Bridge India

Indian solar market running on fumes?

India received 263 GW of private sector renewable investment commitments at Re-Invest last year. New developers continue to enter the market on an on-going basis resulting in over-subscription for most bids and dramatic falls in tariffs. On the face of it, with so much interest in the market, shortage of equity investors should not be an issue. But many developers seem to be bidding for projects first and planning to raise capital later. The question is: will they all be able to raise capital at the current tariff levels and in time to meet the stringent deadlines?

  • The market is in uncharted territory as none of the sub-INR 5.00/kWh (US 7.50 cents/kWh) projects have closed financing yet
  • Developers are hoping for a reduction in equipment cost but there is a possibility of prices firming up at least in the 6-9 month horizon; implementation of GST also poses a risk to these projects
  • Over the next one year, we believe that a significant number of projects are likely to get delayed or cancelled and tariffs may either stabilize or even rise marginally from current levels

There have been recent announcements about companies such as ReNew Power and Hero Future Energies successfully raising fresh capital (refer). But in the backdrop of falls in international renewable stock prices and significant decline in solar tariffs in India, many developers including companies such as SkyPower and SunEdison seem to be struggling to raise capital (refer).  BRIDGE TO INDIA believes that banks are also extremely reluctant to commit debt for the recent aggressive bids.

While developers are hoping for cost reduction in equipment and services to improve viability of their projects, a significant swelling up of demand from India and other countries may, in fact, lead to prices firming up. Implementation of GST also poses a risk to these projects (refer), making capital raising even more difficult.

In such a scenario, there are genuine concerns about many developers’ ability to raise financing and build projects on time. We have seen a trend in the past particularly in state tenders where the timelines tend to be generally more flexible and significant project delays are very common (refer).

Overall, BRIDGE TO INDIA is of the opinion that while annual capacity addition in the Indian solar sector will continue to go up over the next few years, actual capacity added will be much smaller than MNRE estimates of 12 GW and 15 GW for FY17 and FY18 respectively. We also expect tariffs to stabilize or even rise marginally from current levels to attract sufficient interest from the financing community.