Debt Structuring Advisory for Commercial Solar Projects in Southern India

IREDA and most Indian public sector banks apply a standard 70:30 debt-to-equity ratio for solar project finance, meaning the lender provides 70% of the project cost and the sponsor contributes 30% as equity. For well-structured projects with strong PPAs, creditworthy offtakers, and experienced sponsors, some lenders will extend to 75:25. IREDA's financing norms also specify that in certain structures, the promoter must bring in 75% of their equity contribution upfront before the first debt disbursement, which requires careful cash flow planning on the sponsor's part.

IREDA's published financing norms require a minimum average Debt Service Coverage Ratio of 1.3 for solar projects. Commercial banks typically apply a minimum of 1.25 to 1.35 depending on project risk profile. A well-structured financial model should target a minimum DSCR of 1.3 in base case and retain positive headroom in stress scenarios, as lenders will model downside generation (P90 rather than P50) and tariff scenarios during their own credit assessment. Projects that barely clear the 1.3x threshold in the base case are vulnerable to rejection or renegotiation during lender due diligence.

Yes. External Commercial Borrowings are permitted for renewable energy projects in India under the RBI's ECB framework. Eligible end-uses include capital expenditure for solar projects and refinancing of existing rupee debt. ECBs can be structured through GIFT City branches of international banks or via the automatic route for qualifying transactions. Deutsche Bank's USD 200 million green ECB to REC Limited in July 2024 is a recent example of this mechanism at institutional scale. ECBs typically offer nominal interest rates of 5 to 7% in USD, which is significantly below INR rates, but the currency risk requires hedging and the net cost advantage over rupee debt narrows once hedging costs are factored in.

For project finance structures, an SPV is typically required. The SPV holds all project assets including land documents, permits, the PPA, and EPC contracts, and is the borrowing entity. This ring-fences the project from the sponsor's other activities and allows lenders to take a clear, priority security interest over the project. IREDA and PSB lenders will generally require an SPV for any project above a certain scale. For smaller behind-the-meter projects financed on a corporate balance sheet basis, an SPV may not be mandatory, but even in these cases it can be beneficial from a tax and structuring perspective.

IREDA, the Indian Renewable Energy Development Agency, is India's largest pure-play green financing NBFC and was established under the administrative control of the Ministry of New and Renewable Energy. It has Navaratna status and is classified by the RBI as an Infrastructure Finance Company. IREDA provides long-term project finance for solar and other renewable energy projects, acts as lead financial institution in consortium lending arrangements, and offers credit enhancement and guarantee schemes. For C&I solar projects in Southern India, IREDA is frequently the preferred primary lender due to its specialised renewable energy credit assessment capability, its competitive interest rates relative to commercial banks, and its ability to structure longer tenors aligned with PPA durations.

A group captive structure allows a group of consumers to collectively own at least 26% of the equity in a solar project and collectively consume at least 51% of its generation. This structure qualifies the consumers for exemptions from certain open access surcharges, making the economics of remote solar generation significantly more attractive. Group captive structures are bankable when properly structured: lenders need to see a clear ownership and PPA arrangement, adequate collective equity commitment from the captive consumers, and state electricity commission compliance documentation. Financely advises on both the commercial structuring and the lender presentation for group captive transactions.

IREDA and public sector banks typically provide tenors of 15 to 20 years for commissioned solar projects, aligned with the duration of the PPA. There is usually a construction period moratorium on principal repayment, typically 12 to 18 months from first disbursement, with interest payments continuing during this period. Commercial banks may offer shorter tenors of 10 to 15 years depending on their own funding profile and risk appetite. ECB debt for Indian solar projects has typically been structured with 7 to 12 year tenors given the constraints of the international debt market for Indian infrastructure credits.

Financely charges an engagement fee at the start of the mandate, which covers capital stack design, financial modelling, information memorandum preparation, and lender placement work. A success fee is charged on financial close, calculated as a percentage of the debt arranged. The success fee is paid from the transaction proceeds on close, not before. We respond to new mandates within one business day and provide a clear fee proposal before any engagement letter is signed. We do not charge large retainers before demonstrating deal progress, and we are explicit about what the engagement covers from the outset.