Do Buying Solar Assets in India Make Economic Sense?

The Indian renewable energy industry has been one bright spot in India’s overall infrastructure sector attracting billions of dollars and marquee foreign investors even as the rest of the sector such as roads, ports, conventional power, etc. are seeing a lukewarm interest from both Indian and foreign investors. Given the sunrise industry that RE has become, everyone wants to get a piece of the pie as the RE sector is set to grow by almost 5-6x over the next 10 years making India the largest RE market in the world after China.

Also, read India Becomes World’s Second largest Clean Energy Investment Market

However, returns of renewable energy assets are not exactly great as the assets are bid in a reverse auction in a hypercompetitive marketplace making the return potential quite low. Then there are myriad risks that face renewable energy asset owners and buyers in terms of fickle policy and regulatory environment where even established contracts get overturned or storm armed by politicians and bureaucrats. Getting payments on time from RE assets is a recurring challenge as it is for other Indian industries and service firms. Delays of 10-12 months are not uncommon for invoices that are sent to Indian power distribution utilities. The tax authorities are equally whimsical and can bring up outdated laws to harass and penalize investors. Then there is the foreign policy with ADD and CVD getting imposed making the life of investors even more miserable.

However, despite these challenges, foreign investors keep on pouring money into the sector. Petronas the Malaysian oil giant plans to invest in Tatas while UK investor-based platforms Ayana is buying Azure Power’s 300 MW plus solar farms. There are also other investors waiting in the wings. Besides the problems listed above, there is also the issue of quality with poor equipment being used by bidders in order to compete in super low-priced bids. This makes the 25-year life of solar farms a big question for the buyers. Wind farms earlier used to be a good asset to own with a decent return risk profile but with the reverse auctions being introduced into wind energy, the returns have gone down drastically along with the bid prices.