Opportunities for Solar EPC Companies

As the world moves towards the sustainable development countries look to optimise their energy mix with minimum carbon footprints. Achieving the power needs by minimum effect on the environment is the new trend towards the development of the infrastructure.                                                                                                                                                        Capture3

 

 

 

 

 

 

India with its 175000MW of renewable energy target by 2022 is aiming big. Out of 175GW capacity solar power has a majority of capacity i.e. 100GW which is approx. 58%. With the falling rates of solar modules (Rs35-45/Watts) and solar power tariffs (from Rs.17.81/unit to Rs.6.25/unit) solar Industry is looking a promising  sector from investor’s perspective also.

At the policy level also more than 10 states have already released state solar policies after MNRE released the model solar policy framework. Solar policies of most of the states have encouraged and incentivised   the the development of solar power plants be it ground mounted Solar PV or Rooftop.

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Incentives such as waving off or reduction in the cross subsidy surcharges (in Odisha, Uttrakhand, Andhra Pradesh, Maharashtra), transmission and wheeling charges and banking charges.

Latest scheme of MNRE for training of unemployed youth and farmers with central grant of Rs.4750crores for setting up of solar power plants near the substations (11KV,33KV,132KV) with surplus capacity available further provides impetus to the creation of an ecosystem to ease the scepticism of the EPC players. On the evacuation of solar power SECI has been active with recent invitation of EOI for the 3000MW of solar power over the coming 3 years till 2017-18.

Solar EPC Companies

Solar EPC companies are also looking for opportunities to grab but in a prudent way as to be sure regarding the Government’s policies (such as NSM, state solar policies and reduction in hurdles of clearances). In the one of the recent conferences few EPC companies raised concerns regarding the grid parity of solar power others were worried about the cost of panels which may have seemed a sceptical approach given the Governments bold reforms in the sector.

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EPC contractors are being squeezed with high risks and low margins as government tries to reduce the tariff (by reverse bidding) on one hand and imposes Domestic content requirement (DCR) restrictions on the other. As the module manufacturing capability of Indian manufacturer are not even close to the demand for the panels, almost 70-80% of the panels will have to be imported from oversees. For an EPC contractor to evolve it has to look for 4 key points.Capture5

These are the key parameters of interest that every developer or lender looks for while selecting an EPC company or lending the company (in case of lender such as IREDA, FIs, Banks etc.) respectively.

Cost can be managed by procurement management and only clarity of government stands on Anti-Dumping Duty in future as of now it shows a decreasing trend from 14crs/mw to 6.5crs/mw.

Quality has also been a major concern as with improvement in technology the quality of panels has also improved and with defects in modules it causes loss in generation which leads to cumulative loss of generation over the life of the panel.

Financing a project is also a key area in the EPC industry where banks are not too liberal and are concerned because of past performances of the power sector. Government has given a priority sector lending status to solar power sector still banks do hesitate to give non-recourse finances to them. All in all the finance is being flowing in the solar industry and Solar EPC companies need not to worry as banks, IDFIs, IREDA etc. are issuing green infra bonds to fund their projects.

In one of the recent conference held on EPC contractor there were discussion on feasible Business Models for a Solar Developer. To procure, engineer and construct a Solar PV plant a developer has two options either to insource or outsource these tasks which brings to various business models which can be exploited in EPC such as:-

1.IPP model as Anand Kumar of WAREE Energies Ltd. Highlighted the advantages of backward integration with optimization of cost but it do involve the greater risk.

While outsourcing the EPC tasks to a contractor the developer mitigates the risks of procurement, land acquisition delays and cost overruns and also gains the best technology and quality products.

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  1. In Second model there is also a scope for the inclusion of an O&M contractor which takes on a project after 5 years till the life of project. OEM contractor faces the risk of all the defects in the module that may have appeared while manufacturing ( such as snail trail , derating etc.).

 

Risk Management in Solar EPC market

Various types of insurance products are available to mitigate the risk to an EPC company from becoming bankrupt due to uncertainties. As through the life of the project there might be new technologies with higher efficiencies such as now claimed by few scientist i.e. technologies with 45-46% efficiency of solar cells are available but they are not bankable ones for commercial use. As of now the most basic module provide 20-22% of efficiencies. This improvement will have a drastic impact on the performance and the old plants may lead to meager returns.

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Insurance Policies to manage risk usually categories their product, It may be divided into two phases of risk and the products offered accordingly

Construction Phase : Various products on offer for the risk  are erection all risk, Advance loss risk, Third party risk etc.

Operating phase: Products can be property damage insurance, business interruptions, solar performance guarantee, weather cover etc.

New Technologies

  • Floating models, Canal Top models (Gujarat 10MW canal top plant), Railways and Rooftops.
  • CdTe, CIGS , HIT solar cells.
  • Single axis and double axis trackers.
  • Panels with 46% efficiency (Lab- tech. costly)

Given the scope of new technologies and paradigm-shift in the government approach Solar Sector seems to shine with the sun and with it the Solar EPC industry also.

 

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