Things to Know About Commercial Solar Financing

Commercial Solar Financing

A solar energy system is seen as a valuable asset for small, medium, and large businesses. Not only can solar power have the power to drastically decrease the value of your electricity bills, but it can also decrease your owed taxes and increase the value of your property.

Among the advantages of solar energy, there’s one common roadblock in the process of installation of the panels, and that is the cost of installation.

Technology advancements have reduced the price of solar system components, and attractive government incentives sweeten the deal. But it will be true to say that solar energy requires a significant upfront investment. This investment will give its fruits in just a few years, but unless you must have sufficient cash on hand. A person must owe the capital required to install the system.

Here in this article, we’ll go through the three most opted options for solar financing for businesses.

Commercial Solar Financing Options

Purchasing Your System Outright with Cash

Most businesses over the globe take a decision to purchase the solar system outright with cash. This option has the power to facilitate 100% of the benefits of solar - from electricity savings to tax savings.

Purchasing your system with cash may be easier than your imagination. While a solar panel system does require a substantial investment, current incentives make installation costs much lower, which makes the installation of the system easier.

Purchasing a Solar System with a Solar Loan

Many people don’t have cash in hand to buy a car or a house, but with good credit, they can buy a car as well as a house. Similarly, it goes with solar systems; you don’t need to have the cash on hand for your system to reap all the benefits of solar system ownership. Various lending institutions have various programs that facilitate commercial solar financing.

Lending institutions stabilize investment in solar power. The cost of the solar system can vary, but the estimated cost is around INR 60,0000 to install the business itself will save INR 600/month on electricity for the entire life of the system, which is equal to 25, 30 years approx.

As long as you work with a quality solar installer who uses dependable parts, your investment will produce a positive return; it can be like the sun keeps shining!

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Solar Leases & Power Purchase Agreements (PPAs)

If you don’t have the cash or access to a loan but still want to have ownership of the solar system, there is an option. A power purchase agreement (PPA) is also known as a solar lease. This solar lease helps you put solar on your roof or property, which gives you access to generate solar electricity. This doesn’t have any cost for the installation.

Instead, you’re leasing your roof or piece of land to a solar power developer. This developer will design and install a solar system in that particular area. Then, they’ll sell you the electricity, which will be generated by the solar at a predefined rate that’s lower than what you would pay for electricity from the utility company.

To go further with this option, there are a few things to take into consideration. As it’s defined before that the solar developer is the owner of the solar system, you won’t get any of the tax-saving incentives. All the benefits will be availed by the solar developer only. You will get your monthly payments for electricity.

Like before, you’ll still be paying an amount for your electricity per kilowatt-hour, just not to the utility. Your price per kilowatt-hour from the solar developer would be less than through a utility. However, much consideration is required in PPA, and the motive behind the same is to ensure there isn’t a price escalator in the contract that dramatically increases the cost of electricity after a certain period.

Differences Between Commercial Financing And Residential Financing

It is relevant to understand the differentiation between commercial financing and residential financing. Both of these financings include the size of the financing needs and the complexity of the projects. If we make compassion, then commercial projects are typically more complex than residential projects; the reason behind the same is that they involve a greater number of stakeholders. In residential financing, the installer, the property owner and an additional end-user are included. While in commercial projects, there are various people who are involved. The more stakeholders, more planning is required, and more points of view must be considered here. The size of a project is 75 kW or greater in commercial projects. For residential projects, the project size reaches an average of 7 kW. This leads to a greater dollar value for commercial projects.

Best commercial solar financing ways

The complete setup of the solar project can cost up to INR 6 Crores / MW, and most of it comes from equity and debt financing. Equity financing is basically a process of raising money from internal stakeholders in the company or other investors. At the same time, the debt financing covers 70% of the project cost. This comes in the form of a loan taken out against collateral.

Prior to making any decision to set up a solar power project, it becomes important to learn about commercial solar financing options.

Here we have mentioned some of the ways to finance a commercial solar company project. The first one is:

Domestic Funding from Banks

Local banks are considered the largest financiers of commercial solar projects in India. Banks facilitate a low-interest rate of 11-13% but ask for collateral of up to 100% of the loan amount.

These institutions started facilitating the loans for 7-10 years. But now, the limit has been extended to 15 years; for the same reason, the credit goes to the enormous regulatory burden and the formalities companies need to finish before they can begin the solar project.

NBFC Financing

NBFCs/Non-Banking Financial Institutions, such as the Indian Renewable Energy Development Agency Limited (IREDA), provide low-interest loans for commercial solar projects. For instance, grid-connected solar PV projects can get loans with interest rates of 10.2 to 11.4%, depending on the grade that the authorities give to the solar project.

The IREDA facilitates loans for projects with a minimum debt requirement of INR 50 lakhs and ones that are commercially and technically viable. The best portion of the IREDA loan is that commercial solar projects get collateral of just 10-33% of the total amount applied for.

Documents to Apply for Solar Finance from NBFC

  • Quality and safety measures
  • Evacuation
  • Contracts for supplying components
  • Permissions and compliance requirements to be met
  • O&M contract
  • PC contract
  • Feasibility study
  • PPA
Best commercial solar financing ways

Due Diligence Cost

Yet another factor that companies are opting for commercial solar projects is the due diligence cost, which plays a wide role in the project’s budget and time taken. The awareness needs to be spread about the same. The following are the requirement to incur a due diligence cost:

  • Technical appraisal
  • Promoter appraisal
  • Environmental appraisal
  • Financial appraisal
  • Industry-specific appraisal
  • Legal appraisal
  • Loan approval
  • Insurance package

Major Solar Financing companies in India

Indian Public Sector and Private Banks

Almost all public banks that include, including the State Bank of India (SBI), Punjab National (PNB), Bank of Baroda, Central bank etc., feature the scheme of facilitating debt finance for differentiated solar projects. Among the lists of Private Banks, ICICI, Yes Bank, and Axis Bank also have a scheme on loans for solar projects.

According to the predetermined release, among all of the public sector banks, SBI will be financing the biggest capacities of 15,000 MW of solar system. The Bank provides loans for any solar projects at interest rates of 9.5% to 10.5% per annum.

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Indian Renewable Energy Development Agency which is also known as IREDA, is basically a Non-Banking Financial Institution (NBFC) under the administrative control of the Ministry of New and Renewable Energy (MNRE) that facilitates term loans for renewable energy and thermal energy projects.

The financing offered by IREDA goes into 75% of the cost of the solar project venture. The role of IREDA is to conduct credit rating for all grid-associated projects, and thus it provides grading in light of the risk assessment. The grades are determined on the basis of interest rates. Thus, we can say that they are interconnected. The interest rates are marked by a “Committee for fixing interest rates'' on a timely basis as per the economic circumstances.

Along with this, IREDA extends loans to solar energy project developers that bear low-interest rates. The funding is routed through various modes, which can either be direct lending or lending through various financial intermediaries such as providing various lines of credit to NBFCs, underwriting debts etc.

IREDA also uses the NCEEF to grant subsidized debt at a low rate of interest to renewable energy projects through selected banking organizations.


International Finance Corporation is the full form of IFC, which is the financing division of the World Bank. IFC is involved with the financing of solar power undertakings in India.

IFC is a universal monetary organization that facilitates various opportunities like consultative, investment, and asset management services to support the development of the private sector in developing countries.

Apart from providing advisory services to the state governments and investing in companies at a corporate level, IFC also actively gets involved in providing debt to solar projects and project development companies.


Asian Development Bank (ADB) is also one of the financing companies in the nation. Initially, ADB was seen as a primary loan provider to advance solar power projects in India.

Many environmental friendly funds are also funded by the company, which can give equity at a less expensive rate and back off the cost of financing for these solar projects. This step gives rise to financial support under the India Solar Generation Guarantee Facility (ISGGF), under its Asia Solar Energy Initiative (ASEI), to support the development of solar energy in developing countries. ADB also considers direct financing and/ or guarantees for projects that are greater than 25 MW.

Major Solar Financing companies in India


The Rural Electrification Corporation (REC) focuses on promoting solar energy projects through its business activities. REC is financial assistance for setting up power generation projects. The debt-to-equity ratio, as proposed by REC, the ratio of debt-to-equity would be 70:30 for private-sector borrowers.

REC proceeds with the lead banks, NBFCs & financial institutions (FI) debt-equity ratio, which are subject to a maximum ratio of 3:1 when the lead FI is funding on the basis of a different debt-equity ratio. If in case the lead FI is REC, 70:30 will be the debt-equity ratio.


Kreditanstalt Fuer Wiederaufbau (KFW) bank is a Germany-based bank that used to finance the Indian solar market. Being a German bank, KFW has committed to offering financing support through KFW Development Bank for solar photovoltaic investments.


The Non-banking financial companies (NBFCs) are involved in debt financing of solar projects. Under the infrastructure development funds, the Infrastructure Leasing & Financial Services Limited (IL&FS), SBI Macquarie, and Taurus Infrastructure Fund provide the financing for project developers.

The Infrastructure funds are dedicated financing companies in the power sector. The Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) are the major fund providers in the solar energy sector. Some investment banks like Larsen & Toubro (L&T) finances, SBI Capital Markets, and BNP Paribas make investments in large and small solar energy projects.

Other international financiers

The World Bank-Clean Technology Fund (CTF) advance will bolster various solar photovoltaic (PV) technologies, and the purpose behind the same is to expand the reach of rooftop solar systems to an assortment of client gatherings.

The European Investment Bank (EIB) has released a long-term loan to SBI to fund mega solar power projects in the country in support of India’s National Solar Mission.

EXIM Bank is the first foreign financing foundation which is working to sanction solar power projects under India’s JNNSM. EXIM Bank is one of the first banks to support financing under the solar power policy of Gujarat State.