Home » Finance » First few solar power projects being built in India at low quality:Klaus Gehrlicher,Gehrlicher Solar, Germany

First few solar power projects being built in India at low quality:Klaus Gehrlicher,Gehrlicher Solar, Germany

As Panchabuta has earlier reported, there have been international reports that have started saying that “India the top target for being the new Germany for Solar“.

There have also been discussions about German firms coming up empty-handed in India in 2010 and Panchabuta has analyzed this in detail in an earlier essay.

 A couple of months earlier, the meeco Group through meeco India Private Limited, has said that it would expand its offers of clean energy turnkey solutions, clean advisory services and cellcubeTM storage solutions, to this growing Indian solar market and will build up to 50 MWp solar parks in the next three years.The company had announced earlier  that they would complete atleast two solar projects in India this year.

According to reports in Recharge News , Gehrlicher Solar chief executive Klaus Gehrlicher, whose German company opened a subsidiary in Mumbai last year to tap demand for experienced systems’ integrators, says the prices developers are offering for work are “the lowest being discussed anywhere in the world for PV”.

“The first systems I’m seeing under construction are being built under extremely high price pressure, which means they are being built at very low quality,” he says.

Seems like a broad sweeping statement and it does make one wonder how many projects Gehrlicher has seen on the ground. As far as Panchabuta is aware, out of the current 200-300MW of projects under construction in the ground a majority of the EPC, project design and engineering work is being done by companies like Moser Baer, Tata-BP Solar, L&T, Juwi, Lanco, meeco AG among others.

 We would encourage Gehrlicher to provide us with details of projects they are talking about. However one could assume that  there is limited merit to that statement, as there are a few developers that claim to be doing their own EPC , though to our knowledge none of that has actually happened. Such projects have not achieved financial closures and have not been funded by any of the leading institutions.

Although all modules used in NSM projects must be covered by warranty, there is much scope for ­corner-cutting among other components and installation practices.

It is only a matter of “one or two years” before it becomes clear the systems are sub-standard, and will never reach the end of India’s 25-year feed-in tariff, Gehrlicher predicts.

“That means politicians will look back in five years and say, ‘We knew it, [PV] doesn’t work’.”

While we do believe that the first phase of the mission is a learning stage and that only about 50-65% of the projects will be actually commissioned, we are reasonably certain that such plants will operate beyond the two-three years that  Gehrlicher predicts.

Other industry sources, including some in the government, tell Recharge they are more concerned about the effect of dilapidated systems on potential financiers.

One senior figure within the Ministry of New and Renewable Energy (MNRE) says the future viability of the entire Indian solar programme depends on the success of the first generation of projects, upon which India’s thinly stretched financial community will pass judgment.

“Bankers are going to finance a few small projects initially, get their feet wet and see what the results are,” he says. “So the next step in terms of the financing piece is really in the hands of the developers, who have to deliver on what they’ve promised.

“Without that, the bankers will shy away — and that would be disastrous.”

The trouble, analysts say, is developers are hamstrung by ­having to submit excruciatingly low bids to win projects in the first round. Many of the bids are seen as uneconomic, but developers face daily fines of 50,000 rupees ($11,000) if projects are not completed on time.

The ­issue of poor-quality components is exacerbated by NSM rules dictating that early-stage projects use equipment manufactured in India.

While the concerns of the bankers are genuine and a lot will also depend on the success of the first phase projects, bankers have taken a rather cautious wait and watch approach to fund the  solar projects. However, it is noteworthy here that, with the right EPC, project tariffs and developer background, bankers have come forward to fund projects. Institutions like State Bank of India, ICICI bank and IDFC have taken the lead in funding of solar projects in India.

One comment

  1. There is much sanctity in the statement of Klaus Gehrlicher,Gehrlicher Solar, Germany, early stage low bid projects are finding short cuts to make them financially viable, there is a lot of inventory lying with manufacturers both rejects and unsold goods that will find its way to the low tariff bid projects.

    Bankers must be drawing some comfort from the changes acceptedby NVVN on the assignment clause in the PPA.

    Today’s interest rates era the real dampener for the projects to achieve financial closure.
    Also the forward cover and hedging costs are very high there is no arbritrage available even if funds can be garnered at sub libor rates.

    Govt needs to create a mechanism to reduce the hedging costs to make soalr viable

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