India’s solar industry set for consolidation

      Published on Tuesday, 6 November , 2018      163 Views     
India’s solar industry set for consolidation

India’s solar industry, hailed not-so-long-ago as the shining sunrise industry, is all set to see a shakeout,

weighed down by a lack of bank financing and fierce competitive bidding pushing down tariffs to ultra low levels, industry sources said.

Reflecting the gloomy industry outlook, the bidding held recently by the Solar Energy Corporation of India for its proposed 1200 MW ‘hybrid’ renewable projects drew a blank, forcing the state-run agency to extend the bidding deadline for a fifth time.

Hybrid projects are where both solar and wind power projects could be set up at the same site.

The 1200 MW project bidding failure was the second renewable project auction which have flopped in a month’s time.

From a higher per unit tariff of Rs 11-13 ($0.15 – $0.18) for solar power, the tariff has plunged to as low as Rs 2.44 – Rs. 2.70  ($0.03 – $0.04) in the last 12-18 month period, raising serious questions about the economic viability of these projects.

“The solar energy industry is most likely to follow what happened to the thermal power industry in India in mid 1990s when implementation of several mega power projects ran into a dead-end when promoters started abandoning them,” Pranav Mehta, chairman, National Solar Energy Federation of India (NSEFI), told Arabian Business.

“This followed after the initial round of euphoria which saw practically every corporate group in India and many overseas companies vying with each other to make an entry in to the newly opened power sector.”

Attempts by promoters of some of the existing solar power projects to seek investors is seen as a precursor to the expected shakeout in the industry.

The Delhi-based Hero Group is the latest one making a move for a partial stake sale in its renewable energy venture Hero Future Energies, for which the Abu Dhabi-based Masdar Clean Energy is said to be one of the suitors in the fray.

Earlier, the Hyderabad-based Greenko acquired Orange Renewable from Singapore’s AT Capital Group in a deal valued at $1 billion, while the Delhi-NCR-based ReNew Power has lapped up Ostro Energy for about $1.5 billion, the largest M&A deal in India in the renewable energy sector.

Abu Dhabi Investment Authority (ADIA) is a major investor in both Greenko and ReNew Power, holding significant minority stakes.

Arabian Business reported in October that the two Indian renewable energy majors are in talks with ADIA for tying up additional funding to finance their respective pipeline projects in the solar power sector.

Banking industry sources said funding of solar power projects are increasingly becoming risky with tariffs being quoted in the reverse bidding for projects sliding to extremely low rates by many new and over ambitious promoters, who are eager to make an entry in the sector.

“We have put on hold plans to extend finances to new solar power projects, as many in the banking industry anticipate loans to many projects in the sector, especially by the small and medium companies turning NPAs in the near future,” a senior executive at a Mumbai-based private bank told Arabian Business, asking not to be identified.

Power purchase agreements

Compounding the problem for the banks and other funding institutions, buyers who entered into long-term PPAs (power purchase agreements) with solar power projects at high tariffs in the past, are now either refusing to honour their purchase commitments or want these PPAs to be renegotiated in view of the present tariff structure.

“This has put many of the existing solar power projects suddenly in the dock, raising uncertainty over thousands of crores of bank funding extended to these projects,” an industry insider said.

Pranav Mehta said NSEFI has proposed a set of suggestions to the Indian Ministry of New and Renewable Energy (MNRE) such as setting a ‘viable’ price band (tariff band) in bidding and formulating tough conditions such as doubling bank guarantees by successful bidders of projects if they fail to acquire land and tripling bank guarantees if they fail to achieve financial closure for their projects in a stipulated time-frame.

Such measures will ensure that only serious companies with adequate financial capacities bid for projects in the sector,” Mehta said.

MNRE officials, though, seem to be happy with the steep decline in solar power tariff, pointing out that this will help more consumers to opt for solar energy.

A top functionary at Solar Energy Society of India – a think-tank and policy advocacy organisation working in the solar energy industry – told Arabian Business that the current situation in the industry is ‘simply unsustainable’ and that an immediate shakeout in the industry is unavoidable for the healthy, long-term growth of the industry.

“Just to grab business, companies, mostly new ones, are currently quoting such crazy low tariffs. At the prevailing funding costs, such projects will just not be economically viable, he said.

India has set an ambitious target of achieving 100 GW of solar power by 2022. The current capacity is about 24 GW.

Category World | 2018/11/06 latest update at 6:10 AM
Source : Arabian Business | Photocredit : Google
Comments Add comment

Related Articles

The editorial staff of Dubai Today would like to give all of its readers from Gulf and Dubai and the whole world the opportunity to participate actively in the development of the website! If you have something interesting, fun, scandalous - just something worth to be seen from more people. Capture it and share it in the Dubai Today with a short text.

Do you have information you want to reach our readers?

Send article/s

You can subscribe to our Facebook, Twitter and Google pages or use our RSS feed channel to always read the most important news about Dubai, the Gulf and the world.

Sheikh Mohammed meets Egyptian President in Beijing Emir

Sheikh Mohammed meets Egyptian President in Beijing

His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai, met President…

HH Sheikh Mohammed Bin Rashid Al Maktoum Emir

HH Sheikh Mohammed Bin Rashid Al Maktoum

Vice President and Prime Minister of the UAE and Ruler of Dubai His Highness Sheikh Mohammed bin Rashid…

HH Sheikh Mohammed Bin Rashid Al Maktoum Emir

HH Sheikh Mohammed Bin Rashid Al Maktoum

Vice President and Prime Minister of the UAE and Ruler of Dubai His Highness Sheikh Mohammed bin Rashid…

HH Sheikh Mohammed Bin Rashid Al Maktoum Emir

HH Sheikh Mohammed Bin Rashid Al Maktoum

Under the patronage of Vice President and Prime Minister of the UAE and Ruler of Dubai His Highness…


Popular in GULF TV

Freelancing in the UAE region


The global freelancing market is set to grow $20bn by 2020. Where does the market stand here in…

Latest videos in GULF TV





Science & Technology