Pressure on developers to build renewable projects amidst financial insecurity
October 12, 2017
It's raining funds in Indian renewable sector and solar/wind developers are piling up projects after projects still uncertain about the capital cost required and the returns these projects will yield over a long period of twenty five years (a standard duration of a power purchase agreement between the generators of electricity and its buyers).
In a race to win projects by quoting lowest bids, developers have not shied away from putting up tariffs for future power generation as low as equivalent to to internal rate of return of 10%, threshold for keeping the business alive. Till now this trend was only visible in solar sector but the last three auctions in wind sector have confirmed that it too has been contaminated by the ongoings in solar sector.
What could be the reason that instead of halting activities for a while and evaluating current financials of the company, developers are not only bidding at any cost but are setting new records with every passing tender floated by the government, the proof of which we often see in the newspapers.
Multiple factors are cited to justify what's really happening.. dynamics of module pricing, cost reductions as expertise in technology and mass development/production arrive and most importantly (personal views) an almost inevitable hope that few years down the line a financial giant will buy these projects and the woes of suffering losses in the long term perspective can be unseen as of now.
The underlining factor in all the above statements is that you can not sit idle and do nothing after receiving money literally in sacks. So, you acquire development rights of renewable projects just to justify the funding that have been received.
USA, Japan, China and European nations through banks and financial institutions have been pouring in money in Indian renewable sector since last five years and all in the name of climate change and India and Indians are receiving that with open arms not giving a second thought about the flows of these cash deposits; again, the mindset is that it's just a five year game and make as merry you want till the time runs out.
I hope i have raised the right issue and that by the time i start figuring out which key to press on my laptop i'll have the solution too. Till then.. be safe..be happy!!