The National Energy Administration (NEA) of China recently released a detailed set of renewable energy targets under its Thirteenth Plan (2016-2020), setting a solar photovoltaic (PV) target of 190 GW to 200 GW by 2020. Given that the country has an installed solar PV capacity of 102 GW, this implies the addition of about 90 GW in the next three years. The players, therefore, are gearing up to meet the demand.
Phono Solar Technology Company Limited, which operates across the solar value chain including manufacturing, engineering, procurement and construction (EPC), plant operations and project financing, is hoping to get more business through this scaled-up target. Founded in 2004 in Nanjing, China, Phono Solar is the renewable energy arm of the SUMEC Group.
Although focused on the domestic market, the company is going strong on the global expansion front. In the past few years, it has been focusing on establishing and strengthening its footprint in Japan, India, Europe, Australia, North America and Africa.
In India, the government’s target of 100 GW of solar capacity by 2022 has opened up the market, with ample room for large global companies to set their base. Not missing out on the opportunity, Phono Solar also jumped the bandwagon in 2016, vying for a share of the expanding solar segment in the country. It has forged several partnerships with domestic players, one of them being L&T.
Business model and portfolio
Phono Solar is a complete renewable energy service provider, delivering customer-packaged solutions for energy supply, management, savings and storage. It has a diverse manufacturing portfolio for residential and commercial solar power products. The company manufactures solar modules, solar cells, phonocubes (an energy management unit that combines the inverter, batteries and the PV system into one compact system), portable power solutions, and lighting, heating and cooling systems.
In addition, the company undertakes greenfield project development, offering integrated solar power solutions ranging from project development, design and procurement, to financing and operations and maintenance. Phono Solar’s project development capabilities entail designing a new project or auditing an existing solar power plant. Typically, common studies include the electro design of low and high voltage parts, computer simulation, and observing the effects of shaping (3D modelling), plant monitoring and management units, design and grid connectivity. The company offers flexible financing solutions to developers to undertake solar power projects. Also, Phono Solar undertakes EPC contracts for independent power producers and developers. It also offers supervision and maintenance services through the construction phase and beyond, depending on customer requirements. This involves continuous monitoring of the plant by company professionals to ensure smooth operations, in turn maximising efficiency. Moreover, the company offers customised power solutions wherever required.
It also provides solutions and resources for smart microgrids, which are small-scale versions of distributed energy systems established for off-grid and decentralised power generation systems. Phono Solar combines solar-diesel hybrid power generators with energy storage to provide microgrid solutions.
The company has installed around 1.8 GW of solar power projects in the EPC and project development modes in China. It is putting in equal effort in expanding beyond China. Recently, Phono Solar established a 1.2 GW plant in the Gezbe Organised Industrial Zone (GOIZ), Turkey, for the production of new generation bi-directional solar panels, of which around 400 MW is soon expected to be operational. This was accomplished in collaboration with Turkey’s Smart Energy Group. It has also recently signed a 150 MW PV modules framework agreement with Wattkraft, Germany. Other recent contracts undertaken by the company are spread across Chile, Japan and the UK. However, the cumulative size of these contracts is 100 MW approximately and will be developed by Phono Solar in the EPC mode.
The company’s India operations, managed from its headquarters in Delhi, currently entail the import of solar modules from China. So far, it has exported about 150 MW of solar modules to India, with another 100 MW of modules in the pipeline.
According to Aaron Wu, general manager, Phono Solar Overseas Marketing Centre, the company is not focused on undertaking project development and EPC contracts in India. It is not even looking to set up a local manufacturing facility in the country, let alone facilitating project finance. Well aware of the growing competition and pressurised margins in the solar segment in India, Wu says, “We cannot just compete on the basis of price but also have to be cautious of the ongoing industry trends. If the cost of materials reduces, then the prices of our solar modules will definitely go down.”
The Indian market has witnessed a steep fall in solar tariffs, making it significantly difficult for solar power generators to remain viable and competitive. Wu is of the opinion that the reverse bidding mechanism has led to the entry of a few very aggressive players, which has brought the tariff to a very risky level.
The price dynamics of the Indian market have made it a challenge for Phono Solar to compete with domestic EPC and project developers. Wu says, “India is a very challenging place for EPC contractors and I don’t think we can compete with local Indian EPCs in terms of pricing and competitiveness”. Owing primarily to this challenge, the Chinese company does not even plan to undertake local manufacturing.
While Wu understands the challenges existing in the solar power segment in India, he believes that these can be overcome through government intervention. He recommends that the Indian government should consider a different approach to increase the tariff and improve the quality of plants by driving greater innovation for system integration, which will help the market to grow. “The government should implement a bottom benchmark tariff to prevent another free fall beyond the current tariff of Rs 2.44 per kWh,” he said. In addition, the government should focus on creating a more diversified market to support the entire industry and not just project installations. In the current situation, only big developers with deep pockets are able to compete in the market, which according to Wu, is not a healthy sign.
The way forward
Given the current situation in the Indian solar power segment, which is witnessing intensified competition not only from Indian companies but also from new foreign entrants, Phono Solar has a long way to go in order to establish a sizeable foothold in the market. While there is immense potential for all players, given India’s ambitious 100 GW target, falling prices have significantly reduced margins, resulting in considerable market consolidation.
Despite these challenges, the company should explore the idea of diversifying its operations, and step into the EPC and project development space to broaden its overall share in India. It has had ample experience in the Chinese and other international markets and should leverage it to rapidly scale its operations here.