As India positions itself as a major global hub for solar power and more money flows into the industry, smaller players are likely to emerge as attractive targets for companies looking to gain scale. The government is targeting a 20-fold rise in sun-power generation to 20 gigawatts (GW) by 2022 as it looks to counter an average 9% power shortfall that shaves about 1.2 percentage points off annual economic growth.
“Consolidation is likely to happen in the industry over the next five years,” said Santosh Kamath, Partner and and Lead Renewables, Energy and Natural Resources at KPMG. “Smaller players will find it difficult to be competitive. Scale will become important.”
Director European Business and Technology Centre Poul Jensen agreed that the highly fragmented industry is likely to consolidate around the world over the next few years. He expected increased collaborations between Indian and European firms, where subsidy cuts in key markets like Germany and Italy have resulted in a global oversupply of solar panels.
“India as a market has enormous potential. It makes sense for European companies to enter through strategic collaborations with Indian solar companies, who have an understanding of the market,” said Jensen, who was in Mumbai to announce tie-ups between Belgium’s Ikaros Solar and Pune-based Intellux Electronics, as well as Italy’s NewEn and Kolkata-based Enfragy Solutions.
As the focus on renewable energy grows in India, PE funds are rushing to invest in the solar power industry. PE investment in India’s solar power sector was $4.2 billion last year, a seven-fold increase from 2010.
Developing renewable sources of energy, such as wind and solar, would help combat a shortage of coal and gas used in conventional thermal plants.
Moreover, solar power, considered a clean source of power generation, earns carbon credits which are traded in international markets.
Recent transactions in the industry include Argonaut Ventures, Bessemer Venture Partners and New Silk Route Partners’ $50 million (R275 crore) investment in Kiran Energy in late 2011. Azure Power received $4.6 million from the World Bank Group?s International Finance Corporation (IFC) in June. Asian Development Bank in April said it would lend $103 million to the Anil Ambani-controlled Reliance Power to fund a solar power project in Rajasthan.
Bangalore-based solar products maker Anu Solar is on the verge of roping in PE investment. It is in talks with private equity firms to sell a 20% stake in the company. ?We have seen a lot of interest from PE funds. Around 30 parties have shown an interest and we will select the best deal with the help of our adviser Ernst & Young,? Anu Solar?s managing director Joseph told FE.