400 MW Solar SPV: DSCR Under Grid Curtailment
NaBFID is appraising a 400 MW solar photovoltaic project in Rajasthan with a 25-year power purchase agreement at ₹2.80/kWh and a committed CUF of 24%. Total project cost is ₹2,400 crore, proposed funding is ₹1,560 crore debt (65%) and ₹840 crore equity. The loan is priced at 9.0% with a 20-year tenor and level annual instalments after COD. First-year O&M, insurance, land lease and administration costs total ₹48 crore. The sponsor's base case assumes no grid curtailment, but the state transmission utility has curtailed solar evacuation by 6-9% in each of the last three years, and the PPA has no curtailment compensation. The credit team's internal minimum DSCR is 1.20x. The business team argues that the project is strategically important for the state's renewable capacity and that the DFI should lead the entire debt tranche to signal confidence.
1. Calculate the Year-1 DSCR at the sponsor's base case and at 8% curtailment. State whether the project meets the internal threshold, and explain which cash-flow items you would adjust before relying on the ratio.
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Annual generation: 400 MW × 8,760 h × 24% = 840.96 GWh.
Revenue at ₹2.80/kWh: 840.96 million kWh × ₹2.80 = ₹235.47 crore.
EBITDA: ₹235.47 − ₹48 = ₹187.47 crore.
Debt service: ₹1,560 crore at 9.0% over 20 years. Annuity factor = 0.09/[1 − (1.09)^−20] = 0.10955; annual instalment = ₹170.89 crore.
Base DSCR: 187.47/170.89 = 1.10x.
At 8% curtailment: generation falls to 773.68 GWh; revenue = ₹216.63 crore; EBITDA = ₹168.63 crore; DSCR = 168.63/170.89 = 0.99x.
Both cases are below the 1.20x threshold; the stressed case does not cover debt service. Before relying on the ratio, adjust for: (i) cash taxes, which may be low in Year 1 because of accelerated depreciation but rise later; (ii) DSRA and major-maintenance reserve funding, which are below-the-line cash calls; (iii) working capital and receivables from the DISCOM, because a payment delay is a cash-flow risk even if revenue is booked; and (iv) the actual COD and generation ramp-up. A DSCR calculated on EBITDA alone overstates CFADS if reserves and tax are ignored.
2. The credit committee wants to keep 65% debt but reach 1.20x stressed DSCR. Quantify the maximum debt that the stressed cash flow can support at the same pricing and tenor, and identify two non-debt structural mitigants that could close the remaining gap.
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To achieve 1.20x stressed DSCR, maximum annual debt service = ₹168.63/1.20 = ₹140.53 crore. At 9.0% and 20 years, maximum debt = ₹140.53/0.10955 = ₹1,282.8 crore, i.e. 53.5% of ₹2,400 crore. Equity would need to rise to ₹1,117.2 crore. That is a material re-leveraging, and the sponsor may resist.
Non-debt mitigants: (i) a curtailment-compensation mechanism or state support that pays deemed generation; (ii) a six-month DSRA plus a sponsor support undertaking to top up any shortfall; (iii) a fixed-price O&M contract with performance guarantees; and (iv) a partial credit guarantee or risk-sharing facility.
DSRA improves liquidity and avoids default but does not by itself raise the cash-flow DSCR; it should be additional to, not a substitute for, lower leverage. A combination of 55–58% debt and a credible curtailment backstop is more realistic than forcing 65% debt with a thin cushion.
3. As a DFI, how should NaBFID balance its additionality mandate with the concentration and pricing implications of leading the entire ₹1,560 crore tranche? Recommend a financing structure and the conditions precedent.
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Additionality does not mean taking the largest possible ticket. NaBFID's mandate is to fill financing gaps that commercial lenders cannot bear - long tenor, construction risk, currency mismatch, or take-out - not to crowd out banks that can lend. Leading the entire ₹1,560 crore tranche would increase single-obligor concentration, weaken the DFI's bargaining position on covenants, and underprice the curtailment risk.
Recommended structure: DFI underwrites 40–50% (₹625–780 crore) and syndicates the balance to banks; use a take-out after COD or a refinancing window; price for expected loss and capital, not for relationship yield; require a DSRA, escrow of PPA receivables, independent engineer certification, sponsor support during construction, and no dividend until DSCR ≥1.20x. Conditions precedent should include a renewed PPA payment-security mechanism, curtailment data from the system operator, and a board-approved risk acceptance if the sector cap is breached. If the project cannot meet 1.20x without 65% debt, the right answer is to decline the ticket size, not to waive the threshold.