How to avail solar energy loan for my residential plant?

The Government of India is encouraging the adoption of solar energy by every Indian. To promote convenient adoption and use of solar energy, public sector banks & private banks have been given statutory instruction by the Ministry of Finance to offer loans at reasonable cost as per Government of India & Reserve Bank of India Instructions to Public Sector Unit Banks & Private Banks on financing.

The financing of solar PV projects is typically arranged by the developer or sponsor. It comprises two parts: an equity investment and project financing to cover the debt portion.

Indian Solar Funding Methods

Solar energy is free, however building a MW solar plant costs a lot of money. One of the biggest challenges for those who are interested in MW solar plants is finding alternative financing. It is essential to choose a solar financing option that works for your business. The average price per MW to set up a plant is roughly 6 Crores. Equity makes about 30% of this, with loan funding covering the remaining 70%. Equity is only a colloquial term for capital obtained from your own assets or those of other investors. Debt financing is frequently available with recourse, meaning the investor must offer a piece of property as security for the loan he wishes to acquire. 

As follows, each of these funding options is covered:

Local Financing (Essentially From Banks)

In 2015, Indian banks offered loans at interest rates between 11 and 13 percent; non-banking financial corporations (NBFCs) could have offered loans with slightly higher rates. Lower interest rates (10.2-11.4%) are offered by IREDA, the renewable energy finance arm of the Indian government. The amount of collateral needed to qualify may range from 20% for organizations like IREDA to 100% for some banks. Domestic loans are typically granted for a period of 7 to 10 years, however several Indian banks are today willing to extend their loan terms to 15 years.

Banks in India

Several public and private sector banks, including State Bank of India (SBI), ICICI, Yes Bank, Axis Bank, and others have offered finance for different kinds of solar projects. SBI would be funding the largest capabilities of 15,000 MW among public sector banks at a cost of Rs. 75,000 crore, followed by IDBI bank, according to a public announcement by the Indian government in March 2016. (3,000 MW). Plans totaling 31,649 MW will be financed by the 24 public sector banks.

NBFCs (non-banking financial institutions)

A few of the well-known NBFCs engaged in solar project loan financing are:

Infrastructure funds: Taurus Infrastructure Fund, SBI Macquarie, and Infrastructure Leasing & Financial Services Ltd (IL&FS).

Rural Electrification Corporation (REC) and Power Finance Corporation provide dedicated finance for the electricity industry (PFC)

Investment banks include BNP Paribas, SBI Capital Markets, and Larsen & Toubro Finance.

Indian Agency for Development of Renewable Energy (IREDA)

IREDA is a non-banking financial institution that the Ministry of New and Renewable Energy (MNRE) has administrative jurisdiction over and that provides term loans for thermal energy efficiency and renewable energy projects.

[15] Up to 75% of the cost of the solar project endeavor is financed by IREDA. In light of the risk assessment, IREDA performs credit ratings for all grid-related projects and assigns grades in a band of four (I, II, III, and IV).

Required Documents to Avail the Loan: 

• ID and Address Proof
• PAN Card
• Existing Track Record (If available)
• Assets & Liabilities Statement & Supporting Documents
• Non-encumbrance & Title Report
• Valuation Report
• Proof of Income
• Quotation of Solar Rooftop
• Hypothecation of Equipment
• Equitable mortgage/ Extension of Equitable
• Copy of Insurance with Bank’s clause
• Personal Guarantee by the Guarantor

What is the pricing of Solar Panels in India?

Solar panels cost, on average, about Rs. 40,000, or between 36,000 to 44,000 depending on the type and model. While solar panels can help save you money on energy costs, it’s important to know the overall startup solar panel costs so you can plan a budget.

Average Cost of 1kW Solar Panels 

What are the advantages of the subsidy for solar panels?

Using an Indian government solar subsidy provides a number of advantages. Here are a few examples:

• It costs a lot of money to set up a solar system. In such circumstances, the solar subsidies offer financial assistance and relieve your load.

• Depending on how many kW of electricity the solar system is expected to produce, different amounts are provided by the government. For example, the solar panel subsidy is 40% of the whole cost for solar panels up to 3kW, and 20% for solar panels between 4kW and 10kW. You select the subsidy based on your needs.
• Use the subsidies to build your rooftop solar system. On the yearly electricity bills, you can receive an additional incentive of Rs. 1 per unit for the total solar power you produce.

Nevertheless, the business sector is not eligible for these incentives; only residential properties are. Only grid-connected solar systems, or systems without batteries, are eligible for it.

Gains from a Solar Loan

1. Your EMI is funded by the monthly electricity savings

Depending on the length of your loan, you may have to make monthly payments on a solar loan, just as you would for a home or vehicle loan. Yet you won’t pay more as a result of this. You can pay off the EMIs with the money you save on power bills thanks to your solar system.

Moreover, even after the loan is repaid, you will continue to save each month because solar panels virtually ever need maintenance. With that money, you may make more money by investing in attractive financial strategies like mutual funds, etc.

2. Purchasing a Fixed Asset

Loans are an obligation. With a solar loan, though, you’ll be making an investment in a fixed asset. A solar system will be with you for more than 25 years and will provide you a great return on your investment.

Whenever the debt is repaid in 4-5 years or fewer, this asset will be totally free.

3. Lowers electricity costs

The main advantage of switching to solar power is that you will be the one creating the electricity. You will be less reliant on the grid as a result. Also, you may sell the extra energy you create back to the utility company through net metering. Your power bill will be changed to reflect this new amount, which will result in a large decrease.

Also, the cost of electricity is always going up. You will pay the EMIs with the initial power savings. Yet after that, your fully purchased system will serve as a safeguard against any further price increases.

4. Make the switch to green energy

The switch to solar energy is a chance to lower our carbon emissions because it is a scalable, regional, and clean energy source.

You won’t need to put off beginning your transition to green energy with a loan. From the very first day, you can start assisting with the objective of a greener India.

5. Becoming an Excellent Example for Your Kids

Future generations must understand how we can all work to safeguard the environment. Children today are taught about climate change in classrooms for this reason.

Your kids may learn how to care for the environment more responsibly and the value of investing in renewable energy by having a solar system at home.

How to Apply for a Solar Loan

The procedure is as easy as applying for a vehicle loan.

You must submit to us an application for the financing and a plan for your solar power plant. Also, you will need to provide us with some basic paperwork, including your utility bills for the last six months. Before beginning the process, HDFC Bank will evaluate your eligibility and credit report.

HDFC Bank would pay up to 75% of the total cost of the solar plant after the loan is authorised. The client will make a down payment of 25%.

An Equated Monthly Installment (EMI) will be chosen based on the loan’s maturity length. The total amount due plus the interest incurred are included in this EMI. The compensation would be less if the tenure was longer.

We advise picking a shorter tenure since it results in higher savings even if the selection might be based on your ability to pay.