Problems faced on selling Indian Solar Projects
A new concern that is creeping in the Indian solar market is the absence of adequate number of investors for solar projects. After the expiry of initial lock-in period (a tender specified period in which one cannot sell projects), many solar projects are now free for sale in the Indian landscape. But these projects fail to find proper buyers. Why do you think people do not invest or delay in investing in these projects, though we hear solar is booming in India?
I am listing down a few such reasons from a recent experience of mine with investors and developers.
- Huge Fund is required – A solar project requires crores of money to build up and hence the developers are looking for a fair share before exiting
too. However not everyone in India can shed crores of money in a jiffy. A person needs to do lot of due diligence before investing in such projects. It is only considered a wise investment, if you are dealing with a trustworthy party and the technology used is worthwhile. - Lack of trust – For any transaction to be successful, mutual trust is the key ingredient. This is a very important feature for doing business, which I think is lacking majorly these days and is quite natural in today’s world filled with scam and corruption. This lack of trust restrain the parties from going forward. Hence a lot of paperwork is required which causes considerable delay.
- Inadequate technology – The technology used in building a plant may not be adequate enough to suit the needs of the investor. The solar panels, inverters need to be of top quality before an investor is confident about putting his money. A solar panel has a useful life of 25 years generally with % degradation rate. However will these companies even survive to service their products? We hear about a lot of good companies (like Yingli Green Energy) filing for bankruptcy these days. Now another argument that holds here is the lack of Japanese technology. Though top Tier1 Chinese solar panels are of good quality, many investors are now preferring Japanese technology as it is considered to be better. The Indian panel companies are losing a chance to stand out. The cheap Chinese solar products had flooded the Indian market, at a time when lot of projects were commissioned in India.
- PPA with Uttar Pradesh Government – Investors react negatively when a PPA has been signed with the UP government, even though the Central government is now fully supporting solar movement in the country. One major concern these investors have is if the UP government will make timely payments. This has made many prospective investors turn away from UP solar projects. UP DISCOMS have apayment delay risk attached to them. Also read on GWI:Is Irrational Bidding in Indian Solar Power Auctions coming to an end?
- Most of the Accelerated Depreciation is claimed by the developer – A project developer can claim 80% of the value of the solar power project as depreciation. Moreover a developer can keep claiming this depreciation even on the written down value of the solar project over the years, till it becomes nil. More than INR 40 lacs of tax can be saved on a project worth INR 150 lacs. Since this is a huge benefit and is claimed mostly during the initial years, generally the developer is left with nothing and hence he is looking for more discount.
However, if the parties can mitigate these risks, solar project business can be highly lucrative. A well planned, discussed proposal could lead to huge profits and development of the nation at large. I have listed a few points above and hope it will be helpful to the solar community. However, I am still not well aware of the ground realities and would be happy if readers could share their experience here. Please leave your thoughts in the comment section for a healthy discussion.
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Sneha, You are right. These are called initial learning curve. When the projects started 4 years back, hardly very few knew how to construct a project and what norms to be followed.
This was followed by a host of developers who got into the act and as time went by many learnt on the job.
Hence you will find many projects which are not done to international standards.
To site a few example of what the investors will look out for are traceability, project documentation, quality norms followed, NCRs, PR test etc which hardly any of the old installations have.
Added on to this the cost of the projects came crashing down from 12 cr/mw to 5.75/mw over 5 years. The original PPAs had a clause of 5 years retention which has ended recently and when project owners are looking to flip the project, they are facing against a wall.
I fully agree with all the above concerns that are causing hurdles in smooth design, setup & operation of the Solar projects, the Solar technology in India still can be considered as new in comparison to the US & European market. But we should also put our emphasis on how the European market during their similar period (5 – 8 years back) in order to make it a success reacted. Of course they put their emphasis on the technologically advanced Solar Modules & Inverters but here we are still missing a small yet very crucial aspect, which the Europeans put special emphasis on and that is the Quality & accurate Monitoring of your Solar facility from the day one, As this not only provides you the report on the regular health check up of all the devices responsible for generation of power but also can control the site for preventive & curative maintenance actions hence reducing the heavy man cost onto the regular maintenance & the loss of revenue due to sudden shut down of the plant in case of an unknown fault / error.
A good Monitoring also helps as a very effective tool for the investors as well in order to keep their eye on the Performance of the Solar plant they have invested on.
But we should always beware while selecting a good Monitoring solution, as it should be independent of any make of inverter, SMB, Meters, sensors etc. in order to have effective & proper Monitoring of our Solar Plants.
Very Well said Mr. Radhakrishnan. A lot of the fate of the Indian solar industry will depend on this transition period. Lets keep our fingers crossed.
Rightly said Gurdeep!