Structured Trade Finance: A Key Enabler for India’s Solar Power Future

Globally, the race to meet aggressive decarbonisation goals is heating up. 

What’s interesting is that the solar industry is emerging as a key driver in the collective push for renewable energy and sustainability targets. 

As per the findings from the Global Market Outlook for Solar Power 2024-2028, it’s safe to believe that we have officially entered the solar age. 

Here’s what the numbers say: 

• The global solar yearly installations doubled in 2023 and grew by 87% compared to 2022 

• 80% of these installations are concentrated in the top 10 markets 

• Within the next three years, global solar installation will reach 1 TW per year 

While the solar industry is experiencing unprecedented growth, businesses in this sector are battling financial hurdles such as managing high upfront costs, delayed payments, and working capital shortages. 

Flexible trade financing solutions such as Structured Trade Finance (STF) will be critical to keeping up the momentum and reaching the ambitious goal of tripling renewable energy by 2030.

We’re taking a closer look at how companies can harness the full power of structured trade finance to optimise their working capital and effectively fuel the growth aspirations of solar energy projects. 

India is making great headway in the global solar revolution

With the In recent years, we have witnessed a transformative shift in India’s solar power journey. The nation has increased its solar manufacturing capabilities—leading to higher demand for raw materials and financing support. 

While the demand for solar power has reached an all-time high and India is expanding its foothold in global markets, the country’s solar power businesses are up against working capital gaps caused by extended payment timelines and subsequent cash flow constraints. 

For instance, the payments to solar power developers are delayed by 60 to 75 days from the invoice date. In 2023, the Solar Energy Corporation of India (SECI) issued a request for a short-term working capital credit facility worth up to 6 billion (~$72.3 million) to cover monthly payments for solar, wind, and hybrid energy projects. 

Major challenges include: 

• High upfront costs: One persistent hurdle is financing high-value imports needed for PV manufacturing. Solar manufacturers must make substantial upfront payments to secure raw materials such as solar cells and modules. 

• Delayed payment cycles: Delayed payments from international buyers result in cash flow issues for solar manufacturers. Add to that, supply chain disruptions and heavy reliance on imported components leave around 20%-25% of their working capital tied up in inventory. 
• Working capital shortfalls: Timely fulfilment of large-scale orders demands robust financial backing, which can be a challenge for smaller solar module manufacturers with limited access to working capital. 

Structured trade finance: A viable solution for the fast-growing solar industry

Owing to the exponential growth of the solar industry, India's solar players have massive opportunities to extend their reach and step into new global markets. 

That said, solar manufacturers require close to 20%-30% of their total project cost as working capital to sustain operations and manage supply chain disruptions.

One of the significant financial obstacles is the initial cost of solar projects, which includes the acquisition of components like PV panels, battery storage systems, and inverters that are often sourced internationally. 

For sustained growth, manufacturers in India must stabilise imports and streamline the procurement of key raw materials and components. 

Most solar manufacturers in India are struggling with limited access to credit for international procurement. In addition, they face multiple financial and operational hurdles, from volatile material prices to meeting evolving regulations in the global market and stringent international standards. 

Harsh Jain, Co-Founder and CEO at Citizen Solar, highlighted how smaller solar manufacturers often struggle with working capital gaps that hinder their expansion plans. 

"If you want to go for a 500 MW line, the CAPEX required is around INR 400 million (~$4.91 million) to INR 500 million (~$6.13 million), and the working capital will be more than INR 1 billion (~$12.25 million). The ratio is around 1:2.5. The problem with Indian manufacturers is that they don't have the working capital and incur losses." 

These credit gaps can amount to delayed or cancelled shipments, lost sales, and damaged relationships with buyers. 

To keep the solar energy projects on track, there has been an uptick in businesses opting for effective trade finance solutions like structured trade solutions. Structured trade finance is well-suited for the solar industry due to its long-term project nature, multifaceted ecosystem, and fluctuating raw material prices. 

A structured trade finance approach involves trade intermediaries, including financiers, who provide a seamless and reliable source of working capital for solar manufacturers to make timely import payments.

By bridging the credit gap, solar businesses can: 

• Secure the necessary components for manufacturing  

• Manage cash flow more effectively 

• Meet shipment deadlines and maintain relationships with buyers 

Structured trade finance is filling critical credit gaps in solar manufacturing

Structured trade financing ensures an alignment with the procurement of raw materials and the revenue cycle, making it possible for businesses to stabilise their cash flow and scale operations with ease. 

As solar power projects grow in scale, structured trade finance is helping businesses fund imports and meet growing market needs. 

Moreover, trade intermediation services are refining structured trade finance—making it more adaptable to businesses' working capital needs. 

Accelerating solar projects with equitable access to financing

Asia is projected to consume half of the world's electricity by 2025, owing to rapid industrialisation and urbanisation. For countries like India, this brings in a greater urgency to expand renewable energy capacities, particularly solar power. 

As solar energy becomes a critical pillar of Asia's energy future, CredAble is taking a strong stand in the solar power journey by backing businesses in India and globally with reliable and flexible solutions like structured trade finance. 

Think Working Capital… Think CredAble!