SECON D
With the rise of the solar market, there has been a constant pressure on Indian developers to churn their capital. To minimize the pressure the developers are laying the foundation for the advent of the secondary market for solar assets by shopping their rapidly growing solar projects to prospective investors. The merger and acquisition (M&A) activity in this sector is slowly gathering pace. According to research firm Mercom Capital solar installations in 2016 totaling 4 GW, financial activity was robust in the fourth quarter of 2016, with approximately $1.1 billion (~Rs.76.6 billion) in announced corporate, project funding and M&A deals.
SOLAR MARKET IN INDIA
N DARY
SECONDARY MARKET In the face of falling bid tariffs, portfolio and minority stake sales inculcate much needed confidence in the market and help kickstart a secondary market for solar transactions Last year in October the India infrastructure fund of IDFC Alternatives bought three solar projects in Rajasthan and Punjab from Punj Lloyd Infrastructure as part of the company’s plan to set up a strong foothold in the renewable energy space through acquisitions — as much as 1 GW in a year or so. The company wants to put together a renewable energy portfolio in 12 to 18 months through acquisitions with a capacity of 500 to 1,000 MW. Greenko Energy Holdings, an owner and operator of renewable energy projects, completed the acquisition of SunEdison’s 587 MW Indian wind and solar projects for a cash payment of $42 million (Rs.2.85 billion) and assumption of project-level debt of $350 million (Rs.23.77 billion) (at an average interest rate of 11.3 percent). Here are some developments in the solar market that took place in the year 2016
Ashish Verma, Analyst at AMP Solar India speaking about the secondary market, said that the Indian Solar Market is expected
to grow at 12-13 GW in a year which majorly comprises Primary Solar Market i.e. Competitive based Bidding Projects under Central Policy and State Policy and 2-3 GWp of Grid Connected Solar Rooftop projects in this calendar year. As Environmental concerns are peaking, Industrial and commercial consumers are suffering from high power tariff and unreliable power supply from DISCOM thus they are shifting to solar as it makes a lot of sense to them in terms of energy saving. He said currently DG sets are having 80-90 GW of market size due to uninterrupted power supply of average 9-10 Hours and blended power cost of Rs. 13-16/kWh at Tier 1 and Tier 2 cities to get out of fear of revenue loss from primary business. LT and HT consumers Primary Industrial and Commercial Consumers are refusing to take costly power from unreliable grid and ready to take the power from open access business model or from RESCOs in Solar rooftop space. These key concerns area i.e. High energy tariff and reliable power supply, energy poverty in rural economy where 40-50 million population still doesn’t have access to modern electricity are forcing market to create secondary market which are in size of few Wp to kWp, off grid solar projects, Micro grids, solar rooftop and ground mount MW scale solar projects for C&I customers and open access. Verma said that other than this 20-30% of operational and high yield project in total installed capacity in every year might open the option of good secondary market as couple of infrastructure asset management companies and investors has started looking in to these options currently. For future growth freeing up capital and investment recycling are the two routes that project developers should opt for. In other countries sale of post-development renewable assets is a time-tested and proven method. According to Bridge to India it is comparatively agile and stress-free with a highly systematic approach, but India does not have the kind of domestic patient capital - typically utilities and pension funds or insurance companies looking for long-term predictable cash flows - needed for buyout of such assets.
Source: Solar Mango
According to a report the sudden gust in the M&A activities is a blessing for India´s solar dream, because, sale of post-development renewables assets is a time-tested and proven method to free up capital but there have been very few successful exits in India. The Indian solar market is shifting gears to move onto the next phase of development and a liquid secondary market is essential for its sustainable growth. Finally, more successful deals and/or listings will help set industry benchmarks, act as a proof of concept, and attract other investors to the sector.
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The pension and insurance funds has been the backbone of secondary markets around the world, however, India stayed away from it so far. Public listing of businesses or special purpose investment vehicle is another viable option with many successful international examples. For the first time an Indian solar power developer Azure Power ventured into IPO. The company raised $61.6 million (Rs.4.18 billion) in its IPO, $75 million (Rs.5.09 billion) through private placement of equity shares and $25 million (Rs.1.7 billion) in a pre-IPO financing says Mercom Capital.
SECONDARY MARKET Approximately $369 million (Rs.25.04 billion) in project funding was announced in Q4 2016. Azure Power secured $309 million (Rs.20.98 billion) in project finance and also secured a $20 million (Rs.1.36 billion) long-term low-cost debt financing facility for 15 years at a cost of capital of 4.74 percent from Overseas Private Investment Corporation (OPIC) says Mercom Capital. So far, Indian renewable IPPs have not been able to gather the scale or profitability to successfully list on stock exchanges. Ezon Energy, a renewable energy project developer and integrator, raised $21 million (Rs.1.4 billion) from a Japanese investor, Natori Nohisa. Bhageria Industries, a manufacturer and supplier of dyes and intermediates, secured $14 million (Rs.950 million) loan for construction of 30 MW large-scale grid-connected solar projects from Export Import Bank of India, and Sam Solar secured a $4.8 million (Rs.325 million) loan from Power Finance Corporation . Solar Acquisition Activity in India
Suzlon entered into a joint venture with Ostro Energy, which is set to acquire a 49% stake in Prathamesh Solar Farms at Wanaparthy, Telangana. Canadian Solar also formed two joint ventures with Suzlon, by acquiring 49 % stakes in special purpose vehicles, to develop two solar projects of 15 MW each in Telangana. As said above, IDFC Alternatives acquired three solar projects from Punj Lloyd Infrastructure totaling 45 MW. French developer of renewable energy projects, Fonroche Energie sold two solar projects totaling 22.3 MW in Rajasthan to Hinduja Group at an undisclosed value. Unisun Energy Group, a PV project investor, developer, and clean energy solutions provider, formed a joint venture with Suzlon, and acquired 49 % stake in Vayudoot Solarfarms project. AMP Solar acquired a 49 percent stake in Rudra Solarfarms, a special purpose vehicle (SPV) set up by Suzlon for executing a 15 MW solar PV project in Telangana. One of the biggest apprehensions of the market has been the lack of secondary capital raising options. Big gap in valuation anticipations of developers and secondary market investors is also the part of the problem. Bridge to India says the competitive bidding nature in the Indian market also makes the margins of premium to initial developers relatively thin, as well as a satisfactory risk adjusted return to secondary investors. But, it seems that things are changing slowly. Strategies To Reduce Secondary Market Risk
In the vibrant Indian solar secondary market the financial benefits of tapping operations and maintenance counsel during acquisition due diligence are being realized by investors. The strategy delineated here is applicable to any region across the world where the solar PV secondary market is robust and investors are looking for ways to hedge risk and increase the long term profitability of their acquired assets. Consolidation in the Indian Solar PV Secondary Market
The solar photovoltaic (PV) landscape in India continues to be
dominated by large utility-scale projects, majority of them are in operation for last two years. According to Mercom Capital, utility scale solar in India has seen exponential growth over the past two years with installations of approximately 9 GW to date, making up about 94 percent of total installations. Tata Power has come out on top with the largest share of operating projects in India, while ReNew Power comes out on top for the largest pipeline of large-scale projects in the country. With a steep fall in module prices over the last six months and slow development of the rooftop market, large-scale project development is expected to continue to make up a majority of solar installations in the country. While developers like Adani and Azure have grown by building project pipelines organically over time, Tata Power and Greenko have taken the route of growth by acquisition. As the large-scale solar market grows, there are plenty of opportunities for entering the space though acquisitions. Currently, there are approximately 200 developers with projects of at least 5 MW or more in operation. The top 20 developers account for almost 60 percent of all operating utility-scale projects in the country. Large conglomerates and private equity-backed pureplay developers are leading large-scale project development. The results points out to solid conditions and potential for the development and growth of a similar consolidation in the India solar PV secondary market, which is currently happening. Secondary Market Acquisition Due Diligence
Acquisition of solar PV plant secondary market is completely different from acquiring a PV plant in development. Investors acquiring operating PV plants can assure strong returns with the extensive knowledge of the right partners during due diligence (DD). Technical Due diligence service providers should scrutinize the solar PV plant targeted by the investor thoroughly. Technical consultants performs these services and have the potential to overlook key details that professional O&M service providers would identify in the plant’s construction and performance history says Alectris . Investors who want to guarantee on the the future performance of a plant should consult reputable O&M firm that can provide detailed assessment of the targeted PV plants. VOL 1 l ISSUE 6 l FEBRUARY 2017 l SAUR ENERGY.COM
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SECONDARY MARKET If investors allow the O&M provider to run the technical DD coupled
• Transformers/MV part (MV UPS, LV UPS, LV main board).
with guarantee performance after acquisition, this strategy will
• Trackers (position-orientation & operation, stability & static
result in big cost savings.
efficiency).
• A experienced solar O&M provider is expected to provide following
• Security system (cameras, beams, magnetic contacts, DVR,
DD services to investors. • O&M service provide authenticates functioning and status of
motion detectors, optic fiber..). • Monitoring system (weather station, pyranometers, GSE meters)
equipment used in the targeted plant. Conduct verification in
• Communication (equipment, quality of internet connection).
the field.
Thermography should be done to check all Modules, Inverters
• Classify flaws or performance faults in the plant.
and String Boxes.
• Advice corrective measures and improvement action that is
Additional in depth measurements and checks:
cost effective. • Serve the plant properly as O&M service provider after the acquisition. • Grant the relevant typical plant performance’s KPI guarantees during operation.
• Junction boxes (strings’ DC fuses, measurements of Voc, Isc or Impp, V-I curves). • Inverters (parameters/limits, AC/DC conversion). • AC/DC cables (measurement of insulation level). • Trackers (efficiency & state of motors, encoders).
The expert from an O&M company, shall grant a completely different
• MV part (MV switch, MV UPS, transformer).
commitment on the assessment and the relevant findings of his in
• Pyranometers (verification of consistency of measured values).
depth analysis since he shall also be required to provide Performance
• Communication (data transfer, connection stability).
Guarantees (typically Performance Ratio and Availability) in case
Report from the phases should summarize the data and findings
he is appointed as the O&M service provider of the inspected
and provide a complete overview of the operational status of the
plants after their positive acquisition.
installation.
For most of the solar assets, technical and legal due diligence are done at high level and during numerous phases of the asset’s life cycle. In the secondary market investor’s risk intensifies unless detailed equipment reviews are performed. While the legal or high level technical risk is thus quite limited or in some way “controlled,” analysis of plant equipment becomes critical. Given the value of the investment the imperative becomes the reduction of any kind of operational surprise and future corrective costs after plant acquisition. Knowing the weakness of the targeted plants before acquisition will allow the investor to save money on the acquisition itself. Technical Details in Field Due Diligence
On the completion of the DD on the entire plant operation and
According to Alectris investor risk can be minimized by following
performance, investors will get confidence to move forward with
critical in field DD evaluation steps; it is also expected to minimize
the plant acquisition.
investor expense.
Solar energy now accounts for 1 percent of the total electricity
O&M due diligence scope of work includes:
generated in India and 14.3 percent of total renewable power
Analysis of Built vs Detailed Engineering and EPC contract
generated in the country. During the eight-month period from
• PV plant layout, Flash Tests, Wiring plan, Electrical drawings,
April to November in 2016, solar accounted for 8,436.06 million
Design documentation.
units of electricity.
• Confirm if the Plant has safety regulations and applicable norms
With the acquisition of Welspun Renewables’ portfolio, Tata Power
Check Plant’s equipment on site.
is the top Indian solar project developer with operational utility-
• PV modules (string connections, string boxes, broken/defect
scale projects accounting for over 850 MW, almost 10 percent of
modules).
the market, according to Mercom’s Solar Quarterly Market Update.
• Inverters (operation & state, existence/operation of DC/AC surge
With several large installations, Adani has jumped up to second
arresters).
spot with almost 800 MW and 9 percent of market share and is
• DC cables (state, sufficient holding).
expected to take the top spot in 2017.
• Mounting system (tilt position, state).
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- Santanu@saurenergy.com
While perennial sinking prices of renewable energy systems, integrating technologies such as photovoltaic rooftop systems and solar farms into regional grids will require energy storage in the form of batteries and other technologies for load continuity. Currently, about 1.2 billion people in emerging economies lack access to electrical power. The World Bank report claims that the traditional centralized grids are not cost effective at providing even basic electrical service to underserved populations in a reasonable amount of time. By 2030, it is estimated that $45 billion will need to be invested to provide universal access to modern electric power. Microgrids, which can serve the power needs of small towns or cities as well as commercial and industrial complexes, can also connect or disconnect from primary power grids.
HOPE FOR MICRO GRIDS
MICROGRIDS
India Charging for Microgrid India Energy Storage Alliance (IESA) estimates that India has installed over 2,000 AC microgrids of over 5 kW by 2016 and over 10,000 DC microgrids with the majority sized at less than 1 kW. There are many challenges which have restrained growth of this sector including numerous financial, technical and social limitations. Different funding agencies have mentioned that most of the technical challenges are not yet known to them. Project operators at several occasions do not have clear answers themselves to recognise why microgrids are prematurely failing or operating at lower efficiencies. Creating a micro-grid requires building a micro distribution network with wires and metres. Large-scale utilities are plagued by theft and a lax payment mechanism and these problems transfer to solar micro-grid providers. To reduce theft, the workarounds that businesses adopt are often incredibly inefficient. India’s Quizzing Microgrid Plan India plans to develop 10,000 renewable microgrids and mini-grids to help bring electricity to 237 million people living in energy scarce areas. The Ministry of New and Renewable Energy (MNRE) calls for 500 MW of installations by energy service companies (ESCOs). The ministry elaborated microgrids as renewable-based distributed generation under 10 kW which can operate on a stand-alone basis or connected to the central grid. Mini-grids are the same blueprint
with over 10 kW. Funding for the installations would come from the federal government, states and commercial sources. To encourage ESCOs into the market, the ministry plans to set up a special category of private developer/operator known as Rural Energy Service Providers. The RESPs would receive special incentives and privileges, including upfront capital from the ministry and streamlined approvals. Project developers would become RESPs under a phased process. Before they receive the designation, they can install 10 projects (up to 200 kW) with ministry incentives. The government will then evaluate the performance of the microgrids and mini-grids for two years. If they are deemed successful, the developer earns the RESP title and can install more microgrids and mini-grids. The ministry envisions a large pool of RESPs forming to build and operate the microgrids and mini-grids. Those that work in areas where there is no or little grid access would receive funding preference. The ministry also explored ways to boost financial lending for the projects, and is encouraging financing through institutions like the Indian Renewable Energy Development Agency and the National Bank for Agriculture and Rural Development. Developers may build either AC or DC projects. Worldwide, Nearly 1,700 Microgrid Projects are Ascertain A new report has tracked data on known grid-tied and remote microgrid projects in the proposal, planning, and deployed stages across six geographies, with details on capacity, project numbers, and rankings. North America is strengthening its claim as the leading region in global operational microgrid capacity with a 54 percent market share. North America and Asia Pacific account for 95 percent of the new project capacity, and the United States leads all countries in terms of both capacity and total number of projects. The report
identified 1,681 project entries, representing 16,553 megawatts (MW) of operating, under development, and proposed microgrid capacity and 126 new projects. “The combination of solar photovoltaic (PV) and energy storage in microgrids isn’t just a fad—these two renewable technologies have been a driving force in the microgrid industry for years and their role continues to expand,” says Adam Wilson, research associate with Navigant Research. “With solar PV reaching grid parity with other traditional generation technologies, we see it move beyond remote systems, and the combination of energy storage and solar PV is becoming a more frequent combination across all segments and regions.” Three of the most noteworthy additions to this edition of the Tracker include the 100 MW energy storage project in Andhra Pradesh
India; 83 MW of solar PV and energy storage in Imperial Valley, California; and an 80 MW remote project in Newcastle Australia that includes diesel as well as solar PV and energy storage. According to reports, energy storage capacity increased by 238 MW in this update and solar PV capacity increased 203 MW, compared to 108 MW of diesel. The Veristic Economics of Microgrids The relationship of MicroGrid with the distribution system is an integral part of MicroGrid economics. The operational constraints of MicroGrid economics might not be alike to those of centralized power system economics. A real time price signal for successful interface between customers and distribution utilities can be provided in a MicroGrid which helps to achieve optimal use of resources by both MicroGrid and distribution/utility-side grid. There are various benchmarks available on the various operational aspects of different DG resources. The focus is now on the challenges to be faced in dealing with the adoptability of these DG/DERs in a MicroGrid. The biggest hurdle of adoptability concern is the economic viability in selecting a particular model/technology and implementing it with the intent of spurring its continued usage for a sustainable future growth. Hence, technical challenges and requirements need to be addressed fully for their continuous usage. They include the co-ordination issues of DG/DERs etc., and successful parallel operation of MicroGrids with distribution networks. Mainly, technical challenges can be dealt based on the study and analysis of the existing MicroGrids all around the world, and by using the amassed knowledge on power system operations of large-scale grids. It is known that technical challenges of MicroGrid operation can be linked to the economic issues. Hence, it is required to apply the combination of basic economics of optimal investment and available technologies in the operation of MicroGrids. Is Microgrid as a service the Model for India? According to the market research firm, the micro-grid as a Service Market is registering healthy growth due to various benefits offered by micro-grids such highly reliability, economical & efficient energy power, enhancement of renewable energy sources and smart grid integration among others. The autonomous working nature of microgrid provides great benefits to communities that have no access to electricity. The Solution also provides dynamic monitoring, scalability, and control to improve energy output. Micro-grid as a solution offers electricity at affordable rate and helps in reducing the economic losses from electricity outages in emergency situation. Some of major key players in Micro-grid as a Service Market such as ABB VOL 1 l ISSUE 6 l FEBRUARY 2017 l SAUR ENERGY.COM
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MICROGRIDS Ltd. (Switzerland), General Electric (U.S.), Siemens AG (Germany), Eaton Corp. PLC (Ireland), Schneider Electric SE (France) among others are investing in renewable energy solution such as micro-grid thus supporting the market of micro-grid as a Service. How Important is IESA and the European Space Agency Collaboration? The new initiative will support feasibility studies which identify and explore business opportunities for deploying services based on Satellite Communications, Earth Observation data, and/or other space assets to support the decentralized management of microgrids in India and other developing countries. The study is expected to culminate into a funded microgrid pilot project demonstrating the potential of above services. Requirements from Indian microgrids stakeholders will be collected by IESA and provided by ESA to the consortia whose proposals are accepted. India Energy Storage Alliance (IESA) has recently launched the "Microgrid Initiative for Campus & Rural Opportunities (MICRO)" whose main goal is to reduce electricity cost for microgrid consumers by 30-50% within next three years through technological & policy innovation. MICRO aims to develop microgrids as an enabler for economic transformation of regions currently suffering due to poor access to electricity. The IESA team believes that microgrids in India, has vast potential to transform the economic landscape in rural India as well as provide improved power quality for consumers in urban townships to critical infrastructures like hospitals and university campuses. To achieve this dream, the sector would need to be organized. The MICRO portal that brings together microgrid developers, technology providers, financing partners and local community was launched at a workshop at IIT Bombay on 19th August 2016. IESA is also working with partners such as Global Energy Storage Alliance and Alliance for Rural Electrification to extend this initiative to Asia and Africa, offering a tremendous commercial opportunity to developers and service providers. Around the Globe for Microgrids – A Glimpse ERock inks $240-$335M Genset Deal to expand Reliability Microgrid Enchanted Rock (ERock) has signed a deal for $240-$335 million of natural gas
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generators for its reliability microgrids. The deal comes as the microgrid developer continues to find traction for its reliability microgrid concept in Texas and moves to expand elsewhere in North America. Power Solutions International (PSI) and its subsidiary Professional Power Products (3Pi) will provide the gensets under a mutually exclusive deal. ERock installs natural gas gensets in microgrids at customer sites, which it aggregates into virtual power plants. The aggregations provide ancillary services to the central grid. Revenue from the grid services offsets microgrid costs, so ERock is able to supply customers – most recently stores — with reliability at a discounted price. The microgrids provide back-up power for the customers. ERock’s growth projections for Texas support the genset contract. But the company is working on deals beyond the state, including in Canada and New York. ETAP Microgrid System Software Extend Aruba’s 100% Renewable Thrust With reliance on imported fuel oil for its energy needs, Aruba’s utility rates are approximately $0.28 per kilowatt-hour (kWh), below the Caribbean regional average of $0.33/kWh, according to NREL. Now it plans to engage in the next solar project for the island may be an airport microgrid. Aruba’s plan includes building new solar and wind farms, waste-to-energy conversion, and enhanced energy efficiency. Aruba already sources about 40 percent of its energy from renewable sources. WEB Aruba is the power generation company on the island, and N.V. Elmar is the distribution company; both
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are government owned by Utilities Aruba. An energy demand reduction program is underway as the government continues to upgrade all public lighting with energyefficient LED technology. Because 50% of Aruba’s energy demand comes from cooling, the utility installed a pilot ice storage cooling system that makes ice at night when electricity costs are lower. The ice is then used the following day to cool buildings instead of traditional air conditioning, NREL reports. ETAP, which released the latest 16.0 version of its software in November, provides a widely-used product for modeling, design, analysis, optimization, monitoring, control, and automation software for electrical power systems. Microgrids still has to ply a highway to go in overcoming certain snags. There is a strong regulatory framework for encouraging the independent renewable energy generation which constitutes the building blocks for MicroGrids. The current on-going rural electrification programs are mainly with the renewable generation. But in large, the modification of the country towards a new way to tweak distribution systems looks promising. MicroGrids can provide excellent local ancillary services in voltage support and others for end-users. These distinct aspects can be utilized properly for encouraging the MicroGrids. And Modiled government and associated regulatory bodies has well understood eminence of the changing quantum’s on how power is generated and efficiently distributed.
- Niloy@saurenergy.com
Annual maintenance contractors Installers / EPC companies Inverters Manufacturers of solar cells Materials and equipment Module connectors Monitor, Mounting Systems, Trackers Photovoltaic (PV) modules Project consultants Smart Grid Technologies
Solar cell manufacturers Solar consumer and commercial products Solar energy storage Solar LED’s Solar park developers Solar street and billboard lighting systems Solar water heating, cooling systems and solar pumps Suppliers of raw materials System integrators and assemblers Turnkey solution providers, etc.
INNOVATIONS