India is eyeing pole position in clean energy transformation, with renewable energy emerging as a major source of power in the country along with the Government’s push to achieve 175 GW installed capacity of renewable energy by financial year 2022. As of August 2018, India is world's third largest producer and fourth largest consumer of electricity in the world, with the country’s power sector regarded as one of the most diversified. Underlining India’s commitment to becoming the global renewable energy leader, last year the Ministry of New and Renewable Energy (MNRE) announced the nation’s plan of reaching 500 GW of capacity by 2030. Reports estimated that as of last year, solar energy contributed to 21 GW of the renewable energy mix, with a need to add about 12-15 GW every year to realize India’s solar dream. The country is also building multiple large solar power parks similar to China, but much larger in scale. While it is a welcome move by the Indian Government to position its renewable energy market as a global leader, what is needed is a complete ecosystem to achieve this.
Solar Industry looking at Consolidation
The last financial year has seen a huge rise in M&A in the Indian renewable energy sector as a result of a favourable environment that allowed companies to look at demerging their liabilities and acquire well-performing assets to expand their portfolios. This wave of consolidation can also be attributed to entry of a large number of global participants with deeper pockets and the bandwidth to withstand profit margin pressures. In today’s rapidly evolving and volatile renewable energy market such as India, the quantum of returns takes priority over the quality of returns. Today, companies are looking to expand their project portfolios instead of relying on the returns from a few operational projects. A low-profit environment in which smaller players are unable to reap optimal returns becomes an opportunity for the bigger players to achieve rapid inorganic growth. Experts have predicted that consolidation is expected to continue in the Indian renewable energy market over the next few years, at least until the cost pressures subside and a stable business environment is achieved.
Where is India’s Solar Power Industry headed
With most of India’s landmass spread across the tropical region receiving plenty of solar radiation especially in the summer months, the World Bank predicts that the country has among the best conditions in the world to capture and use solar energy. While underdeveloped infrastructure, high cost for grid installation and lack of knowledge on this sector can act as a deterrent to solar energy’s future in India, the country’s geographical advantage, employment prospects and the economies of scale of vast solar projects will be beneficial to giving a fillip to the sector. India is also witnessing a bright future with as nearly 293 global and domestic companies committed to generate 266 GW of solar, wind, mini hydel and biomass-based power in India over the next decade which would look at an investment of about $310 billion-$350 billion
Ensuring the success of Solar Power in India - Need for Technical Due Diligence
As successful solar power plant projects rely on adequate funding, it is imperative for financial institutions to ensure they are backed by technically sound and profitable power plants. This also means that while financial due diligence is critical for investing in a solar project, it is equally imperative to ensure that the project is technically sound.
In doing so, it helps:
Given that solar power is ultimately about the performance of the projects and not just installed capacity, technical due diligence should thus be prioritized over commercial and financial diligence.
What Technical Due Diligence encompasses
Technical due diligence is a comprehensive process that requires assessment of every aspect of the project ranging from design and components to construction and performance, detecting faults that impact the plant’s bankability.
Here are a few key elements that third-party certification companies evaluate while performing technical due diligence:
Investing in a renewable energy project or portfolio is a complex endeavor that requires an extensive evaluation effort. Understanding the inherent technical risks of a project is a critical facet of this effort, and the conclusions of this evaluation will allow developers and lenders to ultimately decide if the return is worth the risk. Considering the key role technical due diligence plays in assessing the reliability of a solar project, stakeholders must ensure its inclusion as an imperative requirement to strengthen the solar energy ecosystem in the country.
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