While much of early wind power addition was driven by depreciation incentives, solar power addition is taking place in a more structured manner, through a mix of MOU and bid-based projects.

As a result, there is a fair mix of IPPs and corporates among the developers. In only two years, solar tariffs have more than halved from Rs 17.91 a unit to nearly Rs 7.5 a unit largely due to falling solar panel prices worldwide.

It is estimated that by 2015, the levellised cost of solar power would fall to almost Rs 4.2 per unit, achieving grid parity, making solar power competitive in states that have high commercial and industrial tariffs. The industry is expected to see a gradual shift from policy-driven projects to parity-driven projects, with solar tariffs falling and conventional electricity tariffs rising.

Large corporates are already consciously investing in a sizeable solar capacity to meet the twin objectives of RPO compliance and securing power at increasingly competitive rates. The captive market will further take off once a stronger regulatory framework is in place.

Until recently, banks were hesitant to lend to solar projects, fearing risk of receivables and fall in tariffs in future – the early projects projected unit tariffs of Rs 15-Rs 18 over the next decade. However, a combination of falling tariffs and an operating track record of over 1,000MW solar projects (providing a feel of asset performance) has led to lowered risk perception.

Further, developers today have access to cheaper international sources of financing, which help bring down their costs further. At least 110MW, being developed by companies like Azure Power, Green Infra and Kiran Energy, is known to have been partly financed using foreign currency. Financial and strategic investors have also started to step forward.

Developers such as Kiran Energy, Azure Power and BLP have secured funding from PE investors. Many corporates such as Shree Ganesh Jewellery and Tecpro have taken majority stakes in solar companies, while many others are keenly exploring partnership opportunities.

PE and M&A activity will increase as companies achieve scale. MNRE published draft guidelines for phase-two of the NSM in December 2012. It targets adding 9,000 MW solar in the 12th Plan. To achieve these targets, the role of EPC players and component suppliers will be crucial.

Many of these players, primarily large international module manufacturers, such as First Solar, Suntech Power and T-Solar, see India as a strategically important market. The importance of India is further driven by the fact that globally, demand in developed economies is stagnating.

In addition, the US has imposed anti-dumping duties against Chinese manufacturers and Europe is witnessing anti-dumping proceedings.

Source: Economic Times