Solar churn increases in India’s Sunrise sector as Utilities and investors move in and out

India’s solar sector is seeing an increasing amount of churn with new investors and developers entering the market even, as some of the older ones start to exit the industry. The competitive intensity in the industry remains high which means that tariffs remain very low, leading to very low ROE levels for developers. Given that the quality of solar panels being used in many of these projects are suspect, many of these projects may run into serious financial trouble going forward. Recent results from solar  projects built in Gujarat during 2012 period have started to come in. The average power output is almost 10-15% below what was being expected. Many of the initial investors are also looking to exit as the lock in periods have got over, however finding buyers for many of these low quality projects may be difficult. Some of these investors may have to take large losses to offload these assets.

CLP India which is one of the biggest private utilities in the Indian power sector, with large gas and wind capacities has finally decided to plunge into the solar sector as well. The company plans to invest over $1 billion into the solar sector. Note CLP India has been noticeably absent in numerous Indian reverse auctions even as many of the wind power developers such as Mytrah, Suzlon, Renew etc. made large bids. CLP is deciding to take the JV route for its first large solar investment. It will buy a 49% stake in a 100 MW solar project being built in India’s southern state of Telangana. CLP is partnering with Suzlon which is India’s biggest wind turbine maker for this project which has a long term PPA of INR 5.6/kWh (approx USD 8 cents/kWh).  Though not a very lucrative price, it is still better than the 6.5 cents/kWh bids which were seen in other states. Suzlon will provide the EPC and maintenance services. CLP also plans to build around a 1000 MW portfolio going forward.

Read more about Utility companies in India.

Even as CLP logs into the Indian solar power sector, French giants EDF and Eren are looking to sell their stakes in large Indian solar power developer ACME. These companies which had a combined 50% stake in the company are reported to have sharp differences over the low prices being bid by ACME to win almost 1500 MW of capacity. Many companies and anlaysts have said that it is not feasible to build solar power plants below INR 5/kWh. However, ACME, Azure and others have consistently bid at lower levels in order to meet their ambitious revenue growth targets. The large foreign developers are more concerned about the long term viability and feasibility of these projects while the Indian developers want to expand quickly and increase valuation (aka Flipkart). Given that foreign capital is eager to enter India’s renewable energy sector, ACME would be confident of finding other investors as EREN and EDF will take out around INR 300 crore in equity from the venture. Note large pension and sovereign funds such as Abraaj, Amplus etc. have already tied up with Indian RE developers to fund large capital intensive solar projects.

ET

“EDF and EREN are parting ways with Acme,” a person aware of the development said. “Maybe the foreign players had a different set of expectations from Acme,” the person told ET. EDF and EREN hold 25% stake each in the company with Acme holding the rest.