The Blog
Investors' Paradox - Life after bids

In February 2017, the Indian renewable energy sector witnessed a tectonic shift.  Historic 750 MW Rewa solar auction in Madhya Pradesh and first ever wind bidding by state-run Solar Energy Corp. of India (SECI) for 1000 MW changed the sector’s landscape completely. Though, the jury is still out whether the bids would attract or dissuade investors in the market.

  • How much aggression is sustainable- Is there light at the end of tunnel or we are in blind alley?
  • Renewable energy sector matures, on its track of being more acceptable to the stakeholders
  • Value discovery across sectoral to begin; inefficiencies to be weeded out

On one side, some market participants consider the bids were too aggressive, even going to the extent of calling it irrationally exuberant. Fears that it might deter investors, as the doubts of profitability or returns or sustainability in the long run, remain unaddressed.

On the other hand, contrary to the aforementioned, these bids have demonstrated renewable energy to be increasingly competitive, supplemented by green benefits additionality. The outcome of the bids have cleared all doubts about grid parity across levels, whether at generation or distribution level as well as commercial or  residential level. Keeping these in mind, concerns about the dispatch-ability or the Discom’s willingness to buy renewable energy should be over.

 I intend to agree with the latter as this augers so well for the sector.

 In spite of the aggressive assumptions of the bids, these bids have without a doubt taken the renewable sector up to a new level of maturity which has been long awaited. This development was needed to bring in some more serious and credible players to lead the sector. Marred by multiple layers of intermediation and price-linked or return- linked costing, sector was witnessing lot of inefficiencies which needed this kind of jolt to come out from it.

 Though the risk of some projects not seeing the light of the day cannot be undermined, overall sector participants are likely to be forced to rethink about the business.  Factor which would become increasingly critical are:

  • Cost efficiencies & value engineering
    • RE is likely to adopt the ‘EPC’ mode or the ‘auto’ mode. Developers would be needed to go deep-down the value chain, assess costing of each component on one hand and the cost of high quality sites on the other hand.
  • Optimization of resources including land
    • Minimizing the land area used per unit of output (Larger size modules etc.)
  • Deployment of latest technology/engineering
    • Deployment of new age WTGs, more efficient modules, yield enhancement software/hardware – viz. trackers
  • Asset maintenance & extraction of better yields
    • Optimization of Uptime with improved equipment life with predictive & preventive maintenance practices, more use of analytics.
  • Economies of scale
    • Identify big scale projects at a single location
  • Incremental Innovations
    • Bring together contributions from each functional area & weed out inefficiencies to make better business models/structures

 Last but not the least is the fact that we just hope that not many market participants have taken speculative calls on equipment costing, forex, interest rates, as the same could not only result into creation of bad assets but earn a bad name for the sector in the country.

Contributed by Naveen Khandelwal, Head – Investment & Strategy, Hero Future Energies

 

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