Solar Scenario

Which way is the sector headed?

India is riding high on the wave of renewable energy. The government’s ambitious plan to increase the share of renewable energy from 7 per cent to 19 per cent of the country’s total power generation is surely a lofty target. The aim is to achieve 100 GW of solar capacity by 2022.

The country’s commitments at the international level, including the recently ratified Paris Climate Agreement, reflect India’s serious intention to promote non-fossil fuels for its energy requirements. With over 300 days of bountiful sunshine, the country’s focus on clean and green solar power could well be justified.

There have been loud cheers from many environmentalists and the National Green Tribunal (NGT). The policies of the central government have propelled some states to mandate the transition to solar power and facilitate this by boosting solar energy technologies. Lower tax duties, guaranteed purchase and tax breaks top the list of solar-friendly policies. Gujarat has had a successful stint with the 214 MW Charanka Solar Park and Rajasthan has commissioned the 40 MW Dhirubhai Ambani Solar Park. The World Bank Group has announced an investment of $1 billion for India’s solar energy projects. According to the data released by the assurance, tax and advisory firm Grant Thornton, over $278 million was pumped into India’s solar energy sector in 2015.

Private equity players also showed high interest in the solar sector in 2015. Some of the key deals were as follows:

  • Applied Solar Technologies (India) raised $40 million in a funding round led by Future Fund, the Australian government’s sovereign wealth fund, and existing investors including Bessemer Venture Partners, the Capricorn Investment Group and the World Bank’s investment arm, the International Finance Corporation.
  • Solar energy developer SunTerrace Energy secured an undisclosed amount of seed funding from the US-based Sunergy Investors LLC.
  • The solar-powered cold storage system developer Ecozen Solutions received $1 million from the early-stage agri-tech-focused investment fund Omnivore Partners.

However, there are a few minor practical issues that exist in this sector:

  • Limited ability of SEBs: Most of the solar power is bought by the state electricity boards (SEBs), openly traded or captured for further use. This poses the first hurdle. Many SEBs cite their limited financial bandwidth for purchasing the existing lower-cost conventional energy, and thus express their inability to absorb high-cost green energy into their budgets.
  • Inadequate infrastructure: Since solar power generation is skewed across states, the inclusion of solar-generated power into the grid is a basic necessity for its effective consumption. The infrastructure to evacuate green energy is still underdeveloped. Power grids are not located close enough to solar power plants. Although the government is focusing on building alternative low-loss green energy interstate transmission lines across the country, feeder lines from the actual plants are largely left to the states’ jurisdiction. The green energy corridors, as these interstate transmission lines are termed, are under way, but clearly this is not enough. These are operational in Rajasthan, Tamil Nadu and Gujarat, with the rest of the country still largely uncovered.
  • Land acquisition woes: Solar power plants require huge parcels of land with good solar irradiance – about five acres of land is required to generate 1 MW solar power. Moreover, the land surface must be relatively plain, devoid of any trees and free from any legal disputes. The much-hyped ultra mega solar power project in Rajasthan, with an estimated output of 4,000 MW, was stalled after the revelation that 40 per cent of the allotted land was a lake that could get submerged during the monsoons, posing a threat to India’s second largest flamingo breeding ground. About 125 MW of solar projects launched by the Maharashtra State Power Generation Company were also delayed due to land acquisition issues.
  • Lack of proper financing: Since solar plants are infrastructure intensive, they require huge capital investments. Despite the push, financing support to solar projects is quite poor. Commercial banks provide loans at very high rates, and renewable energy projects find it difficult to get convenient and business-friendly debt.
  • Balancing the demand-supply gap: There are technical challenges too. The nature of renewable energy is very different from conventional fossil-fuel-based energy production. Solar power, in particular, is intermittent in nature, and depends on the availability and visibility of the sun. Obviously, there are breaks in generation during the night and during rainy, cloudy or stormy days. Also, seasonal outputs vary with varying degrees of the sun’s intensity. This is in direct contrast to conventional steady flow and controllable energy generation systems. The energy distribution and consumption systems in India are not designed to handle varying supply dynamically. Balancing supply and demand is thus a major deterrent for states in adopting solar power solutions.
  • Discoms’ financial distress: Discoms are incurring heavy losses, due to which they are unable to buy power. The combined debt currently stands at around Rs 3 trillion. The mounting losses are most likely to affect capacity generation in the solar sector.
  • Inadequate energy storage solutions: A part of flexible load balancing can be addressed by efficient energy storage systems that can store excess energy in advance to cater to the demand during low-generation periods. India is planning to install 10 GW of pumped hydro energy storage across the country. But there is still a long way to go as the cost of setting up energy storage is quite high. The country’s pumped storage capacity needs can be best augmented  through electrochemical technologies that use batteries and capacitors. But these are still at a nascent stage and an estimated 5-10 years away from viable commercialisation. In fact, studies project that only 60 per cent of the total balancing power needs will be addressed through the combined solutions of pumped storage, hydro and gas plants by 2017. This clearly reflects the on-the-ground situation.
  • Mandates will impact quality: The government has come up with a new tariff policy that mandates each state to ensure that solar power comprises 8 per cent of their non-hydro power consumption by 2022. Such a compulsion without adequate measures to facilitate the large-scale adoption of solar power can pose a direct threat to the quality of electricity supplied by the states. States, however, can ensure uninterrupted supply only by falling back on their coal-based plants as there is a lack of proper storage systems. Solar plants may, in fact, fuel the need for new coal-based plants, in order to keep the energy supplies running.


The initial euphoria of funding the solar sector seems to have waned and instead of more funds pouring in, the sector has been witnessing a series of domestic and cross-border merger and acquisition (M&As) deals. The key M&A deals that have taken place in the sector are:

  • TerraFormGlobal Inc., acquired SunEdison’s 425 MW solar power capacity in India for $231 million.
  • Electrical equipment maker Havells India acquired 51 per cent stake in the Bengaluru-based Promptec Renewable Energy Solutions for $5.32 million.
  • Hyderabad-based telecom and solar energy company Surana Telecom and Power Limited acquired a majority stake of 51 per cent each in Arhyama Energy and Tejas India Solar Energy.
  • In April 2016, Suzlon Energy acquired five smaller solar companies – Gale Solarfarms, Tornado Solarfarms, Abha Solarfarms, Aalok Solarfarms and Shreyas Solarfarms –  to implement various renewable energy projects across the country.
  • In June 2016, CLP India, one of the largest foreign investors in the Indian power sector, acquired 49 per cent stake in SE Solar, a special purpose vehicle set up by the Suzlon Group, one of the leading renewable energy solutions providers in the world.
  • The benchmark acquisition of Welspun Renewable Energy by Tata Power for $1.4 billion in the same month is an indication of the enhanced interest of private players in scaling up their clean energy play.
  • In June 2016, Amplus Energy Solutions Private Limited, one of India’s leading solar developers, acquired SunEdison India’s portfolio of commercial and industrial rooftop projects.

Solar M&A deals could well increase in the coming years. This would be indicative of the sector moving towards a phase of consolidation or maturity.

It is worth considering in which direction the solar sector is really headed, because it presents a contradictory scenario. On the one hand, it seems poised for growth given the government’s initiatives, and on the other, it seems to be moving towards consolidation in spite of the persisting challenges and issues. Is the picture not as rosy as it seems? Or, are we just witnessing a temporary consolidation phase with fresh capital likely to chase the sector again?


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