What’s wrong with the Solar Developers in India !!
Hujambo & Mambo Friends !!
Have addressed you all like this as I am writing this article from the beautiful & endless Masaai Land of Tanzania – The Serengeti National Park – where we are acting as a solar project consultant to what is to become Tanzania’s largest hybrid captive solar power project for one of the prestigious resort !!!
Also friends posting this article after a long time and also have been getting repeated requests from readers to posts regularly but lately have been busy to execute some of the very unique upcoming solar projects of the developers & am glad to inform you all that as a part of aggressive scale-up & business expansion this year we have now marked our presence and introduced our services across the countries like Mauritius, Tanzania, Ghana, DRC, Kenya, Uganda, Nepal besides extensively working across India. So we will now be acting as a solar project consultant in all the above geographies across Africa in addition to India too
While it’s raining all over India, the renewable energy sector is also experiencing severe solar raining in terms of totally installed solar projects across the country. India’s cumulative utility scale solar capacity is now 14 GW and rooftop solar capacity is 1.6 GW totalling – 15.6 GW !!
Also the slight relief for the developers is that the Ministry of New & Renewable Energy (MNRE) has issued the Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Solar PV Power Projects which tries to cover the payment security for the developers and tries to stress upon the must run status for solar projects.
So What’s exactly wrong with the Solar Developers in India !!
While all these new proposed guidelines are in a way going to provide huge benefits for the developers but many Indian solar project developers are in our opinion one of the worst across the world in terms of evaluating Financial Projections & Risk Assessment for their upcoming solar project.
Many of the Indian solar project developers are purely into the “RAT RACE†whereby blindly following each other and not knowing where they are taking their projects towards and thereby severely damaging the entire solar sector.
The solar developers routinely ignore risks and bid aggressively for major infrastructure projects making preposterous financial projections and assumptions in a bid to win at any costs. Then when the projects go down as mostly they do, they go crying to the government for a bailout. This has been the trend ever since the mid-2000s when the government opened the infrastructure sector to private investments. The Indian solar developers have bid aggressively at every stage without taking cognizance of multi fold risks such as forex, interest rates, equipment supply etc. They have been blessed by Lady Luck in the last few years as falling solar panel prices have made their foolish bids seem like a stroke of genius. The solar panel and inverter prices have fallen faster than expected leading to good gains for these developers, as their forecasts of the panel and inverter prices, turn out to be higher leading to good profits as project costs turn out to be lower.
However, this trend following will now lead to a major blowback as the last aggressive solar bids of INR 2.44/kWh was made on the assumption that solar panel prices will keep falling by 10-20% every year. However, that has not been the case with solar panel prices going up by 20% in the last few months. This has been due to some geopolitical issues such as the looming USA ruling on import duties on solar panel imports and China deferring the lowering of its feed in tariffs to September from June. This will mean that Acem and Softbank face some serious financial viability issues for their Bhadla solar plant projects which were seemingly bid of prices of panels as low as 25 cents/watt. Currently, the prices are near 35 cents/watt throwing their financial model totally out of whack.
Indian solar industry has seen tons of financial investors and developers entering the market lured by the massive size of the solar opportunity in India. However, most of these developers have employed some really dumb people who are just following the trend like the financial traders during the 2008 global financial crisis. When the tide turns, the naked will be exposed. Unless the solar panel prices fall back drastically again, I think some people will get badly exposed.
The current solar bids are projected as a new ‘Trend’ in the solar industry. However, there is Difference between “TREND†& “TRENDY†in Solar : A TREND is established overtime & tends to lead to lasting change. TRENDY is an attention catching phase – similar to what India witnessed during the latest lowest solar bids !! Current low(below cost) pricing is unfortunately a margin crushing long term trend in the solar PV industry. Instead of grid-parity satisfaction , there is much skepticism about financial sustainability of the recent low Rs 2.44/unit solar bids !! Only time will tell, whether it’s just another another poster boy headlines like India witnessed a couple of years back or not !!
And please make no mistake people the current solar project prices are below costs. If this continues quality will suffer & there will be a significant consolidation. There are lots of false information making waves across solar arena. And if you only get your news from PR driven media, dedicated news feeds & a pay for play media you risk being misinformed – which is the current case of Indian solar industry. What is the logical justification of the developers past project costs based on IRRs viz a vis new pricing based on tariffs. Have they embraced the changing realities?
Well guess this is going to be a part and parcel of Industry now !
And in case you are thinking of going green and powering your premises via solar or are thinking of setting up solar power plants across India, as a solar consultant in India we can always help you
Also will keep you guys posted on the unique installation of our solar project here in Tanzania, Africa which we are currently executing here in Tanzania.
Kwaheri from Tanzania !
Continue Reading ........
Cheers !!
Urvish Dave | Solar Project Consultant | www.urvishdave.com
Head Sustainable Supply Chain at Synerzys Lifecare
6 å¹´Your concern is very much genuine and in very much interest of Solar Industry for India, at large! Well said! Keep it up Urvish!?
Low PPA's equal garbage in, and poor construction equals garbage out.
Head - Facultative Reinsurance & Direct Broking at TOWER INSURANCE & REINSURANCE BROKERS (INDIA) PVT LTD
7 å¹´Well return article Mr.Dave. Please note the Solar revolution which the govt is embarking will end up in a big scam in this country. The day is not very far. Banks & Financial institutions will loose heavily(NPA's). If you see the lending pattern, the private sector lending is not very high vis viz public sector. In India the panels market share majorly is from China, the risk management has little role to play. You can not bank completely on Insurance companies for your technological blunders.
DVP- Risk Engineering East and South-Commercial Underwriting
7 å¹´Very well written about Indian Solar Industry! Unless well PPA will defined about the Solar Power,Principal would not able to return the fund on time. Also there is one lacuna due to higher import duty. Over all Financial risk management is not balanced. Due to some products warranty coverage available in market,somehow Insurance risk management is balance for contractor and principal as well. However there is still lacuna into loss or profit Insurance Coverage.
Cambridge Capital
7 å¹´This is a good observation - unfortunately, the entire solar biz in India, as discussed in the article is misguided - also from a policy perspective. The current focus on grid scale project will still leave behind hundreds of millions of people will remain without access to reliable/affordable power. The fundamental problems with the current solar business cannot be fixed without structural changes in the power sector. The Indian business houses feel more comfortable when the gov't is involved - in the mean time, they are missing the very large market in the private sector - particularly in the industrial, Ag and commercial sectors. I am curious, is there any hard data on how much of the solar projects are in financial trouble because of the risks mentioned - forex, non payment and curtailment?