Municipal bonds may help India achieve its 40 GW rooftop solar target

Although India has set a very ambitious 2022 goal for the development of 40 GW of rooftop PV, particularly considering it has currently installed just 1.5 GW, a group of international experts has come up with a solution, which could help the country close in on its target.

In a paper produced in collaboration between the Climate Policy Initiative (CPI), the Stockholm Environment Institute (SEI), and the Indian Council for Research on International Economic Relations (ICRIER), and funded by the Swedish Energy Agency as part of its support for the New Climate Economy project, the group of experts claim that municipal financing, via the issuance of municipal bonds, may offer a solution to increase debt availability for developers, while reducing project costs by up to 12%.

The authors of the report are proposing a “solar municipal bond model” (SMB), in which Indian municipalities are called on to work as aggregators for fund raising for rooftop solar projects.

“Funds available through a municipal bond would be disbursed to project developers via a Public Private Partnership (PPP) approach, similar to the Design-Build-Finance and Operate (DBFO) model with the financing activity taken care by municipal corporation or corporate municipal entity (CME),” the experts asserted in the study.

Municipalities, on the other hand, may have market advantages as fundraisers such as, among others, institutional goals and mandates, access to debt capital markets and debt guarantees, higher credit profiles, and different revenue sources.

The authors of the paper, however, recommend the adoption of “innovative transaction structures” to help Indian municipalities participate in the rooftop PV business.

“A particularly attractive structure is where a municipality-owned master special purpose vehicle (SPV) or a corporate municipal entity (CME) would raise the bonds and disburse the proceeds of these bonds to SPVs owned by project developers via capital lease arrangements,” they explained.