Solar lending rates continue to fall in India

Mercom Capital has released a new analysis which finds an ongoing fall in lending rates for solar projects in India, which it says it making solar projects with lower-priced contracts more viable.

The clean energy consultancy estimates that average domestic interest rates for solar project financing fell below 11% in the fourth quarter of 2016, as part of a steady decline from above 11.5% a year prior. It further states that this fall in rates is making projects with contracts below INR 5 (US$0.073) per kilowatt-hour (kWh) viable.

india_interest_rate_graphOf course, large corporations with big balance sheets continue to get capital more cheaply.

Mercom also says that internal rates of return (IRR) are starting to improve due to falling module and system prices, with developers expecting 13-20% IRR. The company notes that the more conservative estimates from banks fall in the 11-19% range.

One factor in all of this was India’s process of demonetization, which has had several impacts on the sector. One detail is that old 500 and 1000 rupee notes were allowed for paying utility bills until December 31, which has helped utilities recover unpaid bills.

As such the process is bringing in extra funds to both utilities and banks, and Mercom says that the latter could lead to lower interest rates.

India’s solar sector continues to grow rapidly, with Mercom estimating that 4.2 GW was installed in 2016 and forecasting that more than 9 GW will be installed this year.

Along with this investments in the sector are also booming, with $736 million invested in the sector in the final quarter of 2016 and the first initial public offering for an Indian solar developer.