicle (SPV) incorporated to raise funds

from diverse set of investor, with an objective to invest the proceeds into renewable energy

projects. Renewable Energy Debt Funds can be structured in line with investment objectives of

target investors and have exposure across various projects with varying yields and credit

ratings.

Renewable Energy Debt funds can potentially open up an alternative avenue for risk-averse

investors, by virtue of diversification over multiple projects. Such funds are particularly useful

in take-out financing as funds don’t specialize in appraising construction risks of a project but

can refinance the project loans, once the project has achieved stabilized operations and is

generating a steady cash flow.

In order to propagate the usage of debt funds, incentives such as low to nil withholding tax for

international investors should be considered and the units issued to investors in debt funds

should be made tradable and liquid by listing them on exchanges.

Project SPV 2Project SPV 1

Sponsor 2Sponsor 1

Debt DebtInterest

+PrincipalInterest

+Principal

Equity Equity

Renewable Energy Debt Fund

m. Securitization

While there are many take-out avenues available for solar energy projects, they primarily aim to

reduce the interest cost and elongate the project tenor, thereby, enhancing long term equity

returns of the project but they don't allow the project sponsor to release part of equity tied-up

in the project, even if the performance of the project exceeds the original assumption.

Securitization can also be used in the case of pooling of operational assets and depending upon

the quality and nature of receivables, various structures can be formed to suit the requirements

of investors. For instance, securitization allows tranching debt / bonds into different

rating categories and allows different segment of investors to participate as per their

investment guidelines/approach.


10http://www.pv-magazine.com/news/details/beitrag/solarcity-completes-its-sixth-securitization_100023514/#axzz465qPQd4q

Solar Project SPV1 Solar Project SPV3Solar Project SPV2

SecuritizationSPV

Holding Co.1(Sponsor)

Sale Price2 2Projects Sale

Interest/Principal3Sale Price of Securities3

Investors

Cash Flows after

Securitization

Cash Flows after

Securitization

SolarCity in the US has been securitizing their distributed solar assets and have been raising

debt on the same. In its latest securitization in March 2016, SolarCity has raised proceeds of

USD 50 Mn at an annual yield of 6.25%.The Bonds are rated BBB by S&P and BBB+ by Kroll 10Bond Rating Agency .

n. Solar Park Financing Vehicles

A SPFV is typically a special purpose vehicle (SPV) incorporated by various stakeholders in the

development of solar projects, with their own capabilities. It could be a joint venture with 50%

or more participation from the state, as a state is better equipped to acquire land and

build transmission infrastructure. Once the land and transmission infrastructure is finalized,

then the SPFV could sign long term lease contracts with the developers who can setup solar

projects in the solar park on plug and play basis.

The solar park infrastructure can be financed through a combination of debt and equity by the

SPFV. This PPP (Public-Private-Partnership) model can significantly eliminate several

development risks, reduce the cost of capital and bring in a new class of lower risk investors.

Secondly, the overall capital cost and operating expenditure is reduced owing to sharing of

transmission infrastructure, water, maintenance, fencing, etc.

1Initially, the holding company floats different SPV's to implement new solar projects. The cash flows through long tenured PPA's are utilized towards project expenses, meeting debt obligations and providing return to the sponsor.2As a part of securitization, the ownership of different project SPV's is then transferred to a securitization SPV for a lump sum consideration. The securitization SPV in return becomes eligible to get future cash-flows of these projects.3The securitization SPV issues securities to other investors on the assets purchased from the holding company. The investors, in return get their return from the pass through cash-flows from the securitization SPV


11The scope of the SPFV could be as under :

üPlan, finance, develop, execute, operate and maintain the Solar Power Park

üIdentify potential site and acquire/leasehold/possess land for Solar Power Park

üCarry out site related studies/investigations

üObtain statutory & non-statutory clearances and to make area development plan within

Solar Power Park

üDesign a plan for sharing development cost between the developers

üCreate necessary infrastructure like water, transmission lines, roads, drainage etc. to

facilitate Solar Power Project developer for faster implementation of Solar Power Projects

üFrame out transparent plot allotment policy and specify procedures pursuant to the

relevant state policies and their amendments thereof

üProvide directives for technology-specific land requirements

üEngage the services of national agencies/global experts/consultants to promote Solar

Power Park and related activities

üFacilitate the State Government to establish educational institutions/training facilities

üwithin the Solar Power Park for development of manpower skill related to Solar Power

o. YieldCo

A YieldCo is formed to hold operating assets that generate long term, steady cash flows which

are distributed to investors as dividends. The emergence of the structure has provided the

sector with access to a new investor class offering low–cost equity in return for steady cash

flows.

Globally, approximately USD 3.4 BN has been raised through YieldCo structure since 2013.

While most of the YieldCo launched in 2013 focused on wind assets, the structure opened to

utility scale solar projects in 2014. The first YieldCo with 100% solar assets, called TerraForm

Power, was created by SunEdison in 2014 with large utility scale projects and distributed PV

projects. Subsequently, two major US developers, First Solar and Sun Power also floated a joint

YieldCo.

This structure provides an opportunity to the retail and institutional investors to invest in the

clean energy segment under a liquid investment structure.

The typical benefits of a YieldCo are as under:

üThe long-term, lower-risk and contracted asset profile of the YieldCo can attract a lower

cost of capital for the YieldCo and for the parent company.

üThe tendency for YieldCos to pool multiple assets can diversify geographical and single

asset risk.

11http://mnre.gov.in/file-manager/grid-solar/Scheme-for%20development-of-Solar-Park-&-Ultra-Mega-Solar-Power-Project-2014-2019.pdf


The following table provides the performance of listed Yieldcos

Company IPO Date PortfolioRE Assets

(MW)

Total

Assets

(MW)

Capital

Raised

(USD Mn)

NRG Yield, Inc. Jul-13Conventional,

solar, wind1,401 2,984 840

TransAlta Renewables,

Inc.Aug-13 Wind, hydro 1,378 1,378 323

Pattern Energy Group, Inc. Sep-13 Wind 1,932 1,932 938

Abengoa Yield Plc. Jun-14Solar, wind,

conventional710 1,010 829

NextEra Energy Partners,

LPJun-14 Wind, Solar 989 989 406

TerraForm Power, Inc. Jul-14 Solar 523 523 500

TerraForm Global, Inc. Jul-15 Solar 815 815 675

8point3 energy partners Jun-15 Solar 432 432 420

Total 8,180 10,063 4,931

Source: YES BANK Analysis

Typical structure of a YieldCo / Investment Trust

Promoter Group

Renewable Energy Development Company

Acts on behalf of trustholders

Sale of Developed Projects to YieldCo

RE YieldCo (Operational Assets)

• Development Fees• EPC Income• O&M Income• Income from Sale of Assets

• Long Term PPA• Stable Cash Flows Yields• Distributing Payouts via Interest /

Dividends to Unit Holders

Growth Investors(Institutions / MF )

Yield Investors (Pension /Insurance Funds)

Subscribe to Units

Sponsor Stake

Trustee

Trust Fees

O&MServices

O&M Fees

ConclusionD

ConclusionD

COP21 in Paris has set the ball rolling towards irreversible change in energy-mix for all global

economies and it will undoubtedly be powered by solar energy. ISA has set itself a goal of reaching

1,000 GW by 2030 for member countries, which is likely to entail investment of USD 1 trillion. There

is no paucity of funds as top 400 global funds had assets under management of more than USD 60.8

trillion as on December 31, 2014 and additional USD 3 trillion is likely to become available in near-

future owing to commitments of corporations & institutions to divest from fossil fuel investments.

ISA will be supporting member countries to create systems & mechanisms so as to facilitate

channelizing of available funds towards solar energy projects. This report is an effort to acquaint

the stakeholders (both member countries and investors) with various financial structures which

have been implemented and are contributing to carbon-free planet.

While each structure fulfills some financing gap, they cannot be implemented on plug and play

model basis and will require customization in terms of policy support, implementation

infrastructure etc. in each economy. ISA aims to work with all the stakeholders to ensure that

structural impediments don't become a constraint on availability of funds for the sector in member

countries.

Despite being long term projects, the future cash flows of a solar project can be assessed with a

high level of certainty which makes it an attractive proposition for all sorts of long term investors,

therefore, it is imperative that right policy incentives are put in place to enhance confidence in the

sector and make ISA's goal of accelerated solar deployment possible with the active support and

faith of all global investors, including but not limited to pension funds, insurance funds,

multilateral developmental institutions, endowments, foundations, banks, financial institutions

etc.


Prepared by Knowledge Partner

financial structures for solar energy - yes bank · · 2018-04-30data or information, ... create...

Documents