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Mumbai: India’s solar module manufacturers are facing a credit squeeze as banks are turning increasingly cautious on fresh lending to the sector amid overcapacity risks, and also reducing in some cases the loan-to-cost ratio for funding new projects.
Mumbai: India’s solar module manufacturers are facing a credit squeeze as banks are turning increasingly cautious on fresh lending to the sector amid overcapacity risks, and also reducing in some cases the loan-to-cost ratio for funding new projects.
The loan-to-cost ratio refers to the proportion of a project’s total cost that is financed through loans. By trimming this ratio, lenders are effectively asking promoters to bring in a larger share of equity themselves.
The loan-to-cost ratio refers to the proportion of a project’s total cost that is financed through loans. By trimming this ratio, lenders are effectively asking promoters to bring in a larger share of equity themselves.
This shift follows a letter from India’s clean energy ministry in December urging banks and other lenders to be cautious on financing new solar photovoltaic module manufacturing capacity. Adding to the sector’s woes is a preliminary 126% tariff recently imposed by the US, which threatens to choke off its primary export market and worsen an already growing domestic capacity glut.
“We are now quite cautious on lending to this industry. In fact, I would even go to the extent of saying that we might not finance any new solar module companies for the time being,” a senior official at a non-bank lender told Mint on the condition of anonymity.
Lenders are intensifying due diligence to avoid a potential wave of bad loans. Bankers are now scrutinizing promoter track records and the specific “end use” of funds to ensure projects remain viable despite falling global prices and trade barriers.
A second banker made similar observations, highlighting the increased scrutiny his bank is undertaking when lending to new solar module plants.
“Solar module manufacturers have mushroomed in India, while demand is much lower than supply. Banks are therefore looking much more closely at loan proposals and doing deeper due diligence,” the banker said. “We are scrutinising all such projects to check viability, what the antecedents of the promoters are and what the end use of the funds will be for.”
The ministry of new and renewable energy said on 7 December it had shared details of current installed domestic manufacturing capacity across various segments of solar photovoltaic panel production with the Department of Financial Services under the finance ministry, as well as non-banking financial companies (NBFCs) such as Power Finance Corporation (PFC), REC Ltd, and the Indian Renewable Energy Development Agency (IREDA), “so that financial institutions can adopt a calibrated and well-informed approach while evaluating proposals.”
As seen multiple times in the past with new technologies like electric vehicles and now with solar modules, a large number of companies enter a new sector to capture the initial euphoria. However, as the technology matures, the numerous players make way for a few survivors who successfully scale their operations and consolidate the market.
“We saw this period when assembling solar modules was a very lucrative business; a lot of people got into it. Not everyone diversified into making cells,” Vinay Rustagi, chief business officer at Premier Energies Ltd, a large listed solar module manufacturer, said. Today, India has more than 100 module manufacturers but fewer than 10 cell manufacturers, he estimated.
Solar cells are thin films of silicon that convert sunlight into electricity. A number of such cells are assembled into a panel to make up a solar module, which are then sold to renewable energy companies.
Manufacturing cells is much more technologically complex and capital-intensive than assembling the modules. The complexity keeps rising as companies further integrate backwards to make ingots and wafers that are used to manufacture the cells. Polysilicon, which is made from sand and is used to make ingots and wafers, is the building block of the solar industry and is the most complex of all to manufacture.
Each stage also requires a staggeringly larger scale to be economically viable, Rustagi said. For instance, in a module assembly business, a standalone 1 gigawatt (GW) module manufacturing line could be viable. But in cell manufacturing, a company would need over 5 GW of capacity to be viable. Minimum viable capacity increases to 10 GW at the ingot level and 20-30 GW in the polysilicon business, he said.
The companies that do not get into backward integration to make their own inputs remain exposed to imports, mainly from China, to make their products.
“The government is encouraging us to basically integrate backwards so that we can again increase the value addition domestically and reduce dependence on imports,” Rustagi said.
“Ultimately, given the fact that it is a highly capital-intensive business, where the pace of technology change is very, very high, we do see a scenario where maybe five to seven of the larger players will thrive and will continue to basically dominate the sector.”
On its part, Premier Energies has guided for capital investments of ₹12,000 crore, over ₹10,000 crore of which will go into backward integration. The company will be investing ₹5,900 crore to set up a 10-gigawatt ingot plant in Andhra Pradesh.
Nehal writes on everything corporate from the financial capital of India. His areas of interest inclRead more
ude corporate strategy, deals, government regulations, and investigations.
Shayan Ghosh leads the BFSI coverage at Mint, reporting on traditional banks, shadow banks and the cRead more
entral bank. He has 14 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions' worth of toxic assets.
This is a Mint Premium article gifted to you.
Subscribe to enjoy similar stories.
Mumbai: India’s solar module manufacturers are facing a credit squeeze as banks are turning increasingly cautious on fresh lending to the sector amid overcapacity risks, and also reducing in some cases the loan-to-cost ratio for funding new projects.
Mumbai: India’s solar module manufacturers are facing a credit squeeze as banks are turning increasingly cautious on fresh lending to the sector amid overcapacity risks, and also reducing in some cases the loan-to-cost ratio for funding new projects.
The loan-to-cost ratio refers to the proportion of a project’s total cost that is financed through loans. By trimming this ratio, lenders are effectively asking promoters to bring in a larger share of equity themselves.
The loan-to-cost ratio refers to the proportion of a project’s total cost that is financed through loans. By trimming this ratio, lenders are effectively asking promoters to bring in a larger share of equity themselves.
This shift follows a letter from India’s clean energy ministry in December urging banks and other lenders to be cautious on financing new solar photovoltaic module manufacturing capacity. Adding to the sector’s woes is a preliminary 126% tariff recently imposed by the US, which threatens to choke off its primary export market and worsen an already growing domestic capacity glut.
“We are now quite cautious on lending to this industry. In fact, I would even go to the extent of saying that we might not finance any new solar module companies for the time being,” a senior official at a non-bank lender told Mint on the condition of anonymity.
Lenders are intensifying due diligence to avoid a potential wave of bad loans. Bankers are now scrutinizing promoter track records and the specific “end use” of funds to ensure projects remain viable despite falling global prices and trade barriers.
A second banker made similar observations, highlighting the increased scrutiny his bank is undertaking when lending to new solar module plants.
“Solar module manufacturers have mushroomed in India, while demand is much lower than supply. Banks are therefore looking much more closely at loan proposals and doing deeper due diligence,” the banker said. “We are scrutinising all such projects to check viability, what the antecedents of the promoters are and what the end use of the funds will be for.”
The ministry of new and renewable energy said on 7 December it had shared details of current installed domestic manufacturing capacity across various segments of solar photovoltaic panel production with the Department of Financial Services under the finance ministry, as well as non-banking financial companies (NBFCs) such as Power Finance Corporation (PFC), REC Ltd, and the Indian Renewable Energy Development Agency (IREDA), “so that financial institutions can adopt a calibrated and well-informed approach while evaluating proposals.”
As seen multiple times in the past with new technologies like electric vehicles and now with solar modules, a large number of companies enter a new sector to capture the initial euphoria. However, as the technology matures, the numerous players make way for a few survivors who successfully scale their operations and consolidate the market.
“We saw this period when assembling solar modules was a very lucrative business; a lot of people got into it. Not everyone diversified into making cells,” Vinay Rustagi, chief business officer at Premier Energies Ltd, a large listed solar module manufacturer, said. Today, India has more than 100 module manufacturers but fewer than 10 cell manufacturers, he estimated.
Solar cells are thin films of silicon that convert sunlight into electricity. A number of such cells are assembled into a panel to make up a solar module, which are then sold to renewable energy companies.
Manufacturing cells is much more technologically complex and capital-intensive than assembling the modules. The complexity keeps rising as companies further integrate backwards to make ingots and wafers that are used to manufacture the cells. Polysilicon, which is made from sand and is used to make ingots and wafers, is the building block of the solar industry and is the most complex of all to manufacture.
Each stage also requires a staggeringly larger scale to be economically viable, Rustagi said. For instance, in a module assembly business, a standalone 1 gigawatt (GW) module manufacturing line could be viable. But in cell manufacturing, a company would need over 5 GW of capacity to be viable. Minimum viable capacity increases to 10 GW at the ingot level and 20-30 GW in the polysilicon business, he said.
The companies that do not get into backward integration to make their own inputs remain exposed to imports, mainly from China, to make their products.
“The government is encouraging us to basically integrate backwards so that we can again increase the value addition domestically and reduce dependence on imports,” Rustagi said.
“Ultimately, given the fact that it is a highly capital-intensive business, where the pace of technology change is very, very high, we do see a scenario where maybe five to seven of the larger players will thrive and will continue to basically dominate the sector.”
On its part, Premier Energies has guided for capital investments of ₹12,000 crore, over ₹10,000 crore of which will go into backward integration. The company will be investing ₹5,900 crore to set up a 10-gigawatt ingot plant in Andhra Pradesh.
Nehal writes on everything corporate from the financial capital of India. His areas of interest inclRead more
ude corporate strategy, deals, government regulations, and investigations.
Shayan Ghosh leads the BFSI coverage at Mint, reporting on traditional banks, shadow banks and the cRead more
entral bank. He has 14 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions' worth of toxic assets.
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