As the Indian rooftop solar market grows, it is attracting more attention from investors and financiers. Shell is rumoured to be entering the market in partnership with Fourth Partner, a leading rooftop solar EPC. Several other prominent IPPs, international developers, contractors and PE investors seem to be actively interested. Access to both equity and debt capital has improved significantly addressing one of the key market constraints.
- Rooftop solar is growing steadily and expected to become a 3 GW market annually by 2021 as per our projections;
- Growing market size and intense competition in utility scale solar are drawing new players to the market;
- More favourable policy environment is needed to reduce risks and sustain financing interest;
Despite its 40% share in the national solar target of 100 GW, rooftop solar share has been stuck at a lowly 10% of total solar capacity addition. In 2017, it grew by an estimated 924 MW as against total solar capacity addition of 9,225 MW. But changing fortunes of utility scale solar – set to register negative growth in 2018 (-27%) – are proving beneficial for rooftop solar. We expect rooftop solar to grow by 45% in 2018 with its share in total solar installations rising to 18%.
Lack of equity capital has been a major constraint for the OPEX market, which has been a cozy club between CleanMax, Cleantech Solar and Amplus. Other investors have shied away from the market or failed to raise sufficient capital. They have been put off by small market size, formidable execution challenges and high default risk of private C&I customers – falling cost profile creates a strong possibility that they may stop honouring higher priced PPAs at some point in future. Poor legal rights of developers offer little mitigation against this risk. But growing market size and intense competition in utility scale solar are drawing new players to the market. ReNew has been investing heavily in the business. Tata Power, Mahindra, Sterling & Wilson, Sembcorp, Engie, Statkraft and Mytrah are also increasingly interested in this market as are some PE investors.
Debt financing remains tighter in contrast although availability has improved over the last year. The Indian government has arranged concessional lines of credit aggregating INR 88 billion (USD 1,375 million) from the World Bank, ADB and the New Development Bank. State Bank of India has been quick to operationalize the World Bank line with sanctions of INR 23 billion (USD 362 million). Other facilities are also expected to ramp up shortly. We also expect some private non-banking finance companies (NBFCs) to enter the market with standardized financing solutions for residential and SME customers.
Improved funds availability is a big boost for rooftop solar. But there should be no doubt that this market remains challenging. There has been no underlying improvement in risk profile or execution challenges. Growing competition for blue-chip customers is driving margins down. The weak policy framework has failed to support the 40 GW ambition. It remains to be seen how many of the new entrants can sustain their interest and build up scalable rooftop solar businesses.
