Is Solar Market At Risk of Shutting Out Competition?

With the Coronavirus pandemic taking a heavy toll on renewable players also, it is interesting to see how the market is panning out in India. No one could have missed the frenetic efforts by the Ministry of new and Renewable Energy (MNRE), under whom the sector falls, to ensure obstacles are removed. And obstacles have come up aplenty, which explains the unusually numerous public pronouncements and efforts of the ministry.

What is interesting is that for every issue, be it late payments from discoms, curtailment of power from RE producers, to the issues around adjusting for GST and Safeguard Duty from bids made before those came in, for every effort of the MNRE and regulators even, there are developers who have been unhappy about the actual ground situation.

Payment delays is a reality even today, as is arbitrary efforts by discoms to delay or even curtail renewable power purchases, despite the must run status that has been reconfirmed by the MNRE.

Even the open access market for commercial renewable energy has had its problems, as see by the issues thrown up in Haryana. All this, while a key state, Andhra Pradesh continues to be treated with a barge pole by industry majors still smarting from its decision to renegotiate signed PPA’s.

All of this, coupled with the tight funds crunch the industry was always grappling with throws up an interesting risk for the evolution of the industry. There is a real risk that well capitalised firms, with ready access to their investor’s pockets, will grow stronger, at the expense of emerging, challenger firms. The low rates (Check NHPC story )seen in the recent auctions point to the possible effort to squeeze out such players by the established players, as almost every independent observer believes the rates leave very little on the table for developers finally. Taken in the context of the many risks that the MNRE has admittedly tried to reduce, it makes for a scenario of undying optimism in the government, or more. And we all know where the former usually leads to.

There is a strong case for the government supporting developers with viable projects, and a pipeline, with innovative funding options, including possible short term guarantees for their loans. Otherwise, we might continue to see distress asset sales, or a never ending spiral of delays and disputes with their roots in the funds crunch faced by the smaller developers. lack of inovation, high prices in the long term, and lack of choice for consumers are just some of the issues likely to emerge in a few years if the trend continues.

While the situation currently is nowhere close to being monopolistic, there is absolutely no doubt that the risk has gone up. Stories of projects seeking buyers are all too common, with prices being pushed down. In all this, the valuation of the firms with the best ability to raise funding has held steady, indicating the possible opportunities their investors see for them.

As on date, over 50 percent of the industry’s future capacity additions till 2023 are linked to plans by legacy incumbents, namely the Public sector NTPC, or private sector leader Tata Power, or even the late upstart, Adani Power (through Adani Green Energy). Throw in Renew Power with its formidable fund raising record, and a batch of private equity backed firms, and you realise the herd has thinned considerably since the boom boom years of 2015-18.  With recent auctions also placing ever more requirements on bidders, the field is thinning out, where it has become easy to predict who is actually capable of mounting bids. That can’t be a good thing for long term competition. Keep in mind that a majority of the sector’s issues can be traced back to the dependence on a single or monopoly buyer.