Solar power, which once fostered small enterprises, is transforming into a scale-based opportunity. As tariffs hit record lows crimping returns, smaller firms are either scaling down or selling out.
Vinay Rustagi, managing director of Bridge to India, a consulting firm, sums it up pithily: “There are many companies which became active in solar project development three-five years ago and have slowly decided to exit or slow this business because of the scale factor (mainly difficulties in raising capital and growing risk).”
Last week The Financial Express reported that Madhav Infra Projects has put its 34 megawatts of solar assets on sale as intense competition is making it difficult for the firm to expand further. Industry data is already capturing the changes. As of June 2015, the top 10 developers’ market share in total installed capacity stood at 36%. In projects commissioned in the one year to June 2016, their share (top 10 developers) jumped to 63%, data compiled by Bridge to India shows. The data covers only private sector developers.
The scenario is no different in the manufacturing sector. Manufacturers of solar cells and modules, key components in solar projects, are losing out to Chinese competition due to lack of scale and cost advantage.
According to a report from Mercom Capital Group, a clean energy communications firm, lack of scale, insufficient government support and an underdeveloped supply chain are major problems plaguing the manufacturing sector. Access to low-cost funds is another challenge. “Even if private banks are willing to lend, it is at exorbitant rates ranging from 16 to 17%,” said Mercom, citing a solar manufacturer.
In the current scenario of continuous drop in tariffs and falling returns, scale is not only giving the companies cost advantage but is also proving to be a competitive advantage. “It (scale) allows developers to negotiate better equipment costs, access larger and cheaper pools of international capital (ReNew is a good example), and invest in design and technical competencies, which further reinforces the cost advantage,” adds Rustagi. Read More…
Credit By: livemint.com
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