Introduction: Solar Business worldwide has great political support. Even during the recession period many governments provided funding, subsidies and tax benefits. Leading nations are Germany, Italy, France, China, USA, Canada, India etc. The threat of climate change and obligations to reduce Green House Gas (GHG) emissions has put onus on each large country, including on India, to support renewable energy power generation vigorously.
Renewable Energy Share: In India out of total installed capacity of about 145000 MW, about 12500 MW is contributed by Biomass, Small Hydro, Wind and Solar energy. The nodal Ministry, MNRE, is proposing a new policy under “Solar Mission” already approved by Prime Minister of India, to introduce big incentives by way of low rates of interest (under 4% on Indian Rupee loans), high tariffs for Solar Power Generation Plant, Tax and Duty exemptions, capital subsidy etc. This policy is expected to be implemented in the year 2009 itself.
Cost Competitiveness of Solar Power: Solar energy has been there in use for electricity generation and heating for several decades, though our focus is on Solar Power (i.e. electricity generation). High cost of PV Cells that convert Sun light directly into electricity has meant that PV deployment needed Government subsidies/incentives to attract consumer interest and penetrate the market. Countries like Japan and Germany led the way in offering attractive incentives for PV power causing the demand to grow rapidly since early 1990s, which averaged over 35% per year during 1990s and over 50% per year since the beginning of 2000 as more and more countries started to offer incentives for generating PV power. Increasing manufacturing volumes have led to continuous cost reduction in PV for the past 30 years and for every doubling of manufacturing volume, the cost of PV modules has come down by 20%. This amounted to an average cost reduction of 5-7% per year during the past 30 years, though silicon shortage due to rapid growth in PV demand led to price increase during 2004-2008 which has now gone through a major correction as the demand was adversely impacted due to the current global economic situation. PV costs are now projected to go down even faster over the next few years. PV power is now approaching grid-parity in many “sunny” parts of the world as its cost is rapidly declining while the cost of conventional power sources (e.g. fossil fuels) is increasing. Solar power generation is emerging as potential candidate to start supplying power cost competitively to the grid itself and once that happens, the PV market growth will become sustainable without Government subsidies. The current estimates are that by 2012 or beyond, power from solar plants and peak power from grid will be equal in cost in many countries of the world.
Solar Power Applications: Solar power applications are for roof top mounted electricity generation, stand alone lighting in remote and inaccessible places, in deserts and snow fed mountains, etc. The flexibility of applications and choice technologies to build these systems and / or its components like cells and solar panels allow enormous business opportunities for investment in this sector. There are several entry points for starting a large and durable Business in India in Solar power sector. The first one is as PV manufacturing business (at different levels in the value chain), the second one is as Solar Power Plant developer (i.e. PV systems integrator) and the third one is owning/operating a Solar Power Plant and generating revenue by feeding electricity to the grid.
Global Solar Capacity & Support Value Chain: Worldwide the total solar capacity installed last year was about 5000 MW of Solar panels. In India the total employed last year was under 100 MW. Therefore the entire PV Business in India is either based on importing Solar Panels from abroad or exporting the finished goods to Europe or North America. The industry value chain that supports this business is:
(i) Manufacturers of Poly-Silicon feedstock material,
(ii) Manufacturers of Solar grade Wafers,
(iii) Solar Cell Producers and
(iv) Module Manufacturers
Leading Manufacturers and Critical investment size for new Investor: The Poly-Silicon producers till a few years back were less than 10 all over the world located in Germany, USA, and Norway etc. Now their number has grown to over 50 to support more than five times growth in the demand for Poly-Silicon in the past six years. The minimum size of investment needed today to compete at entry level in this segment is about 300 – 400 million USD. There are no manufactures of significance in India though several companies like Reliance, GMR, Lanco Solar and Srei Infra have been talking about investing in this business. Manufacturing wafer is second entry point after Poly Silicon. Here Poly is the raw material. The minimum entry size is about 30MW capacity wafers (about 8-10 million wafers per annum) and investment will be over 35 million USD. There is hardly any significant production capacity in India for Wafers (< 10 MW per annum).Third entry point is to manufacture Solar Cells. The minimum recommended size is 30 MW though the preferred size should be 60 MW per annum. For 30 MW Cell production line & it will cost about 20 Million USD. There are a few large Cell producers in India and these include Moser Baer, Indo -Solar, BHEL, CEL, Solar Semiconductor, etc. The total capacity installed in India will be under 200 MW per annum for Solar Cells as of now. This will double by 2010. The last entry point in Solar manufacturing business is production of Solar Panels (also called Modules). The minimum capacity will be about 25 MW and total project cost will be about 4 million USD. It is clear that least cost and low risk investment will be Module lines for a new investor. Today in India about 15 Module manufacturers are there who have capacity ranging from 5 MW to 100 MW per annum. Total installed capacity for Module producers would be over 500 MW per annum.
Time Lines for starting the business:
Poly Silicon plant is chemical industry and takes about 2 years minimum to be installed and there are practically no experts available in this segment in India. There are no proven turnkey suppliers of technology yet.
- For wafer manufacturing plant it takes about 18 months to commission the plant, manpower is big constraint and technology risk is also there. It is basically a metal crystallization and Diamond cutting tools technology combination business. GT Solar (USA) and Mayer Berger (Germany) are the two leading Turnkey suppliers of this technology.
- Solar Cell lines are fully automated and can be built in one year time. It is a Chemical and Mechanical process and requires highly skilled employees to operate the plant. There are a few turnkey suppliers viz., Spire Corporation (USA), Schmid (Germany), Roth & Rau (Germany) OTB Solar (Norway). Technology risk is minimal and man power pool is growing in India itself.
- For Module line (or Solar Panels) there are a few global turnkey suppliers viz., Spire Corp (USA), 3S (Switzerland), Eco Projetti (Italy) etc. The total time taken to commission the Module line is about 5-6 months only.
Revenues and Profitability: The revenues from each segment are derived from the value addition made at each step.
- 30 MW equivalent of Poly- silicon sale will fetch about 15 million USD as revenue with about 20% profit margins. Due to acute silicon shortages in the past five years, Poly suppliers and traders made significantly higher profit margins, but now this segment is under tremendous margin pressure as there is significant over capacity due to sudden decline in demand under current economic situation.
- Wafer manufacturers top line for typical 30 MW equivalent supplies will be 30 million USD. The profit margins now are about 20%.
- For Cell line, with 30 MW production capacity, the current revenues could be about 40 Million USD and profit margins will be about 12-15 %.
- For Module line of 30 MW the top line will be 60 Million USD and about 5-7% will be profit margins.
Marketing Strategy: It should be recognized that the market for Wafers, Cells and Modules are primarily located in Japan, Germany, USA, Italy, France, Greece, etc., (i.e. Europe and North America). Experienced marketing team will be required to establish good priced contracts and develop brand equity in the long run.
Entry Strategy: For a new entrant Module line is best bet. There is a short learning curve for very low capital investment and risk profile. The technology is simple but requires high quality facility. Once secure in knowledge of the solar industry, backward & Forward integration is best growth strategy. All the leading companies of the world with large turnover ( > 1 billion USD) and profitability ( > 20-25%) are vertically integrate such as REC, Suntech, BP Solar, LDK Solar, Yingli Solar, First Solar, Schott Solar, etc.
Solar Power Plant: Solar Generation power plants are coming up in many countries such as Italy, Germany, and USA etc. There are two types of solar power plants. One employs reflectors and known as Concentrated Solar Power (CSP) type, which generates steam due to heat concentration which in-turn produces electricity through turbines, and other employs Photovoltaic Solar Panels (Modules) for direct electricity generation. The choice between the two types is not very difficult. For large capacity (> 20 MW or so) one could consider CSP. However, these are yet to be proven (some systems are being tested out) and are attractive only in the regions where there is “hot” Sun (e.g. deserts). PV panel based systems can be used anywhere in the world and for small and large capacities (a few KW to 100s of MW). The main concern is one of economic viability. The costs of CSP per MW will be a upwards of 3.5 million USD. It employs turbines and generators so there will be operating cost as well. PV Panel based will also cost about the same (4-5 million USD per MW) but practically no operating cost as there are no moving parts in the plant. The generation cost is high from both types of Solar power plants and current estimate is about 18-20 INR per unit in India. Government of India is proposing to subsidize the solar power by about INR 12 per unit to the buyer of this power from solar plant. However we do not have any actual example of Grid connected power plant and operation of subsidy regime by GOI.
Technology Suppliers for Power Plant: The technologies for CSP and PV power plants are available from a few contractors in USA and in Europe. They can assemble the plant on turnkey basis. It is therefore possible that in states like Gujarat, Rajasthan, MP, Jharkhand, Maharashtra etc where sun falls (insolation) for upwards of 1800 hours ( < 2000 Hours) a year, one can propose construction of these plants on MOU route. The entire regime of state and central incentives and land availability etc will be negotiated by the developer with the authorities. The current acceptable capacities are between 5-10 MW for one developer.
Broad contours of Solar Power Plant: For 10 MW Solar plant about 75-100 acres of land will be needed. In addition about 50,000 Solar panels (200 watt each) will be required to build the generating array of Modules. The balance of system will require Invertors, transformers, control panels, cables, connectors, support structures etc. The total construction time can be under one year after funding is in place.
Funding: There are several examples worldwide of financing these projects in USA and Europe. About 1000 MW of solar power plants today operate on grid connected basis in Spain, USA, Germany, Italy, Korea, Japan, Greece etc. The power plants based on Solar Panels or CSP will be able to attract green funds and lenders support in India.
1. Developer of the Power plant can look for buyers from Abroad or the Utilities in India. There will be renewable obligation for the lead power producers in India from Coal and gas fired plants. Small percentage of their generation will be come from green sources including Solar Power. It will be at this time one can get high valuations from the potential buyer.
2. For the Cell and Module line manufacturers, the market will determine the price. In 2007 the market caps of large companies like REC, MEMC and Q-Cells was over 2-8 billion USD. The revenues were in the range of 200-500 million USD. The PE ratios were upwards of 20 or so. After the recession, these valuations have come down substantially. However as the recession is disappearing, it is the Solar companies who are coming out earlier form the adverse market impact. Due to Obama policies to put money on the table to support Solar installed power plants and roof top units, from 2010 onwards the US market is certainly going to drive the Module installed capacities in a big way. In that case the valuations of all the manufacturing companies will go up rapidly from 2010 -2011 onwards.
3. In about 5-10 years the solar panels and value chain products will become a commodity. In the long run the big players will stay and in the short run a good exit price will be available for mid and small size manufacturing plants when US / Asian market would boom in another 1-2 years. Therefore for entering in solar business and / or going for solar power plant development, this is the right time.