Fortum Financing Solar Spares India Banks Made Wary by SunEdison

  • Finland's richest company to invest as much as $455 million
  • Fortum quoted record low solar tariffs in India in January

Finnish utility Fortum OYJ is ready to self-finance Indian solar projects that promise to generate electricity at record-low prices, boosting Prime Minister Narendra Modi’s renewable energy ambitions and sidelining bankers spooked by SunEdison Inc.’s insolvency.

“We’ll take the construction risk ourselves,” Sanjay Aggarwal, managing director at Fortum, said in an interview in New Delhi. “We’re very clear -- we would bring in our funds.”

Finland’s richest company, sitting on a pile of cash that has approached $10 billion, has drawn complaints from Indian bankers who say record-low tariffs could generate inadequate returns. Those bids from foreign developers led by Fortum and SunEdison, which declared bankruptcy last week, have spurred speculation the projects will never get built, damaging the Indian solar industry in the process.

In January, Fortum won the right to develop 70 megawatts of capacity by bidding 4.34 rupees a kilowatt-hour at auction. The previous low, set by SunEdison in November, was 4.63 rupees.

To spare banks the risk, Aggarwal said Fortum is ready to construct the projects itself and involve lenders only once they begin generating power. “We would go to the lender once we have commissioned the plant,” he said.

For Fortum, which plans to invest as much as $455 million in Indian solar, the strategy could yield immediate cost savings, according to some local lenders. Loans for incomplete solar projects still under construction raise the cost of debt by 100 to 150 basis points, according to Gaurav Sharma, head of origination at IDFC Bank Ltd.

Aggarwal said Fortum’s position as a utility means it concentrates on making sure “the product should come first.” Unlike SunEdison, the Finish utility has Nordic customers generating cash flows that can support Fortum’s investments abroad.

Fortum and SunEdison were among a number of foreign firms that beat out Indian competitors to obtain contracts at government auctions. Debt-laden SunEdison, which filed for bankruptcy protection earlier this month, is now looking to tap equity partnerships in India to support its 2.4-gigawatt business, which includes 1.7 gigawatts worth of projects that remain unbuilt.

Foreign companies with strong balance sheets and an eye to the long term are in favorable positions within India and should eventually make reasonable returns, according to solar-power consultants at KPMG.

“Their presence is very beneficial for solar in India as they can sustain low-growth with an eye on the long term,” said Anish De, a partner for infrastructure and government services at KPMG. India is expected to climb into the ranks of the biggest solar markets this year and intends to generate 100 gigawatts of power by 2020 -- equivalent to about 100 nuclear reactors.

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