 "Why SunEdison's exit won't hurt India's solar sector")
SunEdison’s decision to sell its investment in India is being viewed by some as a setback to the growth of solar energy in the country. Prima facie, it might look like the sector has been dealt a body blow but let’s look at the facts of the case before arriving at a conclusion.
Reports say that on account of SunEdison’s financial woes in the USA, the company is looking at either selling or seeking a partner for its venture in India. SunEdison might file for bankruptcy protection in the coming weeks.
Consequently, it is said to be trying to offload an Indian asset which it is confident of selling. This in no way signals that the Indian market will suffer. In fact, Adani group is reported to be considering picking up SunEdison’s assets. The report also says that the assets could also draw interest from Japan's SoftBank Group Corp and Taiwan's Foxconn Technology Co Ltd who have pledged to invest about $20 billion in Indian solar projects with local partners.
SunEdison’s operates a 450 megawatts (MW) unit in India and is developing another 800 MW of capacity. A few months ago, it won a bid for a 500 MW plant in Andhra Pradesh.
SunEdison’s exit has nothing to do with the economic environment in India or the falling tariff prices in the country. SunEdison is one of the largest players in the Indian market but not the only one. Its exit is unlikely to impact the market too much as there are other American and Chinese players waiting to step into the gap.
In order to understand SunEdison’s role in the solar market in India and why its exit will have little impact we need to understand the structure of the industry.
Sujoy Ghosh, CEO of American solar major First Solar India, in an interview with Business Standard said “There are two kinds of players in the Indian market. Developers like us (First Solar), SunEdison, Azure Power, essentially breaking the initial risk capital to create an asset.” These companies bid for projects from the government and set up and commission the units. “Once they create an asset, these companies would like to turn these to long-term assets, recycle their money and keep bidding for more assets. Their value lies in risk mitigation and finance,” says Ghosh.
The other class of players are long-term asset owners — ideally, a utility which is willing to invest a lot of money at a predictable but low rate of return. These companies are those who buy solar or wind assets generally for financial returns. But, as the government is mitigating a lot of risk, we are witnessing long-term asset owners coming and building the projects. Many foreign utilities are coming in to take up capacity addition points out Ghosh in the interview. This will lower cost of energy and create more demand.
The major part of SunEdison’s sale (nearly 1,250 MW) will be to payers who are willing to buy an operational or soon to be commissioned unit. It’s the 500 MW units in Andhra Pradesh which many people in the industry say is the trouble spot. SunEdison had aggressively bid for this unit quoting a price of Rs 4.63 per unit to bag the order. Analysts fear that at this rate there will be few buyers for the project.
Let’s do a fact check. Finland based Fortum Finnsurya Energy won a 70 MW NTPC solar project in Rajasthan for Rs 4.34 per unit. Evidently, SunEdison might not have too much of a problem in selling its project. In any case there are many factors that a company considers before putting a bid for a project. The price of panels, interest rates, technological changes and the site and intensity of sunlight and terrain all have a say on the bid price. Thus, an apple-to-apple comparison is difficult just by considering the bid price.
Government has taken many steps to sweeten the deal for the solar industry and attract investment like Renewable Power Obligation (RPO) which would require that 8% of electricity consumption be procured from solar energy by March 2022. Bidding under dollar denominated tariff is another step which will attract a lot of interest in the sector.
India, outside of the US and China, is the fastest growing solar market in the world. Global players realise the window of opportunity is small if the targets of 100 GW are to be achieved till March 2022. The number of bids in every solar auction is a testimony of the interest the sector is getting from various players globally.
If anything, SunEdison will probably regret missing out on the big opportunity despite having been in the right spot at the right time.
Reports say that on account of SunEdison’s financial woes in the USA, the company is looking at either selling or seeking a partner for its venture in India. SunEdison might file for bankruptcy protection in the coming weeks.
Read more from our special coverage on "SUNEDISON"
Consequently, it is said to be trying to offload an Indian asset which it is confident of selling. This in no way signals that the Indian market will suffer. In fact, Adani group is reported to be considering picking up SunEdison’s assets. The report also says that the assets could also draw interest from Japan's SoftBank Group Corp and Taiwan's Foxconn Technology Co Ltd who have pledged to invest about $20 billion in Indian solar projects with local partners.
SunEdison’s operates a 450 megawatts (MW) unit in India and is developing another 800 MW of capacity. A few months ago, it won a bid for a 500 MW plant in Andhra Pradesh.
SunEdison’s exit has nothing to do with the economic environment in India or the falling tariff prices in the country. SunEdison is one of the largest players in the Indian market but not the only one. Its exit is unlikely to impact the market too much as there are other American and Chinese players waiting to step into the gap.
In order to understand SunEdison’s role in the solar market in India and why its exit will have little impact we need to understand the structure of the industry.
Sujoy Ghosh, CEO of American solar major First Solar India, in an interview with Business Standard said “There are two kinds of players in the Indian market. Developers like us (First Solar), SunEdison, Azure Power, essentially breaking the initial risk capital to create an asset.” These companies bid for projects from the government and set up and commission the units. “Once they create an asset, these companies would like to turn these to long-term assets, recycle their money and keep bidding for more assets. Their value lies in risk mitigation and finance,” says Ghosh.
The other class of players are long-term asset owners — ideally, a utility which is willing to invest a lot of money at a predictable but low rate of return. These companies are those who buy solar or wind assets generally for financial returns. But, as the government is mitigating a lot of risk, we are witnessing long-term asset owners coming and building the projects. Many foreign utilities are coming in to take up capacity addition points out Ghosh in the interview. This will lower cost of energy and create more demand.
The major part of SunEdison’s sale (nearly 1,250 MW) will be to payers who are willing to buy an operational or soon to be commissioned unit. It’s the 500 MW units in Andhra Pradesh which many people in the industry say is the trouble spot. SunEdison had aggressively bid for this unit quoting a price of Rs 4.63 per unit to bag the order. Analysts fear that at this rate there will be few buyers for the project.
Let’s do a fact check. Finland based Fortum Finnsurya Energy won a 70 MW NTPC solar project in Rajasthan for Rs 4.34 per unit. Evidently, SunEdison might not have too much of a problem in selling its project. In any case there are many factors that a company considers before putting a bid for a project. The price of panels, interest rates, technological changes and the site and intensity of sunlight and terrain all have a say on the bid price. Thus, an apple-to-apple comparison is difficult just by considering the bid price.
Government has taken many steps to sweeten the deal for the solar industry and attract investment like Renewable Power Obligation (RPO) which would require that 8% of electricity consumption be procured from solar energy by March 2022. Bidding under dollar denominated tariff is another step which will attract a lot of interest in the sector.
India, outside of the US and China, is the fastest growing solar market in the world. Global players realise the window of opportunity is small if the targets of 100 GW are to be achieved till March 2022. The number of bids in every solar auction is a testimony of the interest the sector is getting from various players globally.
If anything, SunEdison will probably regret missing out on the big opportunity despite having been in the right spot at the right time.