Non-performing assets (NPAs) in the power sector made their appearance in 2007, when a number of companies announced big power projects. Most of these projects are yet to see the light of the day, with many languishing as NPAs in the banking sector’s books.
Of late, the rush of companies announcing their entry in to the solar power sector raises the question of whether this is a repeat of the old power story.
Lanco Infratech announced Monday that it will invest Rs.2,300 crore to build a solar manufacturing facility by January 2017 in Chhattisgarh. It will produce 1,800 tonnes a year of solar-grade polysilicon, 100 megawatts of ingots and wafers, 150 megawatts of modules and 100 megawatts of cells. This follows a series of companies announcing their plans in the recent Resurgent Rajasthan event.
While most of the other companies are opting for setting up power generating units, Lanco has decided to build its own capacity for equipment needed to erect a solar farm. This could have been a good strategy, but for the fact that solar equipment manufacturers worldwide are affected by cheap Chinese goods. According to Bloomberg, India already has a module manufacturing capacity of 3 gigawatts and for solar cells about 1.2 gigawatts. Much of that is underutilised, making India depend on imports to satisfy demand from solar developers.
Lanco Infratech might have a case in building up the unit since India plans to install 100 gigawatts (GW) of solar capacity at a cost of $100 billion by 2022 as compared to only 4 GW today.
The government’s focus on renewable energy has attracted global players to the country. Most of the companies that are entering India are equipment suppliers. Take the case of SunEdison, the world’s biggest developer of renewable-energy power plants. SunEdison won a bid to sell solar power from a 500 megawatt plant in Andhra Pradesh under the Jawaharlal Nehru National Solar Mission at the rate of Rs 4.63 per kilowatt-hour (KWh or unit).
Of the 28 companies that qualified for the second round of bidding, nine including SoftBank Group Corp of Japan, Trina Sola of China, Italy’s Enel Green Power SpA, Reliance Power Ltd, ReNew Power Ventures Pvt Ltd, Solar Arise, Acme Solar and Orange Renewable Power offered bids under Rs 5 per unit.
The previous lowest solar tariff was about Rs 5.05 per unit offered by Canadian company SkyPower’s for a 150 MW project in Madhya Pradesh.
But are these projects feasible at such low prices? SunEdison is already looking to sell off all projects won under the central government flagship National Solar Mission since the company is facing financial pressure at its parent company. This follows a decision yesterday where the company has decided to merge its three entities and sell more assets.
However, SunEdison’s exit on account of its financial health might not have much of an impact in Indian solar market as other players were also able to come close to the price quoted by SunEdison in the winning bid. Also, the low prices of solar power in these cases has been possible since the project was set up on a solar farm which brings down the cost of integration and risk of land cost and its procurement.
But the falling price of solar power should ring alarm bells for conventional power sector players. According to a KPMG report in India, solar prices are within 15% of the coal power prices on a levelised basis. While this may not fully capture costs such as grid integration costs for solar, KPMG feels that even after considering the same, solar prices would be competitive with coal.
Solar sector growth is not only restricted to India – it is soon turning out to be a global phenomenon. KPMG says that the growing scale and competitiveness of solar power could impact local coal prices. Change will be visible in 2017 and will accelerate after the year 2020. Coal prices are expected to chase solar prices in future, KPMG said.
At Rs 4.63 a unit, solar power is already close to thermal power plants cost. In the last financial year, the average rate of electricity sold by state-run NTPC Ltd’s coal-fuelled projects was Rs.3.25 per unit, while the tariff of power from its other projects ranged between Rs 2 and Rs 4.50 a unit.
The International Energy Agency has forecast that renewables will produce more power than coal in 15 years’ time. If solar power’s current rate of growth continues, its output could match world power demand in just 18 years’ time. From big banks such as UBS and Citigroup, to environmental groups and technology entrepreneurs, everyone is talking of a “solar revolution”. Global solar market estimated by Deutsche Bank to be worth a staggering $5 trillion to 2035.
Changing technology is rapidly bringing down the cost of solar power equipment and thus the cost of generating solar power. With impact of global warming visible in climate changes, use of fossil fuel is swiftly coming down.
Though solar power companies, either generation or equipment supplier is not yet on analyst’s radar, its impact can be felt sooner than later. It’s only a matter of time before investors will start moving where corporates already have.