A Game of Scale
It is a game that has played out in the Western world already, Solar Power business is more and more getting tilted towards the larger players. Smaller entities are getting pushed to being Tier 1 or Tier 2 sub contractors. Solar power, which once fostered small enterprises, is transforming into a scale-based opportunity. As tariffs hit record lows crimping returns, smaller firms are either scaling down or selling out. The main components in any solar plant installation are the solar modules. The international market has plenty to offer, at low rates. The Chinese manufacturers of solar cells and modules are willing to offer this at very competitive prices, as compared to local players, for chosen players who are able to provide them with scale. Indian players have their production capacity full at times and really cant lower and compete with this level of pricing.
The top players have moved quickly, and data shows that the top 10 solar project developers have raked in new business quickly in the FY 2015-16, to jump from a 35% share to over 60% share in new business / new plants set up.
Funding holds the key
The solar industry is no longer a technology play. It never was. Building and installing solar plants is more project management. But the key really is
the funding – or the interest rate at which funding comes in.
the funding – or the interest rate at which funding comes in.
Local FIs provide funding at 14-15%. According to a report from Mercom Capital Group, a clean energy communications firm, lack of scale, insufficient government support and an underdeveloped supply chain are major problems plaguing the manufacturing sector. Not all small players can access the low interest rate funding that is available internationally.
All of this allows the bigger players to access better technology, and procure equipment in bulk, at a lower cost. All of this can change, if there is enough capital chasing projects in India, forcing the investors to look at smaller projects for a change. The situation is a little ironic, since the larger projects continue to attract a bevy of investors, while the smaller projects have no takers. The smaller projects continue to offer better returns at times. Still, an investor prefers a larger project in a bid to quickly grow its investment portfolio.
The local industry is slowly evolving and growing and that can help the smaller firms to maintain cost competitiveness. However, it is a time taking process. While that calls for a concerted policy action on manufacturing, smaller firms can find new and profitable segments in the off grid space. Rooftop and Off grid solar are therefore the segments that smaller companies like Urja Unlimited have turned attention to. And of course, start working on securing the low cost funding that will ultimately come to the smaller projects as well. The sooner such EPC players uncover these funding sources for themselves, the better it will be.