There are several rooftop solar customer segments that are attractive for investors from outside India, but possibly one of the most complex and attractive is the MSME market. The market comprises of millions of small and mid sized units operating as propreitorships, partnerships, and small private limited entities that are fund starved and credit starved – yet, credit worthy. And can benefit immensely from installing solar rooftop on idle roofs and save electricity bills.
A study by the consulting division of Urja Unlimited shows huge potential in Faridabad, an industrial cluster, with thousands of
small manufacturing units. The units depend on overdraft limits, fund and non fund based limits by banks based on financial reports. However, these are market interest rates based. A report suggest that the actual credit gap faced by MSMEs is around 230 billion USD. They account for around 45% of the industrial output in India. Now, if an international fund was to come in, and seek similar returns or even below market returns, there is a huge upside for all stakeholders. The role of an aggregator for rooftops such as Urja Unlimited, or other system integrators cannot be overstated. They are the ones who can lead to access to such customers and help aggregate rooftop space, to grow this to a 2-3 lakh sq ft of rooftop space. This is sufficient for a cluster of 5-10 units to be grouped together to form a 2-3 MW portfolio. While a cluster may be a small, but if a view was to be taken to take this as one units, several such clusters could be of interest to a small to medium sized fund or an impact investor. Recently, there have been news items of funding deals happenning where larger players have secured finanance for setting up rooftop solar plants. Some of these plants have been set up using low cost international funds that bear low interest rates and hence provide an attractive return for the investors. The segment is under served, and hence a low hanging fruit for most such international investors. The opportunity lies in connecting the dots and ensuring fund flow for the rooftop solar plants.
World Bank and ADB has tried this with PNB and SBI, as financial entities, and while the results have been mixed, atleast a few large deals have happenned in the recent past.
One example is the US-based impact investor Encourage Capital that recently raised US$ 40 million for its new private equity fund Encourage Solar Finance. The fund is aimed at helping micro, small and medium-sized enterprises (MSMEs) in India to switch to rooftop solar. The fund is likely to increase the funds under deployment to 100 million USD over 2019. If the MSME market opportunity is conservatively pegged at 15GW of solar, there is scope for 7500 -10000 such clusters to be developed. Spread across the top 40 industrial towns and cities, the target can be broken down into 250 such clusters in every city. The Indian government wishes to deploy 100 GW of solar capacity, of which about 40 GW of solar is to come from rooftop solar. The installed capacity is far behind in terms of actual installation. It is around 3 GW at the current time, and as a percentage of total installed solar, is a miniscule percentage.
One of the approaches could be to work with the distribution and state utility to identify the top consumers of electricity, and group them based on location. All of this data is available with the distribution entity. The past history of payments is also available. To read more about the article on how the state utitlity can play the role of an aggregator read the following blog :
Electricity Utilities as catalysts for growth for rooftop solar