As the solar industry has grown in India, the engineering, procurement, and construction (EPC) services have evolved with increased competition.

Most of the EPC players have been forced to cut their margins due to aggressive bidding and the additional cost of safeguard duty. Because of safeguard duty, financing difficulties, land, and regulatory issues, EPC players commissioned a lower number of projects than previously forecasted in 1H 2019. The project pipelines of EPCs have become weaker as competition has intensified with new EPC players entering the market with aggressive pricing. Many large developers have also brought the EPC services in-house to save on costs.

This has made it difficult for small EPC players to sustain the pressure and remain in the market. Most of the smaller players do not have the financial capability to develop large scale projects and are shifting to rooftop solar.

Rays Power Infra was the 5^th largest third-party EPC player by cumulative capacity as of the first half of 2019, according to Mercom India Market Leaderboard 1H 2019.  Established seven years ago, the company has come a long way and is now an established player in turnkey solar EPC services space.  Speaking to Mercom, Rahul Mishra, CEO Of Rays Power Infra, spoke about the expectations of the company from the solar market in 2020 and the challenges faced by EPC players.

What are your thoughts on the current market conditions?

The solar sector has witnessed a lot of backward steps from the state governments/utilities. For example, Andhra’s issue of not honoring PPAs, the state withdrawing banking retrospectively on open access projects, delayed payment cycle by Telangana utilities, net metering withdrawal by many states for rooftop project, and others.

This has adversely affected the growth of the solar sector, the investment cycle, and debt disbursements. While the central government is trying to push things in a positive direction to attract more investments in the industry, the states are not responding positively. I believe the sector is currently in a state of change and will gradually come out of this challenging situation. Over the next couple of years, with lenders push and regulatory reforms, the sector will see the growth again with significant investments coming into solar, storage, and hybrid technologies. Also, larger reform is required from the center towards transmission and distribution, which will foster the overall growth.

How is the price competition? Have the margins improved?

Currently, the pricing is slowly normalizing to sustainable levels, which can be more bankable on the IPP side, making projects financeable and acceptable to the lender community, and a bit of over-aggression seems to be stabilizing. Also, given the market conditions and limited debt financing availability, the developers have been a bit more cautious about bidding. On the EPC end, the competition is still fierce, and the margins have deteriorated, given the competition.

What is your unique value proposition as an EPC company?

Rays Power stands unique because of its development capabilities, along with being an EPC company. We have strong project development capabilities across over 12 states in India and have acquired more than 10,000 acres of land across states in India and developed and commissioned projects over 900 MW under both utilities and C&I (open access and rooftop) business. Not may EPC companies have development capabilities at scale for both utility as well as C&I (open access and rooftop) businesses.

What are some changes needed for the market to improve?

The center and the state need to work together in improving investor sentiment and boosting confidence in the sector. Also, the lenders need to be encouraged to lend to the industry and this can only happen with state utilities making payments on time and honoring all PPAs. The recent intervention by the central government for opening of LCs for procurement of power is a positive step, and the same needs to be enforced for all in-firm renewable energy PPAs within all states for projects under operation in the state and selling power to the utilities of the same state. Similarly, the state regulatory commissions’ appointments should be managed by CERC or the center rather than the state governments to make it completely independent from the state government.

How do you see the Indian solar market going into 2020?

The solar sector promises growth, and we are looking at an enormous scale for all stakeholders. 2020 should move in a positive direction as the first building block of the new decade. We are likely to see consolidation on the generation side with large, deep-pocketed equity-backed platforms taking the lead on capacity addition and building quality energy platforms.

Image credit: Rays Power Infra