So What’s Happening?

An investor recently asked me this question, “So What’s Happening in India’s Renewable Energy” space.

On the solar on-grid side, the solar developers are busy taking learnings from their first project; reworking their plans after the first experience and looking at how this can be build into a bigger sustainable business. The Central Government’s Batch I is done with and the Batch II winners are working on land, financing and EPC contracts.

The Gujarat State Government is done with their two phases of solar projects and there has been no announcement on the future plans. The industry expects rooftop solar projects in the State.  The State has some 900-1000MW PPAs signed (cannot remember the exact number now) and some 610MW is on the ground.  So 300MW projects are either under construction or still looking at help.

The Rajasthan State Government has postponed its solar plans while the UP State Government is working out its own solar plans. The Karnataka Government recently came out with a bidding process for 60MW solar projects.

The off-grid side is attracting attention. Diesel replacement seems to be the mantra here. The trouble here is that many captive consumers still are not comfortable with the high upfront capex and then also the question “Will Solar work for me?”.  The comfort will come with time and more visible projects.

The upfront cost still remains. This is give birth to the Opex model or “Pay as you Use” model. The model is great; the challenges here:

1. The payment and PPA mechanism?

2. Comparison to Grid rates or Diesel rates;

The only answer to this is experience and couple of pilot projects.

The Indian solar manufacturers are bleeding because of their smaller scale. German, American and Chinese solar manufacturers are working with hundreds of MW production capacity and selling globally. Whereas the Indian module manufacturers are still much smaller in size in the range of 25-100MW manufacturing capacity. In addition to this, the falling solar prices in the market is not helping.

The Indian Solar manufacturers were quite optimistic about the National Solar Mission’s clause of using solar modules manufactured in India. But that has not translated to sales on the ground.  Maybe the power of thin film modules and exim financing were not taken into account earlier. But most of the projects are being done using thin film modules which come with foreign exim financing.

The State Solar policies have further not helped. The States did not include mandatory use of Indian modules clause.

The solar manufacturers in India are now concentrating on the off-grid potential. Recently spoke to a solar manufacturer who was open to leasing modules on rent for off-grid capex models.

India’s National Solar Mission says that from Phase II (2013), solar cells manufactured in India will be mandatory for solar projects. Looking at solar manufacturing scenario in India, not sure if this rule is going to stick around.

Just came across the news about Moser Baer’s solar woes. Need we say more.

On the wind side, the removal of Accelerated Depreciation subsidy is resulting in decrease of wind turbine sales. The only focus clients for wind turbine manufacturer now are Independent Power Producers (IPPs).

With kind of fixed returns in the wind energy development area, the IPPs will be looking at including some areas of the value chain within their own net. So wind turbine manufacturers may slowly start just looking at selling purely wind turbines and not projects. During the recent Wind Conference in Coimbatore “The 3rd International Wind Conference and Exhibition (3rd WE20 by 2020)” in Feb 2012, I came across some new companies in the wind arena founded by industry wind experts. These entrepreneurs understand the gaps in the value chain of wind turbine manufacturer’s project selling ability and are targeting these gaps for business.

For IPPs looking to derive more value/margins from their wind energy development business, these small businesses can be a good M&A target over the next few years.

IPPs are currently looking to get into land identification and land buying on their own.

The IPPs (across renewable energy) have few options out here for structuring their projects- PPA with State Government, REC mechanism and then the third party sale. REC wind projects are on a rise in India.

The wind turbine manufacturers are coming out with turbines that are more specific for India’s low wind speed environment.  Small wind turbines for off-grid market is slowly catching up and coming into focus.

The off-shore capacity in India is still not being looked at very seriously. Some efforts and news keeping making themselves available in news but nothing serious yet.

There are other challenges here such as wind forecasting, the evacuation infrastructure, the land and the payment from the State Electricity Boards.

On the biomass side, the business model or should we say the fuel supply has been under strain.  Very few biomass projects in India are profitable as a project. The increase in raw material prices have lead to developers asking for simultaneous increase in electricity tariff prices. We have yet to see response from the government.

Meanwhile some biomass developers are looking at owning raw material assets to secure supplies at a fixed price. This seems to be a better solution if the IRRs are still in the favourable range.

The Waste to Energy in India is still being worked out. This is an important niche in India’s renewable energy space because of the increasing per capita waste produced. I am currently studying this niche in more detail and so will be attending the International Summit on Waste to Energy in New Delhi on 9th July.

Not much of an expert on the hydro side; nothing to write here. Meanwhile there are other alternative energy technologies but not in the main stream yet.

So what’s happening in India’s Renewable Energy space? Your comments and your opinion is welcome.

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One Response to So What’s Happening?

  1. Madhavan says:

    Bharat,

    You have captured the current scenario quite well. Solar sector, at least the on-grid part, seems to have lost its momentum. The fall in rupee(about 20% in the recent past) is going to hit hard the project developers who won the projects under the JNNSM batch 2 and also state government projects. Clearly, off-grid is where the potential is. But as you rightly pointed out, off-grid will need innovative business models(pay-as-you-go is in the right direction, but needs to demonstrate sustainable success).

    Look forward to your insights on Waste-to-Energy..

    Madhavan

    Like

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