Renewable Energy Investors in India Consolidate and Downsize

Returns and Volumes Decline

Renewable energy in India has been one of the major success stories of the current government as it has seen volumes surge over the last few years driven by government policies and falling prices. However, currently, the industry faces the prospect of a declining year as projects have seen a setback due to the uncertainty created because of policy issues such as a safeguard duty and tax increase. The prices of the solar projects have also been affected by rising interest rates as well as the perennial issues of transmission and land constraints.

Attracted by the huge size of the market, many large investment firms had opened up large RE platforms to put money at work in the sector. However, with projects hard to find and the ultra high competition in the sector leading to low returns and high risk, the environment has become a bit bearish. The solar sector will also see a decline in overall capacity additions this year as SECI has canceled/deferred a few tenders due to prices being higher and low interest from the major bidders. Many of the large developers such as Essel, IL&FS, Canadian Solar etc. are selling/looking to sell their assets and get out of this sector as banks are now reluctant to lend to the power sector. Essel has sold off its assets to Actis while Canadian Solar has sold off its assets to Macquarie. Some of the top management of the large investment firms have also left as the returns on renewable energy have failed to materialize.

Despite this drawback, the long-term fundamentals of the sector remain extremely strong as IEA has predicted that India will be the largest energy growth generator globally till 2040 as its per capita income and the per capita energy demand increases. Also with the government expected to soon reach its goal of providing universal access to electricity, demand is set to increase for the entire economy.