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India solar developers look to partner with private equity sugar daddies to fuel capital intensive growth

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Solar energy in India is the only major game in town for the electricity sector. The growth has become vertical, with tenders being floated left and right by central and stage agencies. Major groups have entered the sector seeing the strong growth, leading to high competition and low margins. The bidding has become intense in the recent solar tenders, leading many to question the financial viability and whether the projects will come to fruition at all. The major weapon in this war of building the biggest portfolio and outgunning the others to bid low is the cost of capital. Many developers based in India lack the capital and balance sheet strength to bid low, as the interest rate is the major determinant in deciding the IRR and the bid prices.

The major winners in the recent tenders have been solar developers which are backed by Private equity and pension funds. Sky Power, Renew Power, Mytrah, Azure power etc. have won large projects in tenders by bidding low prices. These firms are backed by big PE and pension funds such as Goldman Sachs, Morgan Stanley etc. As the Indian solar power sector matures many of the non-serious players will be weeded away. The survivors and winners will be the companies which have a large pipeline that they can use to get low priced solar components and those with a large pool of equity and debt capital at low costs.

Aditya Birla Nuvo has become the latest firm to partner with a large Middle East firm Abraaj to develop a renewable energy platform to bid for large RE projects. Note this will be a marriage of equals as AB group is one of the largest conglomerates with multi-billion dollar revenues. Some of the others such as ACME capital have suffered as the local Indian partner was not in a situation to bring enough equity capital to match that of the foreign partner – EDF. The Indian solar sector is going to grow exponentially and will require massive amounts of capital – $100 billon over the next 7 years. Pension funds and PE funds will be required along with bank debt, bonds etc. to meet these targets. The winners of this massive growth cycle will be players who make their way intelligently, instead of just bidding irrationally to grow.

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in

3 Responses so far | Have Your Say!

  1. Richanand Mishra

    Hi Sneha,
    Thanks for sharing your article.
    Talking about cost of capital, we need to understand that the investment in solar projects are for long term, 25 years. Therefore, complete reliance on foreign funding is difficult due to currency & political risk. If india has to grow in short term, they would need local funding especially for small scale & off grid projects. I guess, time has come where regulators & policy makers need to compartmentalize tenders for local & foreign investors. One way is to have dollar PPA bids.

  2. Manjunath p

    Nice information..Hope we will reach target of 100 GW and reduce some onus on mother nature.

  3. Sneha Shah

    Thanks Richanand,

    completely agree with you. the government soon needs to come out with some sort of innovative financing for solar in India