CSP Today in a report, a couple of months back said, India’s decision to select the developers of its first phase of CSP projects by price rather than technical capacity could cause the country’s nascent industry to trip at the very first hurdle.
Industry experts fear that overly aggressive pricing for India’s first-round of concentrated solar power (CSP) projects could set back the industry before it has even properly begun.
….Industry insiders, however, fear that the winning companies have neither the technological expertise nor a financial-viable business model to see the projects through to profitable completion.
“It is doubtful that they can build the capacity for which they have allocations . . . which is very dangerous for the industry as a whole”, states Shiv Shukla, president and chief executive at developer Abengoa Solar India.
The primary problem relates to “unrealistic” prices, he maintains, suggesting that all seven companies will struggle to close finance for the allocated projects.
……“These companies have no idea what a CSP plant looks like or what is involved”, confirms Shukla, who claims none have done the requisite due diligence to ascertain a viable price.
The contract process leaves no room for renegotiation for the winning companies, all of which stand to lose significant bank guarantees if they fail to deliver by the 2013 deadline.
……Dhruv Batra, director at developer Cargo Power & Infrastructure, concurs. As opposed to a normal equity split of around 70% to 30% between lender and developer, project financiers will be looking for a ratio closer to 50%-50%, he maintains.
“No-one will be very comfortable lending to a multi-million dollar project with so many risks involved, especially when [CSP] has never been done in India”, Batra continues.
These are interesting comments and as readers might be aware, Abengoa Solar India has a 40MW allotment under the Gujarat state policy for Solar CSP project. Abengoa was unsuccessful in their bid in the national solar mission due to their higher tariffs. Also, the “unrealistic” price and hence their ability to achieve financial closure that Shiv Shukla talks about might not be as much of a challenge to some of the bidders as they are far bigger companies with stronger balance sheets than Abengoa in India.
Echoing our sentiments, Anil Lakhina, chairman at Forum for Advancement of solar Thermal said, “We believe that it is premature to judge the outcomes of the bidding mechanism. Nonetheless, the policy process unfolded in a manner that put the recently capitalized solar companies at a disadvantage compared to the established Corporate sector and the cross section of relatively unknown companies with no prior knowledge of solar sector or renewable energy who perceived solar energy sector as an opportunity to diversify their portfolio. The implications of this are not immediately discernible. Suffice to say that solar energy market in India would most probably be driven by the cost-effectiveness of solar plants rather than by technology and efficiency parameters. One wonders whether the global leadership that India aspires in solar energy sector would be based on its ability to implement the existing technologies at the cheapest rates or on the technology competence and knowledge skills to move up the value chain. The market, for the present seems to have shut for technology oriented companies which invested heavily in policy evolution and strategic technology relationships in the hope that this would help them to bring experience, technology and expertise to India. Their knowledge of the sector, the expected costs and hurdle rates, unfortunately has put them out of the race.”
When Panchabuta talked unofficially to some of the developers that have been successful in the National Solar Mission they have indicated their technology tie up and negotiations with international partners are almost done and that they are starting to work on their financial closures. It is unclear how Abengoa has said these companies have no idea what a CSP plant looks like or what is involved.
When asked about financial viability of the projects, most developers do accept that they have bid rather aggressively and that there are other strategic reasons for their bid in spite of the lower returns.
Cargo Power & Infrastructure also has a 25MW allotment from the state of Gujarat and have not been succesful in the national solar mission. Dhruv Batra of Cargo says that no one will be very comfortable lending to a multi-million dollar project with so many risks involved, especially when [CSP] has never been done in India. Developers that Panchabuta has talked to have wondered how what Dhruv Batra has said is also applicable to his own project.
“The Bidding experience in CSP sector clearly brings out that integrated companies with experience in power sector and EPC activities have been in a better position to offer deeper discounts. Their decisions, it appears, have been guided by partly, the strong balance sheets they could leverage to raise debt funds and their ability and flexibility to choose their returns from the EPC activities or from energy generation. Most importantly, absorbing a loss on a leader project for these players is relatively easy and it could have been a strategic choice for them to be part of the future business opportunities rather than maximize returns or energy generation from the first phase projects. These groups of companies, we believe, would approach the project execution from the cost reduction perspective rather than technology excellence perspective. While most of them may succeed in putting up the projects issues relating to quality aspects, technical efficiency and broader market development may suffer and need to be monitored and reviewed continuously,” Lakhina added.
Panchabuta however does acknowledge the fact that the discounts in the tariffs have been aggressive, the technology complex and that financing will be challenging for a lot of these projects. However we believe that it is too early to say that these projects will fail and bids are unrealistic and would like to give the developers who have bid fully aware of all these facts a chance to execute the projects in the given time lines.
Panchabuta is cautiously optimistic and honestly intends that the national solar mission which is the pride of India, be successful. Further, if companies like Lanco are able to implement these projects successfully at the tariffs they have bid, it could turn out to be a major game changer in the Solar CSP industry where there is a lot of room for innovation and technology cost optimization.