With 54 cities to be developed as ‘solar cities’, there are chances of investments picking up in the renewable energy sector, says Sujay Mehdudia

Fifty-four cities across India have received in-principle approval to be developed as ‘solar cities’ by the Ministry of New and Renewable Energy.

The draft Master Plans have been prepared for 28 cities, of which eight have been approved by the Ministry for implementation; the development of projects is in progress in Agra and Moradabad (Uttar Pradesh), Thane and Kalyan-Dombivli (Maharashtra), Indore (Madhya Pradesh), Kohima (Nagaland), Aizawl (Mizoram) and the Union Territory of Chandigarh.

An amount of Rs. 19.23 crore has been sanctioned for preparation of Master Plans, solar city cells and promotional activities for 41 cities, out of which Rs. 4.22 crore has been released. Further, an amount of Rs.11.98 crore has been sanctioned for execution of renewable energy projects in five cities, out of which Rs. 3.87 crore has been released.

According to New and Renewable Energy Minister Farooq Abdullah, the criteria set by the Ministry for the identification of cities include a city population between 50,000 to 50 lakh (with relaxation given to special category States, including the north-eastern States), initiatives and regulatory measures already taken along with a high level of commitment in promoting energy efficiency and renewable energy. Dr. Abdullah said renewable energy has the potential to be cost effective with advancement in technologies and economies of scale. Power generation from renewable is at present generally more expensive than that from conventional sources. While cost of power generation from wind, biomass and small hydro are comparable with cost of power from conventional sources, solar power may take some more time to achieve grid parity.

The total installed capacity of renewable energy-based power in the country is 26,267 MW. A capacity addition of 30,000 MW is proposed from renewable energy during the 12th Plan period. The Ministry is supporting research in various renewable energy technologies for improvement in efficiency, reduction in cost and to develop new applications. Meanwhile, global venture capital (VC) investments in the solar sector have touched a five-year low — down by nearly 50 per cent in 2012 to $992 million involving 103 deals compared to $1.9 billion raised from 108 deals in 2011.

“The slowdown in VC funding can be attributed to the grim prospects for thin-film, concentrating solar and concentrating PV technologies,” Mercom Capital Group managing partner Raj Prabhu said.

The thin-film companies saw the largest amount of VC funding in 2012, although the total fell by 47 per cent to $314 million compared to almost $600 million in 2011. During the past three years, thin-film companies have received the most VC funding, with almost $1.5 billion. “The diminished funding activity is not a true reflection of the health of the solar sector, because the demand side of global solar installations has continued to grow,” Mr. Prabhu added.

Corporate merger and acquisitions (M&A) activity in solar industry amounted to $6.7 billion in 52 transactions compared to $4 billion in 65 transactions in 2011. “It was a buyer's market in 2012 — acquirers were targeting distressed companies with the goal of buying technology or equipment on the cheap. More than half the 52 M&A deals in 2012 involved solar manufacturers and equipment makers,’’ he said.

VC funding in Q4 2012 came in at $220 million in 27 deals compared to just $72 million in 14 deals in Q3. Twenty-five investors participated in the 27 deals in Q4, and no investor was involved in multiple deals. About 35 solar companies filed for insolvency or bankruptcy protection over the course of 2012.

More than 70 per cent of these companies were active in manufacturing and all but a few were based in Europe and the U.S. Thin-film manufacturers accounted for nearly 40 per cent of the bankruptcies.

The ‘solar cities’ project, however, may help to boost investment in the sector.

While the cost of power generation from wind, biomass and small hydro projects are comparable with the cost

of power from conventional sources, solar power might take some more time to achieve grid parity.