Indore Municipal Corporation (IMC) may release Green Masala Bonds to fund its solar energy projects. The corporation may raise INR 450 Crore through these bonds. Masala Bonds are rupee-denominated bonds in which an investor has to bear the currency risk. These are different than dollar-denominated bonds where a borrower has to take the risk which is a contributing factor to the eroding returns. Our financial modelling analysis shows that with every increase in INR/$ by INR 1 a developer loses 4 paisa/unit from his tariff.
India has set a target of 100 GW of solar projects by 2022. Solar tariffs have already been hitting the floor due to aggressive bids by developers. Since the cost of raising these funds are cheap overseas, developers borrow the funds mainly from the U.S and Europe and they have to assume currency risks.
The use of Masala Bonds for solar projects will shift the currency risk on bond investors and not the corporation. The bonds will be listed on the London Stock Exchange (LSE). The Municipal Corporation is already in talks with LSE for listing on bonds.
Solar energy project will save IMC its expenditure on electricity
In addition to reducing currency risks, the Masala Bonds will reduce the financial burden of IMC in setting up solar projects. Not to mention the additional revenue that the corporation will accrue from selling energy to the grid. IMC’s plan is to set up 100 MW solar plants. According to officials, IMC has adequate space to install the plants some of which would also be floating solar.
However, the officials also say that they install the plants through the net-metering system. The energy produced from these plants which go into the grid and adjusted on their electricity bill. Regulatory provisions for net-meter do not permit this. The maximum permissible capacity for net-meter is 1 MW. But these solar power plants will indeed help the corporation to generate revenue.
IMC currently pays a bill of Rs10-15 crore per month. If they can maximize their use of rooftop solar plants they can reduce their electricity expenditure considerably.