PE’s opinion at investment opportunities in Solar & Biomass in India

Recently I was a part of a small discussion involving few Indian and foreign Private Equity firms with an interest to invest in the Indian renewable energy market. The discussion compared investment opportunities between solar and biomass projects in India; from an investor’s point of view .

Investment in Solar was chosen over investment in biomass projects by private equity companies. The reasons were:

1. Biomass projects are mostly working on supply of raw material through contracts which leaves the project vunerable to inconsistent supply and increase of raw material prices.

2. The government does not take into account the expected increase in raw material prices and biomass projects have a fixed tariff for the tenure of the project.

3. The inconsistent quality of raw material also poses a problem for biomass projects effecting the plant load factor.

4. Factors not in hand of project owners and raw material suppliers can play havoc with the raw material supply; such as famine, floods, etc.

5. Due to the above reasons, it may be difficult to build scale in biomass projects.

Project owners are now looking at owning partly/fully and thus controling the raw material quality and supply.

On the other hand, Solar comes with the following advantage inspite of much higher capex compared to biomass projects:

 1. Near consistent (expected to change with the seasons) sun light as raw material.

2. Minimum moving parts.

3. With Indian solar market just opening, project owners can look at building scale.

4. Preference for investments are companies where owner is the EPC player or atleast handles the E &P; thereby increasing the project margins.  Indian companies may look at develop their own engineering team in the future.

5. With module prices dropping, investors believe lower feed-in-tariffs seen in India will become the norm globally.

 

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