CLP Group Enters the Indian Solar Market — Bold Entry Backed by a Unique Business Model

Published on 31 May, 2016

Indian Solar Market

Hong Kong’s CLP Group is optimistic about the Indian solar market, with talks underway to acquire a sizable portion of India-based Suzlon Energy’s 100 MW solar park project in Telangana, India.

After establishing itself in the Indian conventional and wind energy industry, this acquisition represents the group’s first foray into India’s solar market.

The Hong Kong-based CLP (formerly China Light & Power) group recently announced its intent to invest USD 1 Billion in the Indian solar industry, setting up a ~1 GW production capcity over the next 3 to 4 years. The company aims to achieve this by bidding for projects under the Jawaharlal Nehru national Solar Mission (JNNSM) as well as by investing in projects bagged by other firms.

The group’s Indian subsidiary is in talks to finalize its entry into the Indian solar industry through an acquisition.

Suzlon Energy won tenders for a cumulative 210 MW worth of solar PV projects in the state of Telangana via competitive bidding processes in January this year, signing Power Purchase Agreements (PPAs) with the state utility Telangana State Southern Power Distribution Company Limited (TSSPDCL). This represents Suzlon Energy’s first foray into the solar energy sector, and they’re leveraging their wind business model of developing and deploying projects.

Suzlon’s planned cumulative capacity of 210 MW includes a 100 MW solar farm that CLP is looking to acquire.

The deal may be announced in a couple of days if everything is finalized.

The Telangana project represents a sizable chunk of the PV projects that Suzlon Energy plans to undertake this year.

Suzlon Energy Telangana

Suzlon Energy Telangana

Source: PV Magazine

In addition to the 100 MW project, Suzlon Energy bagged additional projects for a 50 MW and four projects of 15 MW each. All these six projects would be developed under separate Special Purpose Vehicles (SPVs).

Suzlon Energy plans to oversee the 100 MW project itself, handing over the other five projects to five of its recently acquired subsidiaries:

  • Amun Solar Farms Private Limited
  • Avighna Solar Farms Private Limited
  • Prathamesh Solar Farms Private Limited
  • Rudra Solar Farms Private Limited
  • Vayudoot Solar Farms Private Limited

Suzlon plans on commissioning these projects in FY 2016-17.

The 100 MW project in consideration is worth INR 800 Crores and needs INR 150 Crores in terms of equity, with the rest being financed through debt. CLP India would initially acquire a 49% stake in the project so as to comply with PPA norms. CLP may then acquire majority control a year after commissioning the project, or perhaps even buy Suzlon out entirely. Suzlon will, however, remain involved in the Engineering, Procurement, and Construction (EPC) phase.

This is a business plan that defies the norm.

Developers in the solar industry normally bid for various projects, then handle the EPC phase through to completion either on their own or by leveraging specialized EPC companies.

Suzlon’s business model on the other hand is based on winning bids for such projects, developing them, and then looking for potential investors who would be interested in taking over a majority or complete ownership of the project.

Suzlon has perfected this model in its wind business, and it hopes to replicate that success in its fledgling solar endeavor as well. The company is in the process of monetizing its first 100 MW solar park through this deal with CLP India. Both stakeholders will mark their entry into the Indian solar industry with this project, and a fairly new business model to boot.

With India’s 2022 solar target and the recent World Bank push to distributed PV technology, this may just be the shot in the arm that boosts the country’s solar park-level projects. Having EPC players as key partners would go a long way toward easing investors’ apprehensions with such projects as well.

This model has proved beneficial for such players in the wind energy sector, allowing them to focus on their core competencies and deliver value across the value chain.

Whether the same holds true for the solar value chain (and its profitability) for both players remains to be seen.

It’s definitely a step in the right direction though, and looks promising enough to generate interest with various stakeholders.