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I had a call yesterday froim a US-based hedge fund that was keen on understanding about the indian solar PV market. They are no doubt reading a lot about the National Solar Mission’s ambitious targets for solar PV.

Based on the discussions I had, i’m putting down the following questions and answers so that many others like her could benefit from these inputs:

1. Is it late to look at investing in a solar PV power plant?

As of now, yes. Because NVVN announced the request for selection (RfS) for the first phase (about 150 MW for solar PV) about 2 weeks back and there are barely two weeks (third week of Sep 2010) by when the applications need to be submitted. If your company is just starting to explore solar PV in India, you would do much better to wait for the next phase (which I expect to happen sometime in the second quarter of 2011).

2. What are the returns from solar PV power plants?

Based on the tariffs benchmarked by CERC (central electricity regulation commission) and followed by NVVN in its guidelines, the maximum feed-in-tariff (F-i-T) will be Rs 17.91 per kWh, and this will be for a period of 25 years (under a power purchase agreement – PPA). This is quite attractive, and will result in a return of equity of about 19%. However, for the grid connected solar PV, applicants can provide a discount to the suggested maximum tariff. This could lower the returns, but I still expect the final winners to have a healthy RoE. A 19% RoE ensures a 6 year equity payback period.

3. What are the financing methods?

While in theory you can obtain the funds through the project finance route or the private equity route, I expect project finance to predominate. The debt to promoter’s equity I expect will be 70:30 (D:E).

4. What are the usual terms of bank finance for solar PV power plants?

The details of these are not yet fully known, because banks are just about to begin lending to this sector. I expect the following:

(a) Lending rate: 11-11.5%

(b) Tenure: 6-8 years, with one year moratorium

(c) Debt: (promoter) Equity – 70:30

5. Is it Ok to get funds from abroad?

I have not seen any regulation anywhere in the documents that prohibits a power plant developer from accessing funds from outside India, so the answer is a tentative yes.

6. What are the other opportunities available in solar PV?

Lots and lots of them. I expect the entire solar PV ecosystem – ingots, wafers, cells, modules, training and education services, system integrators, other component producers (such as chemicals, backsheets, glass) etc to grow at an accelerated pace with the existence of a large domestic market, as well as an equally fast growing export market.

7. Where can I get more details on the official news on solar PV power plant as per the National Solar Mission?

Your best bet is NVVN, the company that is the co-ordination authority. That would be

All the best, and should you have any further questions, drop in a comment in the comments column and I will answer back in the same column, or send me an email – my contact details are available here (link)

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