Solar energy gets a new shine in India

SBG Cleantech, the three-way venture between SoftBank, Bharti Enterprises and Foxconn, plans to invest $20 billion over 10 years, even as doubts persist over the viability of solar power

A billion dollars in renewable energy is huge but when SoftBank of Japan announced investment of $20 billion in India’s renewable energy space, albeit over 10 years, the sector already appears lit up.

“Son Masayoshi (the chairman of SoftBank) does nothing small,” Bharti Enterprises Chairman Sunil Mittal said at the announcement of the investment through a three-way partnership between SoftBank, Bharti Enterprises and Foxconn last month.

SBG Cleantech, which will be majority owned by SoftBank, has taken alternative energy to a whole new plane. India is planning to add 100 gigawatt of solar power capacity by 2022, of which SBG Cleantech is looking at a 20 per cent share.

This is the biggest ever investment plan in solar energy in India. The venture aims to set up solar power parks in India.

The solar panels will be imported initially; subsequently, they could be manufactured in the country.

At the announcement of the venture, Son said the commitment was in response to Prime Minister Narendra Modi’s call to invest in the sector.

For SoftBank, though, the entry is more than just answering Modi’s call for investment.

In October 2011, it had established SB Energy Corp to set up renewable energy capacity in Japan. It has been involved in construction of mega solar power plants at Kyoto and Shinto-mura, Gunma Prefecture.

SoftBank has some 20 wind and solar power projects across Japan with capacity of around 392 Mw.

Son’s plan for India was followed by a similar announcement of building a 51.4 hectare solar park in Japan’s Kagoshima region. But, as Son put it, India offers better scope for solar power compared to Japan.

“Each of the projects in Japan is small because the size of land is small. But I have enough experience to expand here, especially because India has two times more sunshine than Japan. Second, the cost of construction in India is half of that in Japan.

"Twice the sunshine and half the cost mean four times more efficiency to create solar energy park in India.”

Strategic move

Bharti Enterprises, which is picking up a strategic minority stake in the company, has got one of its veterans, Manoj Kohli, who till recently led its emerging businesses, to lead SBG Cleantech as executive chairman.

Bharti Enterprises’ interest in renewable energy through Bharti Infratel, its tower business subsidiary, has so far been only peripheral. Under its Green Towers P7 programme, Bharti Infratel is trying to minimise dependency on diesel for running its towers.

The programme promotes energy efficiency of tower infrastructure equipment and reduction of equipment load on towers.

It has over 2,800 sites powered through solar photovoltaic solutions.

This, the company says, helps in reducing noise and emissions from generator sets and also cuts dependence on diesel.

The company claims over 26,500 towers across its network are diesel-free on a consolidated basis.

The third partner, Taiwan-based Foxconn, is expected to give a crucial input to the entire venture.

The electronic contract manufacturer, which is also in talks with Apple to make its products in India, will pick up a minority stake in SBG Cleantech.

The larger plan includes Foxconn putting up solar manufacturing facility here.

“If we have stable scale and if land is available to us, then manufacturing of solar equipment will also make sense,” said Son.

Currently, more than half of the solar equipment in the country is imported. Foxconn’s record in India, however, has not been smooth.

Its unit in a special economic zone in Chennai, employing over 20,000 people, had to shut operations after its main customer, Nokia, wound up its India operations.

Manufacturing of solar equipment can give the Taiwanese company yet another start.

SBG Cleantech is initially looking at Andhra Pradesh and Rajasthan for investment.

Roll-out of capacity will be fast since, unlike conventional power, putting up solar generation units does not take much time.

Son, however, has made it clear that the pace of investment will depend on the support of the Central government, local governments and power purchase by state-owned NTPC. Land availability and a duty structure that promotes domestic manufacturing will be crucial.

Casting a shadow

However, the viability of solar power generation is itself being questioned, especially due to the low paying capacity of the distribution companies.

Compared to diesel-generated power, solar power is, however, cheaper.

In 2013, the cost of electricity generated by conventional sources like diesel was around Rs 16 a unit, while solar electricity was Rs 8-10.

Across the country, solar tariffs have further come down to around Rs 6.50 to 8.5 a unit, though compared to coal-based power that averages around Rs 4 a unit, solar energy is still expensive.

Fall in solar tariffs is primarily a result of the aggressive bidding which saw Rajasthan getting a tariff as low as Rs 5.5, raising hopes of solar energy reaching grid parity level.

But, as Gaetan Tiberghien, principal investment officer, infrastructure and natural resources, International Finance Corporation (South Asia), points out, companies have been able to make such aggressive bids because of the rapid decrease in costs.

“Bidders have been lucky as they have been able to take the benefit of a fall in costs. But that might not be the case anymore, as costs have stabilised and it could be risky to put in aggressive bids.”

Experts, therefore, warn against over optimism in the sector.

Bridge to India, a boutique consultancy in the renewable energy space, says despite the target of 100 gigawatt, India can realistically install only 31 gigawatt until 2019.

The analysis is based on the market fundamentals and anticipated central and state government policies.

Though SoftBank’s entry may be a heartening news for the sector, the three partners will need to focus to ensure that SBG Cleantech does not fade away just as an idea.

The image is used for representational purpose only; Photograph: Reuters