Potential of Solar Power in India

Akash Jauhari IMT Ghaziabad

Potential for Industries related to Solar Power in India and

M&A opportunities in C-Si module Segment

Institute of Management Technology Ghaziabad


Background: Solar Power

Related Business: Production, Technology Providers, Power Plants, Finance, Consultancy, Engineering & Architect

Solar Power Value Chain

Indian Perspective: Role of MNRE, IREDA, CERC, JNNSMCompanies present in India


Key Finding

o JNNSM puts thrusts on grid connected system. Also incentives like PPA’s, tax benefit and financing, make power project most promising segment.

o Annual revenues from solar power in India to grow from $ 107 million in 2013 to $ 2300 million in 2022 with a CAGR of 36%.

o India’s cumulative PV installations to be around 19.5 GW by 2015, making it among top 8 solar power producing countries.

o Exports continue to drive production for another 3-4 years, before domestic demand getting substantial


Key Findings

o Annual revenues from C-Si module market in India to expected to grow from $ 611 million to $ 3030 million between 2013-2022, with a CAGR of 18%.

o Thin film to remain competitive to C-Si technology in India, as cheaper and better suited to Indian climate. Cumulative domestic demand for thin film module to over 3.5 GW between 2013-2022. Target price should be $1/W.

o Rather than setting up a C-Si module manufacturing plant in India, it will be financially more viable to acquire a existing firm and expand according to requirements.

o Polysilicon and Wafer & Ingot segment, which are currently non existent in India, are expected to be $ 2300 million and $ 1500 million respectively


Recommendations

• Existing module manufacturers in India should invest in forward integration, mainly in inverters, power project and project financing. – margin get higher

• Indian Players should focus on identifying customers in hot

markets of Italy, Japan and US. They need to invest in improving their supply chain and sales channel in order to competitive.

• Global leaders with core competencies in polysilicon and Wafer & ingot production should invest in India, as technology is not available. – Hemlock semiconductor & REC.

• It is better to invest in thin film power plant rather than C-Si in India, due to cost & performance issues. Expected to break even in 10 years, while CERC PPA’s available for 25 years at Rs 15.3 per KW hr.


Recommendations

For foreign companies & investors:

• Explore opportunities to work with Indian firms like joint projects, collaborations and M&A. This will help to access domestic market faster and capture domestic market easier.

• In C-Si Module segment, prospect target companies are – Websol Energy Ltd. Kolkata PV Power tech Mumbai


About Research

Objective To find the potential of industries related to solar power value chain in India

based on plans and policies of Central Government. To find M&A Opportunity in existing C-Si module segment.

Data Sources Secondary data source : Deloitte Resource, Garter, The Economist MNRE, CERC, IREDA.

Research Design Time frame for projections – 2013-2022, based on current data Field Study Exploratory in Nature Financial data, quantitative in Nature


Solar PV Value Chain

Source: Nor Sun Corp.


Jawaharlal Nehru National Solar Mission

• Launched in Jan 2010 with a objective to make India a global leader in Solar Power by creating policy condition for its diffusion.

Mission document, JNNSM

• Equal Weight age for PV and CSP for grid power target.• Soft finance facility available through IREDA, Govt. of India.• SEZ like policies – zero import duty, exempt from excise duty, priority sector lending, SIP etc

Application Phase I Phase II Phase III

2010-13 2013-17 2017-22

Solar Collectors 7 mn sq m 15 mn sq m 20 mn sq m

Off Grid 200 MW 1000 MW 2000 MW

Grid Power Utility 1K - 2K MW 4K-10K MW 20K MW


Projections for Solar PV power in India

Data Required for the task • Total Capacity to be installed -JNNSM (assuming linear interpolation)

• Capacity Utilization Factor (CUF): 18% 2011 to above 20% by 2022– Performance of Solar Power Plants in India, CERC, Sept. 2011

• Pre Purchase Agreement(PPA) : Rs 15.3/K Whr (PV) Solar thin film power plant

- CERC Tariff Regulation, Sept 2010

• Required Rate of Return = COC + Risk associated + profit = 14% (assumed)-Research study by Energy Bulletin Group.

• Adjusting targets: As of 2011, total installed capacity is only 300 MW. Thus scenario with adjusted capacity may be employed, ex 75% of JNNSM.


Projections for Solar PV power in India


Projection for Solar Thermal in India


Estimate for Module domestic market in India.

• C-Si module and thin film capture almost entire market in India.• Current market of C-Si is about 90%, rest being Thin film.

• We expect thin film to gain market share in India: Newer technology with lower polysilicon requirementLower cost compared to C-Si Better suited to Indian condition of high temperature New plants being set up in India. Ex. Moser Bear

• Market share of thin film to grow at an average of 10% between 2012-22

C-Si module V/S Thin Film

1 2 3 4 5 6 7 8 9 100

500100015002000250030003500400045005000



• Price trends of C-Si and thin film modules:

Benchmark cost of C-Si and thin film for 2012 are $ 1.75/Watt and $ 1.4/Watt - CERC publication Sept 2010.

Prices of module are predicted to fall 25%, 40% and 60% between 2010 and 2013, 2015 and 2020. - EAI Research on price trends in solar PV module

Considering liner interpolation betweenmarked years.

• Required Rate of Return = 14%

C-Si Cost & Price 2007-2010

source: Display Bank,2010


Setting up a Thin Film Power Plant Project

Project Appraisal and financing.

• IREDA Guidelines for solar energy lays the Financing options for the project. Max. Loan up to 70%, Rated ranging from 11.25 – 11.9 %

• Initial Cost as taken as given by CERC in benchmark cost for solar projects, 2011-12

• Estimating Cash flows for a 10 MW project, assuming 50% debt taken at 11.5% 20 years.

• Total Initial cost comprising of land, civil works, modules etc comes out to be 27.13 million. Straight line depreciation for 20 years. Tax = 35%


Setting up a Thin Film Power Plant in India


Solar P.V Value Stack

Source: Green Rhino Energy


Cell & Module Production in India

Annual Production of Cell & Module in India & total Import and export related to solar industry ( Source: MNRE annual presentation, Sept 2010)

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-090

50

100

150

200

250

300

Cell (MW)Module (MW)

2005-06 2006-07 2007-08 2008-090

500

1000

1500

2000

2500

3000

Import (Rs Cr)Export ( Rs Cr)


C-Si module Manufacturers in India

•

Source: Company websites


Cell & Module Production in India

Rather than setting up a new C-Si plant, its better to Acquire an existing production facility. This will help to access the market faster and hence higher Market Share in course.

Short listing criteria from MNRE list of registered companies

Core competency of the firm to be PV module manufacturing. Manufacturing capacity to be 25MW or more. Companies which are subsidiaries of National/International heavyweight groups have been excluded, as the purpose of this document is prospective acquisition. Government companies have been excluded for the same above reason. Companies which are considerably into services like installations or maintenance along with manufacturing have been avoided.


Criteria for Selecting prospect Target

Market Valuation and Book Value of firm (Listed companies) and Financial Valuation for Non listed.

Production Capacity

Scope for Expansion – Financial & Technological

Supply chain network (Domestic & International)

Business Group/ Family Background

Core Competency of Group

Match with Business Portfolio


Prospect Target : Websol Energy Kolkata

As on May,27 2011:

PE ratio -43.18 27/05/11

EPS (Rs) -1.43 Jun, 10

Sales (Rs crore) 52.57 Dec, 10

Face Value (Rs) 10

Net profit margin (%) -1.92 Jun, 10

Last bonus 1:01 31/10/09

Last dividend (%) 10 1/7/2009

Return on average equity -2.02 Jun, 10

Acquisition Scenarios

% Stake Shares (lks) Mkt Cap(RsCr) Book value (Rs Cr)

36% 79.10 48.89 54.60

51% 112.06 69.25 77.36

75% 164.80 101.85 113.76

100% 219.73 135.79 151.68

Acquisition Scenario Stock Performance


Prospect Target : PV power tech Mumbai

Group of Companies under Sun Pharma:Caraco Pharmaceutical LaboratoriesSun Pharmaceutical Industries Inc.Sun Pharmaceutical (Bangladesh)Alkaloida Chemical Company Exclusive Group Ltd.Chattem ChemicalsTaro Pharmaceutical Industries Ltd.

OWNER : MR. DILIP SANGHVI

BOARD MEMBERS MEMBERSHIPS*Chairman of the Board and Chairman of Sun PharmaTaro Pharmaceutical Industries Ltd. Company has good international networks in Europe –Germany , Belgium International certification Core Competency – Module Manufacturing Scope to Expand Mumbai –SEZ : Export & Domestic distribution advantage

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=35111

Potential of Solar Power in India

Technology

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