'Low tariffs barrier for investors in solar sector in India'

You've been around in India's solar market for some time now, do you think it has matured and is on the cusp of a take-off?

I would say India is still a new market. However, if we look at how fast the market has matured from a supplier's side, India is already No. 4 in the world market. Previously, it was emerging and very small. Now, it is one of the top markets. Every player is coming to India. So for me that's kind of mature.

A lot is happening in India on the solar energy front. Recently, the World Bank pledged $1 billion for India's solar mission. Favourable policies are being framed for pushing growth in the clean energy, along with targeting 100 gigawatt (gw) by 2022. How big an opportunity does it throw up for you?

For us, if you look at our top five markets, China is in the leading place with 20 gw followed by the US and then it is Japan and India. We are dedicated to this market. It's a big opportunity for us.

Is India on track to reaching the 100 gw target by 2022. Do you see the ecosystem building up and the change happening?

It's because of investor-friendly policies and system support of the government that India's solar sector is growing so fast. It's growing so rapidly that it's outperformed our expectations. At the current pace of growth, it will be adding 2 gw every year. Last two years, it has grown beyond our projections. We didn't realise it (growth) would be so fast.

What is Trina doing to tap this potential?

We are committed on product innovation. Also, we are now looking deeper at climates in different parts of the country. We categorise all our material and product into the specific environment of the market. We need to make sure all the products provided to India is of the same quality and fit in the special environment category. Also, because India has such a competitive pricing system due to a reverse bidding system for tariff we have to make sure that solar can be as cheap it can be. In this direction, we are doing a lot of innovation to drive down cost at the component level and by improving manufacturing. We want to make products that are affordable in the Indian market because its tariff is the lowest in the world.

Do you have to compromise on your margins because of that?

I wouldn't say it's a compromise. It's definitely balancing. If you look at the world market, Europe or Japan give us little bit higher margin but overall margin in India is very low, probably the lowest. So, we can balance the loss of margin with a higher volume here. Second, we are into commodity manufacturing. So we are also trying to keep a minimum profit margin. If you look at our net (margin), it is around 3-4%. India is different from other countries. Other countries first start with feed-in-tariff (FiT) rates for solar plants. This is done during the phase when the ecosystem develops. So the players have some time to make sure they have time to do a quality job. The banks are also able to have good returns and investors get time to settle until the ecosystem is stable. Then, gradually they reduce the FiT. After which it is finally removed. But the uniqueness about India is that it has gone directly to reverse bidding. This way, it has not given a lot of space to people to really grow. This has made India a challenging market for engineering, procurement and construction (EPC) firms. They got very good FiT in other countries so a lot of foreign EPC were able to have a rounded contract. But here in India, many developers have to do a lot of EPC job by themselves to control costs. Elsewhere, developers leave a lot of work to EPC. This is the part where you have to be careful when the cost becomes so important for the developer then how can you ensure the quality of the project.

Does the unviable low tariff put a question mark on the sustainability of the current growth in the sector?

Now, the tariff has kind of stabilised. If it keeps going down, there would be a reason to be concerned. You can see a lot of the bidders here even abandoned or just dropped or killed the (solar) project themselves because they could not really make profit or couldn't get a financial investor for the project. The risk management in this sector is done by financial investors, lenders and creditors and they are usually very sensitive to this kind of thing. I know several Indian banks are hiring technical consultants to verify the financial risk of solar projects.

Do you see an attitude shift among stakeholders in the sector?

The episode of SunEdison has made people realise they have to look at the viability of a project, (not just lowest tariff). A year-and-a-half back, many investors wanted to come to India. They are more cautious now. I talk to a lot of overseas developers. I ask them where are you looking to invest. They tell me here and there. I ask how about India, and they say no. They say they cannot make money (in India). Investors in India are facing a huge challenge in meeting the internal rate of return (IRR) expectation. A lot of overseas investors don't think India is the best returns market because the tariff is the lowest here.

How much do you think these challenges could come in way of achieving the target of 100 gw by 2022?

Only five years left for it (target achievement). Now it's only 6 gw. It looks very challenging to me. However, in the end it is not about if you met the target or not. I still think India will be the fastest growing country in solar. Even if it can reach 60%, it'll be good. I think 100 gw is quite aggressive. Even if you add 10 gw per year, it's still very hard to reach 100 gw in five years. But you never know, we never thought India would be above 5 gw so soon.

Your revenues from solar panel are not growing at the same rate as shipment, what are the factors responsible for falling revenue per megawatt?

The cost of panel is going down is because of different factors like declining cost of raw material and improvement in manufacturing process.

What has been the impact of slowdown in global demand on the sector?

This year, the size of global solar market was 68 gw. Global market for solar is growing. You still have a growth of 20-30% each year and we are maintaining a market share of 10% in that.

What has been the trend in the average price?

The trend in average price is down because of the manufacturing experience curve. In solar, whenever the capacity is doubled, price or cost will decline 20-25%. It's a lot like the semiconductor sector. When the volume is small, market is very small and niche. Once it is commoditised, margins are small. Energy has to be commoditised. You cannot make it expensive because it is essential. The solar mission is to try to make it affordable and as cheap as fossil fuels.