Solar power quite recently received a bid of Rs 4.6 a unit. Is this sending confusing signals to global investors since tariffs are falling but there are no big projects coming up?
Currently we are witnessing a significant interest from investors in existing operating renewable platforms and several large developers in India like Renew, Greenko and Green Infra have been able to successfully conclude secondary equity capital infusion on a scale, purely on the credibility of their asset class. The reality is that as long as the renewable assets are built to a certain standard of quality and reliability that translates into predictable cash flows that generate a stable forecastable income, they will attract investment from a large pool of institutional capital/investors who have deep pockets and a very low risk appetite. The recent bidding for the JNNSM AP Solar Park witnessed unprecedented enthusiasm from developers which is reflected in the tariffs that were bid. The solar park concept is an excellent strategy by the government to mitigate development and execution risk (on land, interconnects and permitting) plus the fact that NTPC’s off-take is the most bankable offtake one can secure in India. All of that translates into lower risk and hence a lower tariff, and in the long run the lower tariffs will only trigger more demand for solar energy which is a positive aspect We have always maintained that India’s solar demand is long term and sustainable as it has a very negligible element of subsidy (as compared to certain other markets), and hence India will remain an important destination for long term investors in the solar sector.
Comment on the sustainability of such low rates, which is being debated.
As a developer one tends to speculate on the forward market price for equipment and bid tariffs with an expectation that if they are successful in securing the PPA and have a firm demand, they will be in a position to commoditise the rest of the value chain to a point that makes a justifiable return on the investment. In the past 3 years given the fact that there was excess capacity in the industry on both PV modules and BOS, the efforts to commoditise the other market participants met with some degree of success. Whether such behaviour will continue perennially, remains to be seen as we have witnessed consolidation in the PV manufacturing industry as well as with the EPC/ BOS players. As global demand and supply balances out, such sharp drops may not be witnessed again. Also external factors like currency volatility have negated to some extent the drop in equipment pricing and hence the sustainability of these rates will boil down to the ability of the developers to attract (a) optimal debt at rates that support the project cash flows and (b) capacity on the balance sheet of the promoter to provide equity and backstop the risks associated with the development and operation. If the capital markets respond in a positive way to these tariffs then it will definitely pave the way for a huge upsurge in demand.