Profitable sectors of the Indian solar industry

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While serious questions have been raised about the stability and sustainability of the solar energy players in India, a few segments of this industry do offer good business opportunities

While serious questions have been raised about the stability and sustainability of the solar energy players in India, a few segments of this industry do offer good business opportunities

Since the Indian solar market took off with close to 1.1 GW of photovoltaic (PV) projects during the fag end of 2010, it is experiencing a lull with allocations of only 350 MW under the Jawaharlal Nehru National Solar Mission (JNNSM) in December 2011, and another 310 MW by the states of Madhya Pradesh, Odisha and Karnataka, during the first two quarters of 2012.

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In the July-September 2012 quarter, there has been a capacity addition of only 67.25 MW of PV generated capacity in India, a drastic drop from the 401.74 MW added in the first quarter and the 340.62 MW added in the second quarter of this year. This is a direct result of a low number of project allocations in India in the first three quarters of 2011. The current drop in capacity addition has left engineering, procurement and commissioning (EPC) contractors and module suppliers with very few opportunities in the market, raising serious questions about the stability of the Indian solar energy market.

Keeping the current scenario in mind, let’s find out how the Indian solar industry is faring in terms of business. In this article, we have tried to analyse the growth and business opportunities in the different segments of the solar industry in India.

EPC segment is registering growth

Shaibal Ghosh, president, international business, Vikram Solar Ltd
Sunil Goel, vice president, Maharishi Solar

Today, the EPC segment is the most flourishing segment in the solar industry as this does not involve manufacturing of modules or other components, and is hence unaffected by the hiccups faced by manufacturers in India. EPC companies, both domestic and MNCs, have been carrying out small and big projects under both JNNSM and contract manufacturing tie-ups, and since they can import cells and panels at zero per cent import duty, these players are doing relatively well. Says Shaibal Ghosh, president, international business, Vikram Solar Ltd, “We are planning to expand our EPC business as we are doing well in this domain.” Sunil Goel, vice president, Maharishi Solar, adds, “Since the EPC business is not technology driven, they are at an advantageous position when compared to the manufacturers. They do not have to worry about obsolete technology.”

Contemplating huge growth and bigger profit margins in the solar domain, big construction and infrastructure companies have ventured into the EPC domain. Players like Larsen and Toubro, Sterling & Wilson and the Mahindras have established a strong foothold in the solar EPC business. Also, there are joint venture firms like Enfinity-Titan, Vikram Solar-Proener and Greenforce-Gehrlicher Solar, which are doing good business. These big EPC players have an edge over the small or new entrants, as they have the ability to fund projects with their internal resources. Besides, their reputations make it easy for them to raise money from the public or borrow from banks.

Biju PC, manager, sales and marketing, Emmvee Photovoltaic Power Ltd

However, although domestic EPC players like Vikram Solar, Emmvee Photovoltaic, Waaree and many others are also doing well, they feel that the profit margins are slim. Says Biju PC, manager, sales and marketing, Emmvee Photovoltaic Power Ltd, “Profit margins in the EPC business are thin. With our current capacity of 11 MW, we have been able to do business of around 3-4 MW only, through exports. In Indian conditions, we have been able to sell around 1 MW.”

The number of projects being implemented across various states is a clear indication that EPC is undoubtedly the most flourishing segment. Presently, Gujarat is leading among other states with more than 64 projects commissioned, with close to 710 MW of solar power generated in August 2012. Tamil Nadu aims to achieve a generating capacity of 1500 MW of solar power by 2015, and Madhya Pradesh has come out with a solar policy that aims to generate 1000 MW by 2017. Also, some major players like Gamesa India, the Indian arm of the global wind turbine major, and ABB, a power equipment manufacturing company, have recently forayed into the solar EPC sector.

Off-grid segment seems promising

India’s off-grid solar PV market, which has three major segments—captive power plants (where most of the power generation is consumed at the source), telecom towers, and rural electrification—is the second segment that is doing well. It has been forecast that this segment will install more than 1 GW per year by 2016.

Solar PV has significant potential in replacing diesel in telecom towers. According to the Telecom Regulatory Authority of India (TRAI), 770 million Indians own mobile phones, with 19 million new mobile users being added to the user base every month. Also, as per the Ministry of New and Renewable Energy (MNRE), there are 250,000 telecom towers which can use PV systems. Hence, the potential for total installed PV capacity is approximately 6.2 GW, and the payback period for PV systems as a power supply for telecom towers is two to four years.

Rural electrification is another emerging segment that is attracting maximum number of public-private partnership. Rural electrification can be done in three ways—by providing off-grid, solar PV based electricity solutions, including small applications with integrated power generation capacity (that is, solar lanterns and solar streetlights), solar home systems (SHS) and mini grids. There are 90,000 villages in India without electricity. This opens a big market for players in this segment. But the biggest hurdle faced by this segment is the huge investments involved in distribution, transportation and installation (cabling) in rural areas.

Agencies like the Indian Renewable Energy Development Agency (IREDA) offer capital subsidies and soft loans, under its off-grid scheme, for rural electrification projects. Also, companies that have undertaken government projects benefit through subsidies given by the Small Investment Development Banks of India (SIDBI). Hence, a favourable regulatory scenario and new financing schemes are helping players in this segment to flourish in this industry.

Realising the potential of this segment, many players are venturing into it. Recently, American company SunEdison embarked upon a rural electrification programme, and has completed a 14kW solar plant in Meerwada, Madhya Pradesh. Bosch Solar, a unit of the German company, Bosch, is also a new entrant in this segment. Bosch has implemented a micro grid based solar power project of 5 kW in a village in Bihar.

MV Chalapathi, director, Varahee Solar

“The rural market offers immense business scope. We have recently carried out a project in Hyderabad for solar water heaters and solar streetlights. In just 18 days of operations, we have been able to do business worth Rs 5.3 million,” informs MV Chalapathi, director, Varahee Solar, which is also a new entrant in this domain. Dlight is another firm that has done well, reaching its goal of touching the lives of 7 million people through its solar powered products across 40 countries. The company has registered a 400 per cent growth in sales during May 2011-2012. It focuses on the Indian and African markets.

Despite a slowdown in the solar industry, this segment registered a growth of 20-30 per cent this year. Especially in the lighting segment, where there are various business models that have come up and have been running successfully. These include institutional partnerships involving either local entities or third party service providers to look after sales, company owned branches, micro entrepreneurs or traditional distribution channels. Also, support from governments has boosted the off-grid solar market in which smaller players are doing very well.

Rooftop installations: An emerging segment

Industry experts are of the opinion that, in the next two years, rooftop installations will witness enormous growth, with the government about to announce guidelines soon. The penetration in this segment so far has been minimal but the industry is betting big on these projects, as the government is also providing subsidies to the developers. The Central government is already providing a subsidy of 30 per cent on 100 KW of rooftop installations.

Kerala recently announced an off-grid rooftop scheme. The Agency for Non-Conventional Energy and Rural Technology (ANERT), the nodal agency for MNRE in Kerala, announced a target of 10,000 solar rooftops for 2012-13. A state subsidy of Rs 39,000 per system, along with a Central government subsidy of Rs 81,000 or 30 per cent of the cost of the solar power plant (whichever is less), will be provided to the installer. Earlier, Tamil Nadu had launched a similar policy for solar rooftop installations on 300,000 new houses, with the solar power systems to be set up during the period 2011-16. Tamil Nadu plans to generate 350 MW of power through solar rooftop installations by 2016.

States like Rajasthan, Gujarat and Andhra Pradesh have taken major steps forward in the rooftop solar domain. While Rajasthan is setting up 50 projects of 1 MW (AC) each, the Andhra Pradesh government aims to generate a capacity of 20 MWp from rooftop installations. The Delhi government will also announce its rooftop policy within 3 to 4 months. The Orissa Renewable Energy Development Agency at Bhubaneshwar has also floated tenders for its solar rooftop project. Hence, it is clear that many state governments have either announced their rooftop policies or are on the verge of doing so.

To encourage green energy, the centre is planning a programme under which it will provide incentives, either financial or through a subsidy, to home owners installing a rooftop solar panel for their own energy consumption, and who will sell the extra power to the grid during daytime. This programme also contains a proposal in which building owners can rent their rooftops to investors to set up solar power plants.

Jasmin Patel, director, JJ PV Solar

Shares Jasmin Patel, director, JJ PV Solar, “We have recently installed and commissioned a 50KWp grid interactive rooftop solar power plant at Rajkot, Gujarat. Along with this, we have also carried out a rooftop installation in one of the leading educational institutes in India. These solar power systems have been installed under JNNSM. We have been successful in both the projects and feel this is among the growing segments in the solar energy industry that will attract a lot of players.”

Emmvee Photovoltaic Power has also bagged orders for more than 1.5 MW rooftop installations. Headway Solar has installed a capacity of 100 KW through rooftop installations in Surat, Gujarat. Azure Power has bagged a deal to develop a huge rooftop system in Gujarat. It is expected to install solar panels on 60 rooftops and complete this project by March 2013.

Grid connected projects

The third domain that is doing well is the grid connected market, particularly catering to government projects, which are aplenty across India. The Government of India is working on a plan to roll out 3000 MW of grid connected solar power projects in phase 2 of JNNSM. But so far, the total capacity of the projects completed under the mission works out to just 257 MW. Another 400 MW of additional PV capacity and 500 MW of solar thermal are expected by the middle of next year. If all these projects come up, India will have a total installed capacity of 2000 MW by next year.

Various power plants are being commissioned across the country with Gujarat taking the lead by commissioning 600 MW of solar energy projects over just one year. A big chunk of the projects (amounting to 214 MW) is generated from a solar park in the Patan district. More than 50 companies have built solar power projects in Gujarat, including majors like SunEdison, Tata Power, Lanco Solar, Moser Baer and Adani Enterprises.

Rajasthan also has taken a major leap towards solar power generation with an installed capacity of 40 MW, which had started producing electricity from March 2012. The Uttar Pradesh government has installed canal based solar power projects. It is planning to put to use its vast canal network, spanning over 74,000 km, to produce solar power. The five districts where the pilot projects are being planned are Jhansi, Ghaziabad, Etawah, Ballia and Lucknow. A 3 MW solar power plant is also coming up in Jammu and Kashmir. In total, 21 states are actively pursuing their own solar energy programmes.

Major domestic players in this segment are working on big projects. Moser Baer has commissioned a 30 MW PV farm at Banaskantha district in north Gujarat. Adani Group has commissioned a 40 MW solar power project, touted as the country’s largest, in Gujarat’s Kutch district. Azure Power currently owns solar parks with 17 MW of capacity. The company has already invested US$ 100 million in this sector. Even MNCs are doing good projects in India. A French company, Solaire Direct, has proposed to set up a 5 MW plant in Pokhran, Rajasthan.

Each of these projects holds the promise of generating good business. Three years ago, grid connected solar power in India amounted to less than 12 MW. By the end of 2011, the country had generated 109 MW of solar power, and by March 2013, it will have 1000 MW solar power. This is also an indication that the players in this domain are doing well.

This segment also attracts investors. According to a report by Mercom Capital, a consulting firm, India received US$ 95 million in venture capital funding and over US$ 1.1 billion in large-scale funding for solar projects in 2011. The biggest funding deal was the US$ 694 million loan raised by the Maharashtra State Power Generation Co for its 150 MW Dhule and 125 MW Sakri projects. The Export-Import Bank of the US was the biggest investor, funding seven different large-scale projects.

The growing opportunities in this market are also driven by the fact that the government bought solar power at Rs 18 per kWh or unit of power in 2010, but is now buying it at Rs 8.77 per unit. It is expected that grid parity will be achieved between Rs 5.50 and Rs 6 per kWh.

Segments that are struggling

Though more and more solar energy is being produced in India, domestic solar panel manufacturers are struggling to survive. Just a couple of years ago, module manufacturers were riding high, but now they hardly have any orders. Many module and cell manufacturers have, therefore, forayed into the EPC business to sustain themselves. Most of the solar power plants that are coming up prefer to import their equipment, especially from China. This is because the Export-Import Bank of China provides soft loans at near zero interest rates to those who buy from Chinese module makers. Moreover, Chinese solar cells and modules are 25-30 per cent cheaper than their Indian variants. It is also because the technology is shifting to thin film and, in India, only Moser Baer makes thin film cells and modules. Even Tarun Kapoor, joint secretary, Ministry of New and Renewable Energy, had reportedly said that the government, too, prefers to import as “…it didn’t want to be seen favouring one company.”

Ajith Shetty, additional general manager, planning and procurement, Tata Power Solar Systems Ltd

“India is importing almost 80-90 per cent of modules from various countries. Clearly, the module manufacturers are not making profits,” says Ajith Shetty, additional general manager, planning and procurement, Tata Power Solar Systems Ltd. All major players, including Tata Power, Moser Baer and Indosolar, are finding it tough to sustain themselves just by manufacturing modules or cells. From a whopping 80 per cent exports in the last year, Tata Power’s exports have declined to 25-30 per cent.

According to the Centre for Science and Environment (CSE), currently, 80 per cent of local manufacturers are in a state of forced closure and debt restructuring, with no orders coming to them. Leading solar module manufacturer Indosolar posted a loss of Rs 2000 million in 2011-12, to add to its loss of Rs 1300 million in the previous financial year.

Most of the major players in this domain are in the same boat. Moser Baer is trying hard to recast a debt of Rs 38,000 million. Tata Power Solar, HHV Solar Technologies, Jupiter Solar, WebSol Energy Systems and others are all struggling to survive. Most of them have cut production, utilising only 10 to 25 per cent of their installed capacity. At the moment, Indian manufacturers are shifting from producing PV cells to assembling panels, using Chinese PV cells. For example, Lanco Solar has stopped manufacturing cells and is only making modules.

It is not just Indian companies alone that are facing hard times, recently, the world’s leading cell manufacturer Q Cells, thin film pioneer Ordersun and US based Solyndra have filed for bankruptcy, leaving the industry seriously worried.

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