Solar cos out to tap $42 billion bounty

Several multinationals and scores of Indian companies, many of them start-ups, are following the sun in India for an opportunity the World Bank estimates at over $42 billion over the next 10 years.

But before they put the money on the table, these companies, participating in the first SolarCon conference and exhibition in Hyderabad that concluded on Wednesday, would like to see the fine print of the government of India’s plan to reach its stated objective of generating 20 gigawatts (20,000 mw) of solar power by 2020.

The National Solar Mission (NSM), to be unveiled on Saturday, is thus being watched keenly. According to a draft of the policy, the government wants to see an installed solar generation capacity of 1 lakh mw and 2 lakh mw by 2030 and 2050, respectively. The draft also talks about 4-5 gigawatts of installed capacity by 2017.

“A target of 20,000 mw is two orders of the magnitude of what India has today,” says Satyam Prasad, president, SEMI, the apex body of global semiconductor equipment makers.

“About six months back, I would have said the solar industry is India is at the crossroads and it is difficult. But today, it is a different picture with interest building up from all quarters,” says Prasad.

Currently, there are 8-10 solar cell makers in the country, mostly concentrating on exports.

According to Rajiv Jain, associate director, government affairs, India Semiconductor Association, the country has an installed cell capacity of 400 mw and a capacity for making modules, which hold the cells to capture sunlight, of 700 mw. 

But a big issue is that while there is abundant sunlight available in the country, solar energy costs over four times the conventional fossil fuel-based power at Rs 16-18 per unit, depending up on the kind of technology used. This makes it too expensive. 
Therefore, as elsewhere in the world, much would depend on the incentives regime the government rolls out on Saturday to encourage manufacturers, component makers and generators to enter or ramp up capacities.

The draft NSM, which seeks to achieve the target of 20 gigawatts capacity by 2020 in three phases, envisages a total subsidy bill of Rs 82,000 crore, something the industry is sceptical of but which could well encourage players to step up activity.

“The 20,000 mw target will cost a whopping $42 billion even at a conservative $3 per watt. Do India and Indian companies have the capacity to raise funds of this order?” asks Punit Rustagi, investment analyst, South Asia, IFC-World Bank. He sees the high initial costs, lack of regulatory clarity and lack of market support progrmmes as the stumbling blocks.

“The most important thing will be to ensure that the PPA (power purchase agreement) for solar power will be bankable,” says Srinivas Nagabhirava, managing director, Asia and Middle East, AES Solar Energy.

According to him, that is not possible if the state utilities insist on 10-year PPAs. Ideally, there should be 20-year PPAs, which will be current over the life of the solar modules used for power generation.

The doubts and concerns notwithstanding, the solar gravy train has started chugging even before the nitty-gritty of the government policy is known.

The solar buzz may, in fact, have come at the right time for many Indian aspirants who had missed the semiconductor bus in 2007 despite a National Semiconductor Policy (NSP).

The NSP, which clubbed technology for computer chip manufacturing and solar cells in the same basket, given the common raw material requirements and technology, received 17 investment proposals, of which 15 were for solar cell and module manufacturing capacities totalling 3000 mw at a whopping Rs 1.3 lakh crore investment. Of these, 12 received in-principle approval as of June this year.

States like Andhra Pradesh, Gujarat, Rajasthan, and Maharashtra too have been proactive in wooing potential investors into the solar space, in anticipation of the new policy. Andhra Pradesh has been at the forefront, thanks mostly to an opportunistic positioning of the FabCity, which failed to attract much of semiconductor investments, but proved ideal for solar photovoltaic manufacturing companies to set up shop. At the same time, the state has just kicked off plans for its SolarCity project to attract companies for setting up solar farms near Anantapur in the state, some 70 km from Bangalore.

While the FabCity has received investment proposals from 25 companies totalling an investment of nearly Rs 10,000 crore in 3-4 years, at least six companies want to set up solar generation utilities at the SolarCity at an investment of Rs 4000-5000 crore over the next 4-5 years, B P Acharya, chairman, AP Investment Infrastructure Corporation, told DNA Money.

It is difficult not to worry if the solar bandwagon will go the semiconductor way.
“That is unlikely to happen. Photovoltaics is not a new kind on the block, unlike semiconductors which did not have a local market,” says SEMI’s Prasad. If you ask him, the NSM couldn’t have come at a better time.