The commercial and industrial sector in India has seen significant advancements in the renewable energy domain, largely driven by the need for sustainable energy solutions and the imperative to reduce carbon footprints. As RE technologies mature, the financing landscape has also evolved to support the growth of this sector. This article provides a detailed exploration of the various financing products available, emphasising the diversity of financial instruments and the roles played by different financial institutions.

Concessional Credit Lines

Concessional credit lines from multilateral development banks (MDBs) and other international financial institutions have played a pivotal role in supporting the C&I RE market. Programs like the World Bank-SBI concessional credit line and the TCCL-GCF line of credit have significantly boosted the market by providing low-interest loans and improving investor confidence. These credit lines have facilitated the development of over 1.2 GW of rooftop solar capacity by offering favourable financing terms to C&I entities with strong credit ratings.

Green Bonds

Green bonds have emerged as a viable alternative for raising capital for large-scale RE projects. These bonds are designed to attract investment from international markets, offering lower coupon rates compared to domestic bonds.

To avail green bonds, companies must first identify and document eligible projects that align with environmental benefits, such as renewable energy initiatives. Next, they need to comply with green bond frameworks set by regulatory bodies. They can then issue green bonds through recognised exchanges which connects global investors with Indian issuers.

Term Loans

Term loans involve a specified repayment schedule and can have either fixed or floating interest rates. Institutions such as the State Bank of India (SBI) and the Small Industries Development Bank of India (SIDBI) are prominent players in this space.

For instance, SBI’s Surya Shakti scheme offers term loans with loan amounts up to INR 40 million, a repayment period of up to 10 years, and no requirement for collateral, making it an accessible option. Similarly, SIDBI’s MSME loans for Solar PV Projects provide loans up to INR 500 million with attractive interest rates, aiming to support a wide range of project sizes from 25 kW to 10 MW.

Lines of Credit

Lines of credit (LoC) provide borrowers with the flexibility to draw funds up to a predetermined limit as needed, which is particularly useful for managing the financial requirements of large and complex renewable energy (RE) projects. These arrangements support a significant portion of the project cost, with interest rates and terms tailored to the specifics of each project. This flexibility makes LoCs an invaluable financing tool, allowing project developers to efficiently manage cash flows and address funding needs as they arise throughout the project lifecycle.

Working Capital Loans

Working capital loans are short-term high-interest loans designed to cover the daily operational expenses of RE projects. These loans are crucial for ensuring liquidity during the early stages of project development. They help bridge the gap between the initiation of a project and the receipt of revenues generated from the energy produced. Financial institutions offering these loans usually assess the cash flow potential of the projects to determine eligibility and loan terms.

Crowdfunding and Fractional Investments

Crowdfunding platforms enable fractional investments in solar projects, allowing individual investors to participate in financing and receive returns. This innovative approach democratises investment in renewable energy and supports smaller projects that may not attract traditional financing.

Refinancing Mechanisms

Refinancing is an innovative mechanism that allows project developers and investors to improve their financing terms post-commissioning. By refinancing, stakeholders can secure lower interest rates and better loan terms, thereby enhancing project returns and mitigating risks. This mechanism is particularly beneficial for projects that have demonstrated stable operations and cash flows over a few years. Refinancing not only frees up capital for reinvestment but also attracts more institutional investors to the RE sector by reducing perceived risks.

Blended Finance

Blended finance combines concessional funds from public or philanthropic sources with private capital to support emerging sectors deemed too risky for traditional investment. This approach has been instrumental in promoting RE projects in the C&I sector. Blended finance structures can offer long-term funds at attractive interest rates, thereby de-risking investments and encouraging private sector participation.

The Role of Non-Banking Financial Companies (NBFCs)

NBFCs play a crucial role in providing specialised financing solutions for the MSME segment. These institutions offer products tailored to the unique needs of MSMEs, such as collateral-free loans and credit guarantee mechanisms. SIDBI, in particular, has been proactive in promoting rooftop solar projects through its Mission Renewable Energy initiative, which has financed over INR 2200 crore, leading to significant capacity additions in the MSME sector.

Challenges and Way Forward

Despite the availability of diverse financing products, the C&I RE market faces several challenges, particularly in the MSME segment. The lack of creditworthy borrowers, stringent collateral requirements, and regulatory inconsistencies across states are significant barriers. Innovative financial instruments like credit guarantee schemes, mezzanine funding, and government subsidies can play a crucial role in addressing these challenges. Additionally, a collaborative effort involving government agencies, financial institutions, and developers is essential to create a supportive ecosystem for the sustainable growth of the C&I RE market.